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REPORT ON FDI IN RETAIL IN INDIA (INTERNATIONAL ECONOMIES OF BUSINESS)

SUBMITTED TO: PROF. IRFAN

SUBMITTED BY: MEHAK SETHI: JIML11082 NEHA SHAHI: JIML11093 PANKHURI SARAN: JIML11110 PALLAVI MEHROTRA: JIML11107 NITIN TIWARI: JIML11RM009

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ACKNOWLEGEMENT We have taken efforts in this project. However, it would not have been possible without the kind support and help of group members. We are highly indebted to prof. Mohammad Irfan for his guidance and constant supervision as well as for providing necessary information regarding the project & also for his support in completing the project.

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INDEX TOPICS INTRODUCTION FDI POLICY OPPORTUNITIES CHALLENGES GROWTH SOURCES PAGE NUMBER 4 5 6 7 8 9

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INTRODUCTION
FDI An investment abroad, usually where the company being invested in is controlled by the foreign corporation. It is a measure of foreign ownership of domestic productive assets such as factories, land and organizations Example of FDI: American company taking a majority stake in a company in India.

RETAIL Retail is the sale of goods to end user, not for resale, but for use and consumption by the purchaser. Manufacturers sell large quantities of products to retailers, and retailers sell small quantities of those products to consumers. Example of RETAIL: Manufacturers sell large quantities of products to retailers, and retailers sell small quantities of those products to consumers. It is divided in two parts: 1. Organized sector 2. Un-organized sector There is only 3% organized sector and 97% unorganized sector prevails in Indian economy. ORGANIZED SECTOR It is a kind of sector which has a license to trade its activities and they are registered for sales tax, income tax and other duties. Example: Retail chains like Wal-Mart UNORGANIZED SECTOR In this sector there are owner manned general stores which follows the traditional format of retailing. Example: kirana stores and Paan beedi shops

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GROWTH Indias retail sector growth rate is 46.64% and it the fastest growing sector in Indian economy. The sector is largest source of employment after agriculture. Largest players in India retail market are Reliance Raheja, Bharti Airtel and ITC.

FDI POLICY IN RETAIL SECTOR IN INDIA Retail investment is divided into two brands: 1. Single branding 2. Multi branding The above types of branding have no proper definition given by the government or Supreme Court of India. SINGLE BRANDING In India 51% FDI investment in single branded is allowed. on November 24, 2011 the union cabinet allowed 100% FDI in single branding but now there again a new norm, restricting foreign investment to the owner of the brand, was notified in January 2012, when 100% FDI was allowed in single-brand retail. The government is likely to modify the guidelines for FDI in single-brand retail to ensure that foreign retailers can have long term relationship with micro and small enterprises (MSEs). The changes, according to sources, would address the concerns of the foreign retailers about 30 per cent mandatory sourcing of their requirements from MSEs even after they become big and lose MSE tag. Example: Adidas, Nike, Louis Vuitton, Hermes and Gucci MULTI BRANDING Since December 5, when the government put on hold the move to allow 51 per cent FDI in multi-brand retail, 13 days after the Cabinet decision to open the sector, global and domestic retail chains have been looking for a solution in the state election results, mainly that of Uttar Pradesh. With no sign of a clear majority and political parties, including Congress, claiming they would either form the UP government or sit out as Opposition, most retail companies preferred to wait for the result before hazarding a guess on the fate of FDI in multi-brand retail. The policy to allow FDI in multi-brand retail, which would have allowed global retailers to open outlets in India, was put on hold by the government in the wake of strong objection from the opposition BJP and UPA's key allies, including Trinamool Congress. Example: Walmart, Tesco and Carrefour

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OPPORTUNITIES FROM FDI IN RETAIL 1. Huge investments in the retail sector will see gainful employment opportunities in agro-processing, sorting, marketing, logistics management and front-end retail. 2. At least 10 million jobs will be created in the next three years in the retail sector 3. FDI in retail will help farmers secure remunerative prices by eliminating exploitative middlemen. 4. Foreign retail majors will ensure supply chain efficiencies. 5. Policy mandates a minimum investment of $100 million with at least half the amount to be invested in back-end infrastructure, including cold chains, refrigeration, transportation, packing, sorting and processing. This is expected to considerably reduce post-harvest losses. 6. This will have a salutary impact on food inflation from efficiencies in supply chain. This is also because food, which perishes due to inadequate infrastructure, will not be wasted. 7. Sourcing of a minimum of 30% from Indian micro and small industry is mandatory. This will provide the scales to encourage domestic value addition and manufacturing, thereby creating a multiplier effect for employment, technology up gradation and income generation 8. A strong legal framework in the form of the Competition Commission is available to deal with any anti-competitive practices, including predatory pricing. 9. If anything, the entry of retail giants likely to hot up competition, giving consumers a better deal, both in prices and choices. 10. Improved technology in the sphere of processing, grading, handling and packaging of goods and further technical developments in areas like electronic weighing, billing, barcode scanning etc. could be a direct consequence of foreign companies opening retail shops in India,. Further, transportation facilities can get a boost, in the form of increased number of refrigerated vans and precooking chambers which can help bring down wastage of goods. 11. Retail is closely dependant on real estate as any retailer will require substantial spaces for setting up business. Real estate in India has gone through a revamp due to the demand of high-end retail malls and peoples changing perception towards an enjoyable shopping experience. Thus real estate can get a further facelift in India and receive more investment with the opening up of FDI in multi-brand retail.

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CHALLENGES OF FDI IN RETAI IN INDIA As there are so many ruling and opposition parties in India and it has been divided into many states and these states are ruled by different parties like in case of multi branding UTTAR PRADESH government rejected multi branding so similar kind of issues always come whenever there is implementation of any new policy. Now there are many criticisms by opponents which are the basic challenge for FDI IN RETAIL IN INDIA. 1. Move will lead to large-scale job losses. International experience shows supermarkets invariably displace small retailers. Small retail has virtually been wiped out in developed countries like the US and in Europe. South East Asian countries had to impose stringent zoning and licensing regulations to restrict growth of supermarkets after small retailers were getting displaced. India has the highest shopping density in the world with 11 shops per 1,000 people. It has 1.2 core shops employing over 4 crore people; 95% of these are small shops run by self-employed people. 2. Global retail giants will resort to predatory pricing to create monopoly/oligopoly. This can result in essentials, including food supplies, being controlled by foreign organizations 3. Fragmented markets give larger options to consumers. Consolidated markets make the consumer captive. Allowing foreign players with deep pockets leads to consolidation. International retail does not create additional markets, it merely displaces existing markets. 4. Jobs in the manufacturing sector will be lost because structured international retail makes purchases internationally and not from domestic sources. This has been the experience of most countries which have allowed FDI in retail 5. Argument that only foreign players can create the supply chain for farm produce is bogus. International retail players have no role in building roads or generating power. They are only required to create storage facilities and cold chains. This could be done by governments in India. 6. Comparison between India and China is misplaced. China is predominantly a manufacturing economy. It's the largest supplier to Wal-Mart and other international majors. It obviously cannot say no to these chains opening stores in China when it is a global supplier to them. India in contrast will lose both manufacturing and services jobs. 7. A major argument given by opponents of FDI in retail is that there will be major job losses. Big retail chains are actually going to hire a lot of people. So, in the short run, there will be a spurt in jobs.

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CONCLUSION: As there are more positive points for FDI IN RETAIL and less negative points so Indian government should consider the argument and should allow single and multi branding as per the demand. Although there would be job losses for kirana stores but that is only for the short run because these shops owner would become the part of the retail giants in the long term so if government ignores the short losses so it would earn the long term gains from the approval of the deal. India needs to take a lesson from China where organized and unorganized retail seem to co-exist and grow together. Further, Indias local enterprises will potentially receive an up gradation with the import of advanced technological and logistics management expertise from the foreign entities. In our view, the government has an opportunity to utilize the liberalization for achieving certain of its own targets: improve its infrastructure; access sophisticated technologies; generate employment for those keen to work in this sector

FDI would lead to a more comprehensive integration of India into the worldwide market and, as such, it is imperative for the government to promote this sector for the overall economic development and social welfare of the country. If done in the right manner, it can prove to be a boon and not a curse

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SOURCES Primary sources: class notes and reports Secondary sources: Wikipedia and times of India articles