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Impact of FDI On Retail Sector in India
Impact of FDI On Retail Sector in India
India
Karan Tyagi
Kaustubh Kulkarni
11113048
11113052
What is FDI?
An Introduction
Foreign direct investment (FDI) is investment directly
into production in a country by a company located in
another country, either by buying a company in the
target country or by expanding operations of an
existing business in that country. It is cross border
investment, where foreign assets are invested into
the organizations of the domestic market excluding
the investment in stock.
What is FDI?
FDI refers to the net inflows of investment (inflow
minus outflow) to acquire a lasting management
interest (10 percent or more of voting stock) in an
enterprise operating in an economy other than that
of the investor. It usually involves participation in
management, joint-venture, transfer of
technology and expertise.
What is FDI?
It brings private funds from overseas into products or
services. The domestic company in which foreign
currency is invested is usually being controlled by
the investing foreign company.
Foreign direct investment (FDI) plays an
extraordinary and growing role in global business. It
can provide a firm with new markets and marketing
channels, cheaper production facilities, access to
new technology, products, skills and financing.
What is FDI?
Why is FDI important for any consideration of going global?
The simple answer is that making a direct foreign investment allows
companies to accomplish several tasks:
Avoiding foreign government pressure for local production.
Circumventing trade barriers, hidden and otherwise.
Making the move from domestic export sales to a locally-based national
sales office.
Capability to increase total production capacity.
Opportunities for co-production, joint ventures with local partners, joint
marketing arrangements, licensing, etc;
What is FDI?
How is FDI beneficial to the host nation
For a host country or the foreign firm which receives
the investment, it can provide a source of new
technologies, capital, processes, products,
organizational technologies and management skills,
and as such can provide a strong impetus to
economic development.
Retail Industry
An Introduction
The Retail Industry is the sector of economy which is
consisted of individuals, stores, commercial
complexes, agencies, companies, and
organizations, etc., involved in the business of
selling or merchandizing diverse finished products or
goods to the end-user consumers directly and
indirectly. Goods and products of the retail industry
or sector are the finished final objects/products of all
sectors of commerce and economy of a country.
Impact of FDI on Retail Sector in
India
Retail Industry
Retail Sector in India:
The Retail sector of India is vast, and has huge
potential for development, as the majority of its
constituents are un-organized. The retail sector of
India contributes about 15% to the national GDP,
and employs a massive workforce of it, after the
agriculture sector.
Retail Industry
Retail Sector in India:
The retail sector of India handles about $250 billion
every year, and is expected by veteran economists
to reach to $660 billion by the year 2015. The
business in the organized retail sector of India is
expected to grow at the rate of 15-20% every year,
and can reach the level of $100 billion by the year
2015.
Retail Industry
Unorganised Retailing
Retail Industry
Retail Sector in India:
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.
E-traders:
Are retailers providing
online buying and selling
of products and
services.
Discount stores:
These are factory outlets
that give discount on the
MRP.
Vending:
It is a relatively new
entry, in the retail sector.
Here beverages, snacks
and other small items
can be bought via
vending machine.
Category killers:
Small specialty stores that
offer a variety of categories.
They are known as category
killers as they focus on
specific categories, such as
electronics and sporting
goods. E.g. Selection Centre
Sports, Strand Book Store
Specialty stores:
These are retail chains
dealing in specific categories
and provide deep
assortment. Mumbai's
Crossword Book Store and
RPG's Music World are a
couple of examples.
Government Policies:
Background:
India has liberalized its retail industry to permit
foreign investment, with regulatory issues and legal
structures pertinent to establish operations in this
new dynamic market.
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.
Government Policies:
Background:
As part of the economic liberalization process set in
place by the Industrial Policy of 1991, the Indian
government has opened the retail sector to FDI
slowly through a series of steps.
Government Policies:
Background:
1995 World Trade Organizations general agreement on
trade in services, which include both wholesale and retailing
services, came into effect
1997 FDI in cash and carry (wholesale) with 100% rights
allowed under the government approval route
2006 FDI in cash and carry (wholesale) brought under the
automatic route
Up-to 51% investment in a single- brand retail outlet
permitted
Government Policies:
Background:
2011 100% FDI in single brand retail permitted
2012, Sep 51% FDI in multi- brand retail permitted
Government Policies:
Background:
The Indian government removed the 51% cap on
FDI into single-brand retail outlets in December
2011, and opened the market fully to foreign
investors by permitting 100% foreign investment in
this area.
It also made drastic progress in allowing multi-brand
retailing, which had so far had been prohibited in
India.
Government Policies:
Background:
After months of policy paralysis, Manmohan Singhs
government roared back to life on Friday, 14th of September
by unleashing a blitz of reforms. It also made drastic progress
in allowing multi-brand retailing, which had so far had been
prohibited in India.
The existence of large supermarket brands displacing
traditional Indian mom-and-pop stores is a hot political issue
in India, and the current move to allow 51% FDI in multi
brand retail industry will remain a burning issue for some time
yet to come.
Impact of FDI on Retail Sector in
India
Political Developments:
The Government declared its intention to allow FDI in multi
brand retail upto 51% in November 2011.
This move led to large scale protests from political parties in
the opposition. The UPA and the NDA were divided on the
issue, with differences of opinion about the benefits and
disadvantages of FDI in multi brand retail to different sectors
of the Indian economy.
The BJP threatened to file an adjournment motion in
Parliament if the bill was passed without political consensus.
Political Developments:
BJP alleged the decision to allow 51 per cent FDI in multibrand retail was taken under pressure from the US, UK and
France and challenged the government to face the
adjournment motion if it was confident of majority support.
The TMC, in spite of being a part of the UPA, vehemently
opposed the move. There were a variety of opinions from the
myriad political parties in the melting pot of Indias diverse
political spectrum.
After months of policy paralysis, Manmohan Singhs
government roared back to life on Friday, 14th September, by
unleashing a blitz of reforms.
Impact of FDI on Retail Sector in
India
Political Developments:
In less than 24 hours, the government announced more
measures to liberalize the economy than in the past eight
years.
The government made a decision to allow foreign direct
investment from abroad of up to 51 percent in multi-brand
supermarkets, up to 49 percent in aviation, up to 71 percent
in broadcasting and up to 49 percent in parts of the power
industry.
Singh has cleverly sidestepped opposition parties and
waspish allies this time by leaving it to individual states to
decide whether to allow the supermarkets on their patch.
Impact of FDI on Retail Sector in
India
Political Developments:
The government appears to be gambling that its political
fortunes in the 2014 national elections are best served by being
bold. Indias benchmark BSE index rose 2.46 percent to
18,464.27 points on Friday, its highest close since 26 July, 2011.
The Cabinets decision to approve FDI in multi brand retail has
led to a total disruption of Parliament, with the Opposition
forcing constant adjournments over the issue.
However, the TMC has been a constant thorn in UPAs side and
it has withdrawn support to the Government and the six Cabinet
Ministers of the TMC have submitted their resignations to the
Prime Minister.
Political Developments:
For now though, the Government is safe because the SP and
the BSP have pledged outside support to the UPA, in spite of
their opposition to the Governments recent moves.
The BJP has also made its stand clear, declaring that it does
not intend to file a no-confidence motion.
Political Developments:
Our View:
In principle, governments should not prevent
anybody, Indian or foreign, from setting up
any business unless there are very good
reasons to do so. Hence, unless it can be
shown that FDI in retail will do more harm
than good for the economy, it should be
allowed.
Our View:
A major argument given by opponents of FDI in retail
is that there will be major job losses. Frankly, the
jury is out on whether this is the case or not, with
different studies claiming different findings. Big retail
chains are actually going to hire a lot of people. So,
in the short run, there will be a spurt in jobs.
Eventually, there's likely to be a redistribution of jobs
with some drying up (like that of middlemen) and
some new ones sprouting up.
Our View:
Fears of small shopkeepers getting displaced are
vastly exaggerated. When domestic majors were
allowed to invest in retail, both supermarket chains
and neighbourhood pop-and-mom stores coexisted.
It's not going to be any different when FDI in retail is
allowed. Who, after all, will give home delivery? The
local kirana. Why would anyone shun them?
Our View:
If anything, the entry of retail big boys is likely to hot
up competition, giving consumers a better deal, both
in prices and choices. Mega retail chains need to
keep price points low and attractive - that's the USP
of their business. This is done by smart procurement
and inventory management: Good practices from
which Indian retail can also learn.
Our View:
If anything, the entry of retail big boys is likely to hot
up competition, giving consumers a better deal, both
in prices and choices. Mega retail chains need to
keep price points low and attractive - that's the USP
of their business. This is done by smart procurement
and inventory management: Good practices from
which Indian retail can also learn.
Our View:
The argument that farmers will suffer once global retail
has developed a virtual monopoly is also weak. To begin
with, it's very unlikely that global retail will ever become
monopolies. Stores like Wal-Mart or Tesco are by
definition few, on the outskirts of cities (to keep real
estate costs low), and can't intrude into the territory of
local kiranas. So, how will they gobble up the local guy?
Secondly, it can't be anyone's case that farmers are
getting a good deal right now. The fact is that farmers
barely subsist while middlemen take the cream.
Bibliography:
Print Media:
1. The Times Of India
2. The Hindu
Electronic Media:
1. NDTV 24X7
2. Times Now
3. Headlines Today
4. CNN IBN
Bibliography:
Internet:
1.http://www.globaljurix.com/foreign-direct-investment-retail-fdi.php
2.http://en.wikipedia.org/wiki/Foreign_direct_investment
3.http://www.fibre2fashion.com/industry-article/7/604/fdi-inretailing1.asp
4.http://articles.timesofindia.indiatimes.com/2011-1129/india/30453728_1_retail-sector-small-retailers-global-retailgiants
5.http://sanjaykaul.wordpress.com/2011/12/02/10-reasons-why-fdiin-retail-is-a-bad-idea/
6.http://businesstoday.intoday.in/story/govt-may-announce-fdipackage-for-retail-aviation-sector/1/187955.html
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