Impact of FDI on Multi brand Retail

Retail Industry
Retail is the sale of goods to end users, not for resale, but for use and consumption by the purchaser. The retail transaction is at the end of the supply chain. Manufacturers sell large quantities of products to retailers, and retailers sell small quantities of those products to consumers. Retail comes from the Old French word retailer, which means "to cut off, clip, pare, divide" in terms of tailoring. It was first recorded as a noun with the meaning of a "sale in small quantities" in (from the Middle French retail, "piece cut off, shred, scrap, paring"). Like the French, the word retail in both Dutch and German (detailhandel and Einzelhandel, respectively) also refers to the sale of small quantities of items. The retail sector generally comprises of retailers, managed by individual/families/groups, department stores, specialty stores and discount stores. The retail industry is focused on the sale of goods or merchandise from a specific location for direct consumption by the purchaser. The retail industry can thus be defined as one responsible for the distribution of finished products to the public. North America is home to the largest retailers in the industry. It is responsible for nearly two thirds of the U.Ss GDP and accounts for a major contribution towards generating employment. The largest retail companies globally are Wal-Mart, Metro AG, Carrefour and Tesco. In India the retail sector is the fastest growing sector in the Indian Economy. The Indian Retail industry is the fifth largest in the world, compromising of both organized and unorganized sectors. In the previous year 2010 the Retail industry accounted for about 22% towards the GDP (Gross Domestic Product) of the country. Total retail sales in India will grow from US$ 395.96 billion in 2011 to US$ 785.12 billion by 2015, according to the Business Monitor International (BMI) India Retail Report for the secondquarter of 2011. Strong underlying economic growth, population expansion, the increasing

wealth of individuals and the rapid construction of organised retail infrastructure are key factors behind the forecast growth. Organised retail in India is expected to increase from 5 per cent of the total market in 2008 to 14-18 per cent and reach US$ 450 billion by 2015, according to a McKinsey & Company report titled 'The Great Indian Bazaar: Organised Retail Comes of Age in India'. Retailers are constantly being challenged by the dynamic and growing economy, with information being freely available to any individual with just the click of a button (due to the pervasive use of the internet) retailers are finding that customers are ever changing their choices, also competitors also play a major role in shaping the retail industry as well. Nowadays retailers have to constantly adapt and change according to the environment in order to survive and be successful in the market. Some of the major players in the India retail industry are Ambanis, Bata, Big Baazar, Pantaloons, Archies, Landmark, Bharti Airtel, Reliance, etc to name a few are making significant investments in this sector.

Present Foreign Direct Investment (FDI) Scenario in India

In India FDI is allowed upto 51% for single brand retailing, permitted in 2006, with prior government permission. This is done mainly to protect the livelihood of nearly 15 million small storeowners or kirana shop owners. By permitting 51% FDI in single-brand product retailing it has led to the entry of only a few global brands such as Nike (footwear), Louis Vuitton (shoes travel accessories, watches, ties, etc.), Fendi (luxury products), Damro (furniture), Argenterie Greggio (silverware, cutlery, traditional home accessories), etc., covering high-end items. These single brand stores generally tend to target and cater to the needs to that sector of society who are highly brand conscious and well informed section of the population. Since awareness of such brands are already formed they generally tend to attract strong brand loyalty. In the wholesale business the Government permits 100% FDI, in the form of cash and carry wholesale trading. The wholesaler deals with only the small retailers and not the consumers. This policy has for example allowed Metro to operate through the cash and carry wholesale mode.

Proposal: FDI in Indian Multi-Brand Retail

The government of India released a discussion paper in consideration on the agenda of allowing foreign direct investment (FDI) in multi-brand retail chains. The proposal is to allow 51% of FDI in multi-brand retail segment. This move has brought its fair share of controversies; the move is marked with many political controversies with opposition from the left parties as well as the Bharatiya Janata Party (BJP) along with a nationwide protests from small Kirana store owners, this move would render thousands of such owners will leave them unemployed. The proposal says at least 50% of the total FDI proposed by an investor should be in back-end infrastructure for which a statement of accounts would be filed with RBI with a copy to Foreign Investment Promotion Board, disclosing clearly that at no point in time, investment in back end infrastructure is less than 50 per cent. The proposal mentions that investment in such back -end infrastructure need not necessarily be made by the same entity that is making the FDI. Investments could also be made separately by an outsourced entity, specifically commissioned for this purpose. On the limit of investments, proposal says that minimum FDI to be brought in into a project with multi brand retail would be $100 million and that front end retail outlets will be set up only in those states where the states agree to allow FDI in multi-brand retail under this policy. The SME sector proposal says that at least 30 per cent of the value of the manufactured items procured (excluding food products) should be sourced from SME sector. Also Retail sales location may be set up only in cities with a population of more than 10 lakh (2011 census).

Impact of FDI
The allowance of FDI in multi-brand retail would greatly benefit farmers and in containing the food inflation. Every year Rs.1 trillion worth of fresh produce is wasted due to the lack of proper supply chain infrastructure. Indian farmers get only one-thirds of the actual prices in stores compared to two-thirds in countries with higher penetration of organized retail, resulting in consumers ending up with paying a premium due to lack of farm-to-fork retail supply chain. Therefore it is imperative that FDI be allowed in multi-brand retail to fund storage for farm produce.

Dynamism and efficiency in the marketing system can be achieved in the marketing system, these investments would provide for development of cold-chain and post-harvest infrastructure, leading to longer shelf life of said items, subsequently leading towards decreased prices towards customers and with providing quality produce as well as in increasing the income that goes towards the farmers. Both industry and the stock market welcomed the baby step towards opening up the sector. The retail industry in India needs access to more capital. It can definitely go into the investment (for) the supply chain. But we just cannot build the back-end without an equal amount of development in the front-end, said Rakesh Biyani, CEO of Future Group. The employment potential of organised retail according to Future Group, India's largest retailer currently employs around 35,000 people directly. The entire organised retail industry in India currently employs around 1,50,000 people directly (top 20 players only). If FDI in multi-brand retail is allowed this number will go up substantially. India currently allows 51% FDI in single-brand retail and 100% in cash-and-carry stores that can only sell to other retailers and businesses. Thomas Varghese, CEO of Aditya Birla Retail Ltd, said he is in favor of allowing 49% FDI in multi-brand retail. If you are allowing FDI, do it in a calibrated fashion because it is politically sensitive and link it (with) up some caveat from creating some back-end infrastructure, he added. Planning Commission deputy chairman Montek Singh Ahluwalia spoke in favor of opening up the multi-brand retail sector to foreign direct investment (FDI), saying it will benefit farmers and also help contain food inflation. At a programme organised by news channel CNBC-TV18 M.S. Ahluwalia said, The Planning Commission supports FDI in (multi-brand) retail. Farmers will benefit from modern retail marketing. No doubt that modern retail marketing is good." The Inter-Ministerial Group (IMG) suggested on opening up multi-brand retail to foreign investors and changes in agriculture marketing laws to check the rate of price rise. According to Kaushik Basu in an interview, the allowance of FDI in retail would significantly curb the fiscal deficit of the economy as well as improve the present supply chain management, income for the farmers and furthermore lowering the prices that consumers have to pay also it would control inflation.

By allowing FDI in the India multi-brand retail sector competition within the country would be a critical driver for improvements in the sector for better performance. This is possible due to the effect of combinations of increased capital or financial, advanced technology as well as advanced management systems and practices leading to efficiency and effectiveness. This increase in FDI would lead to the improvement in the domestic markets to better compete against the global competitors, thus leading to the overall development of the economy. This can be explained in terms of increasing productivity, efficiency, better organised market supply channels leading to minimal wastage of time, money and effort also in reducing the production costs and integrating the global existing retail economy with the home economy. it would lead to an overall restructuring of the economy. Increased FDI can bring about improvements in the supply chain management, investments in the markets, labor skill development, greater sourcing, upgradation in the agricultural sector, efficiency in the small and medium scale industries, greater market size and overall productivity resulting in increased GDP of the economy and generation of employment opportunities. If this policy were to be brought into effect the greatest gainer would be the consumers as this leads an increased purchasing power leading to an increased improvement in the standard of living of the people. FDI in retail trade would help in speeding up the growth of the organised retail sector which is still under-developed. The agricultural sector would be well-functioning markets driving growth, employment and economic prosperity in rural areas of the country. International retailers would bring with them advanced technology and effective management practices and know-how that would impact the whole retail sector through adoption of the best practices. The reduction of inflation would be achieved through this allowance in FDI allowing for a decreased in the prices of products, i.e, cost effectiveness through stabilization of present prices, which can be achieved through direct buying from the farmers, supply chain effectiveness, lowered transit costs, improved storage capabilities, controlled supply & demand imbalances, quality and safety standards through farmer development and increased processing of produce. Overall FDI in retail sector would ensure that the back-end infrastructure of the economy would be greatly improved, which can be achieved only through the allowance of FDI in the sector.

Alternatively FDI has its own set of issues which are contrary towards whatever positive points mentioned above. This policy if in effect would lead to a cut back in the employment lading to the unemployment of as many as 40 million people who are involved in the unorganized retail sector, which is their main source of income. Unorganized retail is important from an employment perspective, because for the unemployed, it is the default sector of employment. For rural people, the default sector is agriculture. For urban people, it is retail. Those who cannot get jobs anywhere often end up starting a small kirana shop of their own. The shop itself may be unviable, but at least it keeps the person busy. As much as 14% of our employment comes from the retail sector; second only to agriculture. There are more than 15 million retailers in India. Small retailers who are in the vicinity of large retailers will be impacted. There is constraint in the availability of capital which are the major setback for the small retailers. Dasgupta and Dubey strongly opposed FDI in multi-brand retail, saying the move would be a disaster for eight crore traders in the country. "BJP is strongly against allowing foreign direct investment in retail sector in any form -- 26%, 51% or 74%," said Yashwant Sinha, former finance minister and senior BJP leader. I do not subscribe to the chief economic adviser's views that opening of organised retail would lead to decline in inflation, for which distribution chains have to be fixed," said Sinha By allowing FDI in multi-brand retail there would possibly b instances where retail outlets would be run by financial a institution which is not a favorable situation as it would lead to conflict of interests.

Conclusion
Overall it can be said that though allowing FDI in multi-brand retailing does have its fair share of negative implications it can be said that the positive impact that it would bring towards the growth of the situation of the economy as a whole far overweighs the negatives. Not only will this provide an opportunity to introduce further introduction of advanced technology and employment opportunities, it would also lead to improvements in the back-end

infrastructure, logistics and improved supply route management as well as introduction of better management practices. FDI is thus a necessary act to be carried out by the government, the results which would ultimately lead to the development of the nation in terms of its GDP, the populations standard of living, infrastructure, logistics, etc. Therefore FDI in multi-brand retailing is a must and the government must not delay in implementing the policy as soon as possible to facilitate the growth of the economy.