A Proposal For Management Research Project - II Challenges & Opportunities of FDI in Indian Retail Industry

Submitted By:Kevin Dharsandia Harshil Gundaniya Ekta Patel Urja Upadhyay Harsh Zaveri (10044311015) (10044311019) (10044311070) (10044311170) (10044311178)

M.B.A. Semester IV

Under Guidance of: Dr. Mahendra Sharma, Director V. M. Patel Institute of Management Prof. Jayesh Patel, Lecturer Prof. Dipesh Dasani, Lecturer V. M. Patel Institute of Management

Submitted To:V.M.Patel Institute of Management Ganpat University Kherva.

(January 2012)

Introduction
As per the current regulatory regime, retail trading (except under single-brand product retailing FDI up to 51 per cent, under the Government route) is prohibited in India. Simply put, for a company to be able to get foreign funding, products sold by it to the general public should only be of a single-brand; this condition being in addition to a few other conditions to be adhered to. That explains why we do not have a Harrods in Delhi. India being a signatory to World Trade Organisations General Agreement on Trade in Services, which include wholesale and retailing services, had to open up the retail trade sector to foreign investment. There were initial reservations towards opening up of retail sector arising from fear of job losses, procurement from international market, competition and loss of entrepreneurial opportunities. However, the government in a series of moves has opened up the retail sector slowly to Foreign Direct Investment (FDI). In 1997, FDI in cash and carry (wholesale) with 100 percent ownership was allowed under the Government approval route. It was brought under the automatic route in 2006. 51 percent investment in a single brand retail outlet was also permitted in 2006. FDI in Multi-Brand retailing is prohibited in India.

Definition of Retail
In 2004, The High Court of Delhi defined the term retail 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. Thus, retailing can be said to be the interface between the producer and the individual consumer buying for personal consumption. This excludes direct interface between the manufacturer and institutional buyers such as the government and other bulk customers Retailing is the last link that connects the individual consumer with the manufacturing and distribution chain. A retailer is involved in the act of selling goods to the individual consumer at a margin of profit.

Division of Retail Industry Organised and Unorganised Retailing

The retail industry is mainly divided into:- 1) Organised and 2) Unorganised Retailing Organised 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, and also the privately owned large retail businesses. Unorganised 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 97 per cent 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 in India

FDI as defined in Dictionary of Economics (Graham Bannock et.al) is investment in a foreign country through the acquisition of a local company or the establishment there of an operation on a new (Greenfield) site. To put in simple words, FDI refers to capital inflows from abroad that is invested in or to enhance the production capacity of the economy. Foreign Investment in India is governed by the FDI policy announced by the Government of India and the provision of the Foreign Exchange Management Act (FEMA) 1999. The Reserve Bank of India (RBI) in this regard had issued a notification, which contains the Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000. This notification has been amended from time to time. The Ministry of Commerce and Industry, Government of India is the nodal agency for motoring and reviewing the FDI policy on continued basis and changes in sectoral policy/ sectoral equity cap. The FDI policy is notified through Press Notes by the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion (DIPP). The foreign investors are free to invest in India, except few sectors/activities, where prior approval from the RBI or Foreign Investment Promotion Board (FIPB) would be required.

FDI Policy with Regard to Retailing in India

It will be prudent to look into Press Note 4 of 2006 issued by DIPP and consolidated FDI Policy issued in October 2010 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, subject to Press Note 3 (2006 Series). c) FDI is not permitted in Multi Brand Retailing in India.

Rational behind selection of the topic

From street/cart retailers working on pavements/roadsides and small family run businesses to international brands such as Rolex and Nike, the retail market in India is vibrant, colorful and highly fragmented.

Arvind Virmani (2005), the Director & Chief Executive of the Indian Council for Research on International Economic Relations (ICRIER) acknowledged when referring to FDI in India's retail sector that In spite of its importance, there has not been any extensive research in this area.

It is this lack of independent research that specifically focuses on the retail sector that has inspired us to undertake this study so as to provide a balanced and independent review of current opinions/thoughts on FDI in Retail policy, and to assess the potential costs and benefits for the sector and India as a whole. As retailing in India is attracting the attention of many global players, the Indian Government is paying increased attention to the country's retail environment. FDI in retailing remains a widely debated and heated issue in India's economic and political environment. However, the Government is gradually taking steps to open the sector.

We also wish to look at the issues which are currently under discussion by the domestic players about FDI in India's retail sector, to establish an understanding of the reasoning behind current policy and the controversial viewpoints that keep India divided on FDI Retail policy. This research will provide recommendations for ways in which policy could be changed and improved to reduce the risks of FDI for India, and to benefit the domestic retailers and related industries as well as the economy as a whole. There is a desire to try to assist in facilitating the process of reform by providing a summary of the key issues and suggesting what regulatory reforms could be considered to help India resolve the issues that this report highlights. sector and the Indian economy? What reforms are necessary, if any, to protect the sub-continent's domestic retail sector and national interests?

The Major Companies of Retail Industry in India and global

1. Reliance Retail 2. Tata Enterprise 3. Future Group 4. Adani 5. RPG group 6. Pantaloon Retail 7. K Raheja Group 8. Bharti-Walmart 9. AV Birla Group 10. Subhiksha

Research Objectives:
Primary objective: The primary objective of the research is to find out challenges and opportunities of FDI in Indian retail industry. Secondary objective: While studying the primary objective we also will study the overall factors which affect the FDI in Indian retail industry.

Project Planning: Before starting the research work, the whole project was first planned out. For this planning we took into consideration objective of the study and importance of all the activities. The whole project is divided into three stages: 1. Project planning (includes questionnaire preparation) 2. Data collection 3. Data analysis and report making

Research Methodology
In planning and designing a specific research project, it is necessary to anticipate all the steps that have to be undertaken to make the project successful. Our research process consists of following steps:

Formulating the research objective The first step of any research is to formulate the research objective. The research objective is defined as To find opportunities and challenges of FDI in Indian Retail Industry.

Sampling Design We will be using a probability sampling method where in the concept of random selection, a controlled procedure that assures that each population element is given a known non-zero chance of selection.

Sampling Design Steps:

Relevant population out of Universe: Our population consists of both the gender and different demographics in the city of Ahmadabad, out of which the relevant population will be those in sectors of retail in Ahmadabad.

Element of Population: Our element of population will be an individual retailers and employees of the retail companies from the relevant population.

Sample size The calculation of the sample size proceeds as under:For 95% Confidence level, z=1.96. o o Desired interval range within which the population proportion is expected= 0.1 1.96=90% confidence level for estimating the interval within which to expect the population proportion

Research Design:
Degree of Research Question Crystallization: This is a formal study which starts with a hypothesis and research question and involves precise procedures and data source specifications. The goal is to test the hypothesis and answer the research questions posed.

Method of Data Collection: We have used the interrogation/communications study where the researcher questions the by personal means. We have used two main sources of data: Primary Source: in the form of questionnaires Secondary Source: books, internet, articles from newspapers, magazines.

Limitations: a) We have to assume that all the respondents have provided correct information. b) Inconsistency of data & statistics available on India and FDI/Retail.

BIBLIOGRAPHY

[1]Association of Traders of Maharashtra v. Union of India, 2005 (79) DRJ 426 [2] Indias Retail Sector (Dec 21, 2010) http://www.cci.in/pdf/surveys_reports/indias_retail_sector.pdf [3]Hemant Batra, Retailing Sector In India Pros Cons (Nov 30, 2010)http://www.legallyindia.com/1468-fdi-in-retailing-sector-in-india-proscons-by-hemant-batra [4] Notification No. FEMA 20/2000-RB dated May 3, 2000 [5]FDI_Circular_02/2010, DIPP [6] http://siadipp.nic.in/policy/changes/pn3_2006.pdf [7] Mohan Guruswamy, Implications of FDI in Retail, (Dec 16 2010) http://www.scribd.com/doc/36888679 [8] Discussion Paper on FDI in Multi Brand Retail Trading, http://dipp.nic.in/DiscussionPapers/DP_FDI_MultiBrandRetailTrading_06July2010.pdf