FDI IN RETAIL INDUSTRY IN INDIAN RETAIL SECTOR

Member Jacky Shamdasani

roll no 96.

WHAT IS FDI?
Foreign direct investment (FDI) is defined as a company from one country making a physical investment into building a factory in another country. Its definition can be extended to include investments made to acquire lasting interest in enterprises operating outside of the economy of the investor.

WHAT IS RETAIL?
The term retail is defined as a sale for final consumption in contrast to a sale for further sale or processing (i.e. wholesale). A sale to the ultimate consumer.

Division

of

Retail

Industry

Organized

and

Unorganized Retailing.
Organized retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail chains Unorganized retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the local kirana shops, owner manned general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc. The Indian retail sector is highly fragmented with 96 percent of its business being run by the unorganized retailers. The organized retail however is at a very nascent stage. The sector is the largest source of employment after agriculture, and has deep penetration into rural India generating more than 10 per cent of Indias GDP.

FDI Policy with Regard to Retailing in India (Before 25th November 2011)
FDI Policy which provide the sector specific guidelines for FDI with regard to the conduct of trading activities. a) FDI up to 100% for cash and carry wholesale trading and export

trading allowed under the automatic route. b) FDI up to 51 % with prior Government approval (i.e. FIPB) for

retail trade of Single Brand products, c) FDI is not permitted in Multi Brand Retailing in India.

APPROVAL OF MULTI BRAND RETAILING IN INDIA

In November, The Union cabinet cleared FDI in the multi-brand retail sector to the extent of 51% stake for the foreign retailers. Thats not all the government also went full throttle to allow 100% FDI in singlebrand retail segment, from the prevailing 51% limit, to push niche luxury brands in making further commitments in growing market of India. India will see the foreign supermarket retail giants such as Walmart, Carrefour, Tesco Plc and others shaking to the tune of aspiring Indian consumers. Today, the organized retail market in India is estimated to be worth around $28 billion; and is projected to grow by 10 times by 2020.

Highlights of FDI in Multi-brand Retail

y y y y y y Union cabinet clears 51% for multi-brand supermarkets. Minimum investment from foreign retailer is $100 million. At least 50% of the total FDI must be invested in back-end infrastructure. Minimum 30% of the local sourcing requirements from small industries. Retail outlets to come up in cities with more than 1 million population The government will have the first right to procure agricultural produce. The investment needed for entering the sector has been fixed at $100 million in towns with population of more than 10 lakh as earmarked by 2011 census; half of which they need to allocate towards building backend infrastructure and better logistical support for the exploding Indian retail sector led by burgeoning middle class population and growing consumer spending.

Furthermore, the new guidelines may commit supermarkets run by foreign retailers to strict local sourcing requirements to the extent of 30% of manufactured or processed goods from small industries. Going by the 10 lakh population threshold to open supermarkets, 53 cities that accounts for over 42% of total urban population will be eligible to have internationally renowned retail outlets.

Lastly, the cent percent opening up of single-brand retail segment will foster growth in Indias infrastructure for luxury retail markets such as jewellery, fine dining, luxurious real-estate, global branded apparels, yachts, and swanky hotels amongst other niche segment offerings.

Impact in Indian economy

FDI in multi brand retail will give a boost to the organized retail sector, which positively impacts several stakeholders including farmers, consumers, MSMEs and hence, the overall economy. As per a recently released CII study, opening up of FDI in retail can increase organized retail market size to $260 billion by 2020. This would result in an aggregate increase in income of $3545 billion per year for all producers combined; 34 million new direct jobs and around 46 million new indirect jobs in the logistics sector, contract labour in the distribution and repackaging centers, housekeeping and security staff in the stores. The Government also stands to gain by this move and can be expected to receive an additional income of $2530 billion by way of increased tax collection and reduction of tax slippages, the report added.

CII added in the statement that from the farmers perspective, organized retail has the potential to drive efficiencies in this chain by (a) increasing price realization for farmers by 1030 percent through sourcing directly or closer to the farm (b) reducing handling and wastage by 2550 percent through consolidation as well as investments in technology, either directly or through aggregators (c) upgrading the farmers capabilities by providing knowhow and capital. FDI can help SMEs supply in large volumes, increase quality and become a vendor to international players and increase the quality of products and become cost competitive in global arena. Traditional trade will continue to have its own place and should not decline. Even in the last 3 years when modern retail has grown 24%, unorganized retail has continued to grow, albeit at a slower rate of 10% to 12%.

CONCLUSION & ANALYSIS

FDI in retail will have a positive impact on Indian economy. Agriculture sector will be prime beneficiary of this decision because FDI will bring in money & infrastructure development that is the need of the hour for agricultural sector. With farmers produce will reach directly to the consumer. Middle man elimination: Retail giants like WALMART,

CARREFORE, will procure directly from smes and farmers which will eliminate the middle man giving a better pricing to the farm products Taxes: Unorganized market serves 96% of INDIAN population. these kirana & grocery stores does not pay the amount of TAX that the are liable and accountable for & with the Organized market coming in will be beneficial for government by the way of increase revenue from taxes by these retail giants. Employment: huge opportunities will be created in Retail in backend and frontend operations of retail sector. Better choice to customer: consumers will be able to select the best option as per their needs & wants & also due to increase competition consumers will get the best price for the product. Finally I would conclude by saying FDI in retail is a first major step in retail sector in liberalizing the policies. A welcome step of UPA government to allow FDI in retail.