IS FOREIGN DIRECT INVESTMENT (FDI) IN

RETAIL SECTOR GOOD FOR INDIA?

Team: 1.Mr. Kuldeep Chaturvedi

2.Mr. Manish Goyal
3.Ms. Tanu Thakran
4.Mr. Aditya Bundela

Team Leader: Mr. Aditya Bundela

Unit: Nalwa Steel and Power Limited, Raigarh,

C.G., India
Retailing

 All the activities involved in selling goods or services directly

to the final consumers for personal, non-business use.
 Unorganized retail : 92% of the total retail market
 Organized retail : 8% of the total retail market
 Front end and Back end activities : Integrated supply chain

Source: India Brand Equity Foundation

Characteristics of Indian Retail Sector

 Primarily unorganized
 Highly fragmented
 Food retail is its largest division – 63% of the total retail sales
 Huge potential to grow: India’s consumer market is expected
from US $991 billion in 2010 to an estimated US $ 3,584
billion in 2020. (Source: The Boston Consulting Group, 2012)
Foreign Direct investment (FDI)

 Investment of a company in a foreign country either through

acquisition or establishing a new operation in that country
 The following are the regulatory bodies for FDI
 Government Of India

 Foreign Exchange Management Act, 1999

 Reserve Bank Of India

 FDI Policy in Retail in India
FDI IN SINGLE BRAND RETAIL
 Only single brand products to be
sold.
 Products to be sold under same
brand all over the world.
 100% FDI allowed in single brand
retailing.
 e.g. Adidas, Nike etc.
FDI IN MULTI BRAND RETAIL
 Minimum investment to be done is
$ 100 million.
 50% investment to improve back-
end infrastructure.
 30% of the total raw materials to be
procured from small and medium-
scale enterprises in India.
 Can be set up in cities with a
population of at least 10 lakh.
 Government has the first right to
procure materials from the farmers.
 E.g. Carrefour, Walmart.
Video
Benefits of FDI in Indian Retail Sector

 Infusion Of Capital
 Reduced Wastage Of Food
 Benefits To Farmers
 Govt. Earnings Through Taxes
 Variety And Quality Of Products
 Employment Opportunities
 Higher Consumer Wellbeing
 Technology Transfer
 Benefits To Local Suppliers And Domestic Manufacturers
Myths and Truths About FDI
1). Favorite Destination for Retailers in India
 Myth – India is not ready for organized retail yet!
 Truth – But a clear pan India appeal shows India is ready to host retail
without fear or favor.
Myths and Truths About FDI

2). Organized Retail v/s Unorganized Retail

 Myth: Organized retail eats up unorganized retail.
 Truth: Taking example of China, it has just about 20 percent of organized retail
which means that organized retail has not reduced unorganized retail.
 Employment in the retail and wholesale trade increased from about 4% of the total
labor force in 1992 to about 7% in 2001.
 The numbers of traditional retailers were also increased by around 30% between
1996 and 2001.
 In 2006, the total retail sale in China amounted to USD 785 billion, of which the
share of organized retail amounted to 20% only, the rest was unorganized retail.
 Over 600 hypermarkets were opened between 1996 and 2001.
 The number of small outlets (equivalent to ‘kiranas’) increased from 1.9 million to
over 2.5 million
 Employment in the retail and wholesale sectors increased from 28 million people
to 54 million people from 1992 to 2001.
Myths and Truths About FDI
3). Can organize and unorganized retail work together in India?

 Myth: Retail is no big deal in India? Where are the numbers that matter?
 Truth: India is poised to be the key driver for retail market globally co-existence
of organized and un-organized growth.
 As per Global Retail Development Index (GRDI) 2012, some points that make
India 5th spot in the GRD after Brazil, Chile, China and Uruguay are:
i. High saving and investment rates.
ii. Fast labor force growth
iii. Increased consumer spending.
iv. Valued currently at $450 billion dollars, Indian retail is pegged to grow by 5.8 per
cent in 2014 at about the same rate as Thailand, and next only to China (11.7 %)
and Vietnam (9.8 %).
Video – Myths & Truths
Conclusion
 Small retailers will not be crowded out, but would strengthen
market positions by turning innovative/contemporary.
 There will be initial and desirable displacement of middlemen
involved in the supply chain of farm produce, but they are
likely to be absorbed by increase in the various auxiliary
businesses induced by organized retailing.
 Farmers will get another window of direct marketing and
hence get better remuneration.
 Consumers would certainly gain from enhanced competition,
better quality, assured weights and cash memos.
 Employment will increase and new areas of employment will
come up.
Video – Voice of people