A Study on Appulse of FDI in Indian Retail

Sector
CHAPTER-1
INTRODUCTION AND DESIGN OF THE STUDY
1.1.

INTRODUCTION
The Indian system of administration and governance is impregnated with flaws like

shortages of power, bureaucratic hassles, political uncertainty, and infrastructural deficiencies

.In spite of all these political shortcomings, India is perceived to be one of the most lucrative
grounds for investing, in the eyes of the wealthy European as well as American investors.
Various Indian market sectors have experienced a recent progress and boom, owing
to the investment made in them as well as due to the relaxation of rules and regulations that
had been levied on the foreign direct investment in India, by the Indian government. One of
such sectors of the Indian economy that has seen a sudden booming phase of prosperity and
sustained growth, owing to these factors is the real estate as well as the construction business
in India. It was the year of 2005, when the Indian Central government finally realized the
economic prosperity that foreign direct investment in India would bring about. Thus, in an
effort to encourage this, the government made a crucial amendment to some of the governing
laws on the subject, in order to allow one hundred per cent foreign direct investment in India,
in the real estate and construction sector. Until this point of time, the Indian law permitted
only the non resident Indians (NRIs) or persons of Indian origin (PIOs) to make foreign
direct investment in India. Even these people had been levied with many restrictions. With
the upliftment of these restrictions, a host of foreign investors and companies stormed India
with their products, services and business ideas along with their money. This money in turn
helped the Indian economy to grow in volume as well as statures.
The Indian economy has been booming ever since Indi a came out of the shackles of
imperialism and emerged as a politically, socially as well as financially independent nation.
Although India attained its freedom more than about sixty years ago, the emergence of the
Indian economy on the global scene has been a rather recent development. This is because of
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the realization of the true economic growth potential of India, by the foreign investors as well
as business houses. Till about the recent times. India continued to be a whole soul
agricultural economy, which had been impregnated with various types of beaurocracy,
exploitation and corruption. In spite of this, the westerners saw tremendous potential in India
to develop as an economically strong adobe for investment and ploughing in of cash in order
to start off a new venture. But till recently, there were various jurisdictions prevalent in the
code of law in India that prevented the full strength inflow of foreign direct investment in
India. But fortunately for all, the Indian government was quick to realize the actual potential
embattled in the Indian economy and what was holding it back. Thus finally in the year 2005,
the Indian central government passed a jurisdiction allowing a cent percent foreign direct
investment into the Indian economy, in various sectors.
This was one of the major steps taken into the direction and it opened the doors for a
number of foreign investors to come to India and plough in their money into various
segments of the market. The sectors of the Indian economy to benefit the most from this were
telecom, automobiles, retail, real estate and construction business. Of lately, other sectors
such as pharmaceuticals as well as chemicals have also seen the magic of foreign direct
investment. There are still some sectors like arms and ammunitions, transport and railways
etc, which are still prohibited to entertain any type of foreign investment.
Apart from the government laws and jurisdictions, there are various other factors
behind the success of foreign direct investment initiatives in the country. The most crucial
factors include the tremendous support base provided by India to aid the success of the
projects laid out by these foreign investors. The unending supplies of electricity and water
services and facilities are one of the most crucial components of these. This has been possible
as India is blessed by nature with a host of ever flowing rivers, which are like the lifeline to
every activity that takes place in India. Apart from this, various types of raw material desired
by these manufacturing projects such as coal, metals, minerals etc. are available abundantly
in India .Thus, the instant availability of these raw materials is crucial in saving any kinds of

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delays and cutting down cross. Another favorable factor in India is the availability of a large
workforce, which majorly dwells in villages and rural areas of the country.
Many major industrialists and business tycoons expanded their businesses to India
with the boom of foreign direct investment in India. Some of the major foreign investment
houses, that have shown trust in the Indian economy, are Lee Kim Tah Holdings, Salim
Group from Indonesia, Edaw Ltd., from USA, Emaar Group from Dubai, IJM, CESMA
International Pvt Ltd, Ho Hup Construction Co., from Malaysia, Evan Lim and Keppel Land
from Singapore etc. Japanese and Korean firms and businesses houses like Suzuki, Hyundai
and Daichi have always trusted the automobiles as well as the pharmaceutical sectors for
foreign direct investment. Many of the Indian sectors have thus benefited from these foreign
direct investments, and in turn given lucrative returns to the investors as well. This is the
reason why most of the investors keep looking towards India as a venue for investment.
The future prospects of these foreign investors in India look a bit gloomy at the
moment due to the global meltdown and recession that the world is facing. But as the
economies start to recover, the boom in the foreign direct investment segment is bound to
return, and that with a big bang.

1.2.

STATEMENT OF THE PROBLEM

Retailing in India is one of the pillars of its economy and accounts for 14 to 15

percent of its GDP. The Indian retail market is estimated to be US$ 500 billion and one of the
top five retail markets in the world by economic value. India is one of the fastest growing
retail markets in the world, with 1.2 billion people.
As of 20131, India's retailing industry was essentially owner manned small shops. In
2010, larger format convenience stores and supermarkets accounted for about 4 percent of
the industry, and these were present only in large urban centers. India's retail
and logistics industry employs about 40 million Indians (3.3% of Indian population).Until
1 NIRMIT GOGIA in the Report COMPETITION COMMISSION OF INDIA http://cci.gov.in/
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2011, Indian central government denied foreign direct investment (FDI) in multi-brand retail,
forbidding foreign groups from any ownership in supermarkets, convenience stores or any
retail outlets. Even single-brand retail was limited to 51% ownership and a bureaucratic
process.
On 7 December 20122, the Federal Government of India allowed 51% FDI in multibrand retail in India. The government managed to get the approval of multi-brand retail in the
parliament despite heavy uproar from the opposition (the NDA and leftist parties). Some
states will allow foreign supermarkets like Wal-Mart, Tesco and Carrefour to open while
other states will not.
In January 20083, PT Carrefour Indonesia, the Indonesian arm of the French
hypermarket, acquired 75% of the shares of a local minimarket operator, PT Alfa Retailindo
Tbk,for a reported price of Rs. 674 billion (approximately US$71 million). This acquisition
was seen by many as not just an expansion by Carrefour into the minimarket business, but
also an effort by Carrefour to strengthen its lead in the profitable and fast-growing
Indonesian mass grocery retail market.
Due to the above said reasons the researcher found that the Foreign direct investment in
retailing is very significant at present and raised the following research questions.

What may be the impact of FDI in Indian Retail Sector?

How far the growth of total cash inflow accounted to foreign direct investment?
How to scrutinize FDI equity inflow?
What is the role of retailing in Foreign Direct Investment?
To answer the research questions above, the researcher framed the objectives and

precedes the research work effectively.

2Chris Tilly, Wal-Mart Goes South: Sizing Up the Chains Mexican Success Story, in Stanley Brunn,
ed., Wal-Mart World:The Worlds Biggest Corporation in the Global Economy,
3 http://en.wikipedia.org/wiki/Criticism_of_Walmart#cite_note-36
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1.3.

OBJECTIVE OF THE STUDY

To find out the Appulse of Foreign Direct Investment in the Indian retail sector.
To analyze the growth of total inflows of Foreign Direct Investment in India.
To scrutinize the financial year wise FDI equity inflow.
To study the priority of retailing in Foreign Direct Investment.

1.4.

SIGNIFICANCE OF THE STUDY

FDI plays a important role in the development of every economy it helps in

achieving a certain degree of financial stability development and growth. In order to attact
Foreign direct Investment (FDI) from the worlds major investors and in order to present a
favorable scenario for investors the Indian government has announced a number of reforms
and has implemented several industrial policies. The foreign direct investment is allowed in
India through collaborations that are of financial nature, joint venture collaborations, through
preferential allotments, investment through EURO issues. Apart from this it has opened of
FDI route by setting up of 100% EOUs /EHTPs/ STPs etc and entering into Foreign
technology agreement. As a result of the various policy initiatives taken, India has been
rapidly changing from a restrictive regime to a liberal one, and FDI is encouraged in almost
all the economic activities under the automatic route, huge amounts of foreign direct
investment is coming into India through non- resident Indians, international companies, and
various other foreign investors. The growth of FDI in India boosted the economic growth of
the country major advantages of FDI in India have been in terms of:
Increased capital flow.
Improved technology.
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Access to international markets
The increased flow of FDI in India has given a major boost to the country's economy and
so measures must be taken in order to ensure that the flow of FDI in India continues to grow.
FDI approvals in India have grown significantly in recent years. Significant FDI
approvals have taken place in telecom, real estate, banking and insurance sectors. Several
other sectors have also benefited from FDI approvals in India. FDI approvals have played a
major role in the economic growth of India in recent years.

1.5.

SCOPE OF THE STUDY

Despite the numerous obstacles that existing players and new market entrants have to deal
with, the Indian retail market bristles with abundant promise. According to Global Retail
Development, Index (GRDI) reports published by the leading US based consulting group, AT
Kearney in June 2010, India is the 3rd most attractive retail market for global retailers among the
largest emerging markets. The report also highlights the well documented fact that organized
retail constitutes a mere 5% of the total annual revenues generated, hence providing a
tremendous window of opportunity for both domestic and international retailers to tap into a
burgeoning albeit fragmented market. Indias retail industry is estimated to be worth
approximately US $411.28 billion and is still growing, expected to reach US $804.06 billion in
2015. As part of the economic liberalization process set in place by the Industrial policy of 1991,
the Indian Government has opened the retail sector to FDI slowly through a series of steps
excepting FDI in multi- brand retailing, which has so far been prohibited in India.

1.6.

CHAPTER SCHEME

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Chapter1

Deals with the Introduction and Design of the study and includes
Statement of the problem, Objectives of the study, Significance and
Scope of the study.

Chapter 2

Reflects the Review of Literature for the present study.

Explains the concept of FDI and Retailing in India.

Chapter 3
Chapter 4

Portrays the Research Methodology to be used in the research work

and includes sources of data and collection of data, Sampling
Design, period of the study, Framework of analysis, limitations etc.
Specifies the Analysis and Interpretation by using various Tools and

Chapter 5

Techniques like Summary statistical measure, Trend analysis,

Simple Moving Average, Growth Analysis, Correlation &
Regression.
Presents the Findings, Suggestions and Conclusion.

Chapter 6

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