Presentation on FDI in Retail In India
Retail Touches Economy..
Retail – At India Level
• The retail sector in India is divided into the organized and unorganized
sectors. The organized retail sector comprises of the licensed retailers which include the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses. The unorganized retail sector
comprises of the traditional kirana shops, convenience stores etc.
• • • The Indian retail sector accounts : 22 per cent of the country's gross domestic product (GDP) and contributes to 7.3% of the total employment. Organized retail in India is expected to in-crease from 5 per cent of the total market in 2008 to 14 - 18 per cent of the total retail market and reach US$ 450 billion by 2015, according to a McKinsey & Company re-port titled 'The
Great Indian Bazaar: Organized Retail Comes of Age in India'.
Recent Trends & Changes
•India is rated the fifth most attractive emerging retail market: a potential goldmine •Favorable demographics •Growth in income •Increasing population of women •Organized retailing in India has been largely an urban phenomenon with affluent classes and growing number of double-income households.
•COMPANIES TAPPING WITH TREND : •Companies using their own web portal or tie-sups with horizontal players like Rediff.com and Indiatimes.com to offer products on the web. •Spencer's is also planning to set up 500 more stores by June 2014 with an investment of nearly US$ 125.89 million •DLF plans to invest US$ 4.02 billion over four years to develop about 20 large shopping malls across the country IT is a tool that has been used by retailers ranging from Amazon.com to eBay to radically change buying behavior across the globe…
• Experimentation with formats : Ex. Quasi-mall, sub-urban discount stores, Cash and carry etc • Unorganized retailing is getting organized: To meet the challenges of organized retailing such as large cineplexes, and malls, which are backed by the corporate house such as 'Ansals' and 'PVR‘ the unorganized sector is getting organized. 25 stores in Delhi under the banner of Provision mart are joining hands to combine monthly buying. food Bazaar and E-food mart formed which are aggregations of Kiranas. • Emergence of discount stores: They are expected to spearhead the organized retailing revolution. Stores trying to emulate the model of Wal-Mart. Ex. Big Bazaar, Bombay Bazaar, esyday
RETAIL REVOLUTION TO FDI…..
And Is Now Entering Expansion Phase……
Initiation Conceptualization Entry of large Indian corporates and Global Retailers Consolidation and Expansion
Large Scale Consolidation Increasing Competition
Size of Industry
Manufacturers opening their own outlets
Pure play Retailers, realizing the potential start to test waters,
Entry of large global retailers
Large Investment Commitments by large Indian corporate
Movement to Smaller Cities and Rural Areas
More Aggression from International Players
Expansion by leading Product Brands
More than 25-30 retail businesses with Revenues in excess of US $ 1 Billion Specialty Formats based on finer segmentation of the market Private brands getting established
1995 to 2005
2005 to 2010
Retail Revolution in India
• McKinsey’s report: India’s retail sector will be a $ 450 billion industry by
2015, one among top 10 retail markets in the world. A.T Kearney, in their report, “Growth Opportunities for Global Retailers” have ranked India at No.1
position consecutively for the second year. The report sees Indian retail Industry to
grow exponentially over next few years. The ranking has been done for 30 upcoming global economies. It is based on 4 broad categories namely - Country Risk, Market
Attractiveness, Market Saturation and Time pressure for a new entrant to start retail
business • Organized retail will create 1.6 million jobs in the next 5 years.
• The huge Indian middle class consumer are now the blue eyed segment for biggies like Bharti, Wal-Mart, Reliance and loads of others, in race to capture their pie in Indian Retail Market. • The modern retail Industry in BRICs (Brazil, Russia, India and China) is seen as having the maximum potential on growth worldwide. It grew by almost 30% in India and 13% in China and Russia last year. • Organized retail now accounts for only 5% of India’s retail business with an estimated 12 million mom-and-pop stores garnering the bulk of the trade. By 2015, organized retail is expected to have a share of 14-18 percent of the business. • There will be a huge growth in the number of people with increasing disposable incomes.
Drivers & Challenges
What Is FDI?
Foreign direct investment (FDI) is direct investment into production in a country by a company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. FDI in India are approved through two routes: Approval by RBI Foreign Investment Promotion Board (FIPB).
FDI IN RETAIL – Policy Status
• First Phase of Reforms in FDI in Retail: • The Government of India has opened up 51% FDI in single brand retail outlets. • Foreign retailers are allowed to set up shop in India via the franchisee route. Ex: Marks & Spencer • Foreign retailers are allowed outlet if they manufacture products in India or source their goods domestically. Ex: Benetton • FDI is also permitted in cash-and-carry outlets, where goods are sold only to those who intend using them for commercial purposes. Ex: Metro • Second Phase of Reforms in FDI in Retail: The Government of India is cautiously exploring the avenues for multibrand segment. • The objective of Government of India is to ensure that the entry of global retail giants do not displace the existing employment in the unorganized retail business.
FDI Policy with Regard to Retailing in India
FDI up to 100% for cash and carry wholesale trading
and export trading allowed under the automatic route.
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) FDI is not permitted in Multi Brand Retailing in India.
Proposal suggested by CoS
51 per cent limit
It means , FDI in multi brand retail implies that a retail store with a foreign investment can sell multiple brands under one roof. The present FDI regime also allows 100 per cent FDI in wholesale cash and carry.
The minimum capital required for FDI is $100 million out of which 50 per cent should go for back-end infrastructure development. 30 per cent of goods and commodities should be purchased from
FDI in Single Brand Retail
The Government has not categorically defined the meaning of “Single Brand” anywhere neither in any of its circulars nor any notifications but it implies that foreign companies would be allowed to sell goods sold internationally under a „single brand‟, viz., Reebok, Nokia, Adidas. Retailing of goods of multiple brands, even if such products were produced by the same manufacturer, would not be allowed.
FDI in MultiBrand Retail The government has also not defined the term Multi Brand. FDI in Multi Brand retail implies that a retail store with a foreign investment can sell multiple brands under one roof.
Rationale behind Allowing FDI in Retail Sector
Adequate flow of capital
Flourish quality standards and consumer expectations.
Allowing FDI in multi brand retail can bring about ……
Supply Chain Improvement
Investment in Technology
Manpower and Skill
Benefits to government
Rationale Against FDI in multi brand retail sector
The most important factor which is against allowing FDI in retail sector is that small traders will not be able to compete with the big players and thus cease to exist. Also in a country like India where millions of people
are semi-skilled, it is the retail sector which offers them
source of earning as one can easily open a small shop with a little capital.
Generate huge employment
Increased investment in technology
The huge tax revenue generated. The consumer gains from the wide variety of choices and a more diversified basket of prices available under one roof The indirect benefits like better roads, online marketing, expansion of telecom sector etc. Will give a ‘big push’ to
other sectors like agriculture, small and medium size
Concerns against FDI (Employment by Retail – Organized & Unorganized)
† Unfair competition and ultimately result in large-scale exit of domestic retailers † Large scale displacement of persons employed in the retail sector & No other sector to absorb employment. † In the 2011-2012 Union Budget, the government virtually allowed FDI in farm warehousing and cold chains and the result was the emergence of clones of Indian companies registering them-selves massively in the farm sector. This is a threat to the 72 crore people in farm sector whose livelihood might get endangered with the entry of global players.
• FROM VIEW of unorganized market, the kiranas might not be able to bear the price pres-sure exerted by foreign retailers if they start leveraging on their global sourcing capabilities and start slashing their prices
RECENT NEWS UPDATE
Indian Council of Research in International Economic Relations (ICRIER) is conducting a study: „The Impact of Organized Retailing on the Unorganized Retail Sector‟. This was commissioned in March 2007.
• This study would cover “the effect of organized retailing on small retailers and vendors in the unorganized sector keeping in mind the likely growth in the overall market and effect on employment”. • ICRIER‟s Director has said: The survey will be done among consumers, retailers, and malls across India in two phases.
In the first phase, the study will be conducted in 20 cities that already have malls. • In the second phase, ICRIER will study the response of small shops and consumers in cities where organized retail is at an early stage. For conducting the studies, ICRIER will be taking the help of Development and Research Services and Technopak. This retail survey is the result of a letter sent by UPA Chairperson Sonia Gandhi‟s to the Prime Minister. She had expressed concern over the impact of multinational retail chains on small retailers.
RECOMMENDATIONS IN THE MID TERM APPRAISAL OF TENTH PLAN
• The retail sector is severely constrained by limited availability of bank finance. The
Government and the RBI need to evolve suitable policies to enable retailers in the organized and unorganized sector to expand and improve efficiencies. • A National Commission should be set up to study the problems of the retail sector which should also evolve a clear set of conditionality on foreign retailers on procurement of farm produce, domesticality' manufactured merchandise and imported goods. These conditionality’s must state minimum space, size and other details like construction and storage standards. • Entry of foreign players must be gradual with social safeguards so that the effects of labour dislocation can be analyzed and policy fine tuned. Foreign players should initially be allowed only in metros.
Recent Uplift In India for FDI in Retail
Wal-Mart has a joint venture with Bharti Enterprises for cash-and-carry (wholesale) business, which runs the „Best Price‟ stores. Many of the foreign brands would come to India if FDI in multi brand retail is permitted which can be a blessing in disguise for the economy.
Some Media Uplifts and Controversy
• It can be concluded that FDI in retail sector in India will have mixed implication since After globalization India is the one of the
major country with high economy growth.. It becomes necessary to
make a regulatory body which can put a cap upon foreign investors enabling to enjoy fruits of maximum goodness of fdi. • Big Retail still has a long way to go before satisfying the highly diverse needs of the Indian population. As a result, there will be a steady-state where Big Retail will co-exist with Small Retail………..fdi willl become a pathway to retail industry in india.