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by d ay due to its increasing middle class population and their spending power. India n retail sector has two parts: organized and unorganized sector. Organized secto r which forms around 20 -30 % in other countries , here in India it forms only a bout 6% while rest is all unorganized consisting of small retailers called as ‘ki rana shops’, paan/beedi wala, convenience stores, departmental stores, pavement ve ndors etc. Organized retail consists of supermarkets, hypermarkets and modern re tail outlets, malls, exclusive brand outlets etc which are located in urban ar eas or metros. FDI in retail sector is not allowed, it is only allowed up to 51 % in single bra nd and government is still considering the opinion of allowing FDI in multi bran d segment.100% FDI is allowed in cash and carry wholesale and export trading, bo th wall mart and Carrefour have already entered in India in this segment. Many b ig giants like Wall mart, Carrefour are waiting to earn their fortune in continu ously growing market.FDI in retail sector will have both positive and negative e ffect if allowed. Both organized and unorganized sector will face adverse compet ition from global players. Wal-Mart has a turnover of $256 billion and growing a t an average of 12 -13 % annually. Average size of its stores is 85000sq ft and average turnover is $51 million. Organized sector retail outlets in India like p antaloons, reliance cannot compare with the giant let alone the small retailers. Indian government still fears that if FDI is allowed in retail then unorganized sector will be affected very badly and it will result in a large lot of unemplo yed retailers and other youth which is employed in the supply chain, this unempl oyed lot can’t be absorbed in manufacturing or service sector which can ultimately push a large chunk of population below poverty line. In India unorganized retai l is a ‘forced employment sector’, there are large number of retail outlets because when youth dose not find enough employment opportunities or is not educated enou gh then the easiest resort to earn decent money is to save money or get a loan t o set up a shop. On an average a retailer earns Rs.186075 annually and only 4% o f 12 million retail outlets have area more than 500 square ft. Now if FDI is all owed in such an unorganized sector than many changes can happen which can be pos itive or negative. Talking about the organized sector, which consists of big Indian players who hav e entered in retail sector just to take advantage of diversification and expand their business, they will also be affected but from different prospects. Major c hallenges that lie ahead are: Economies of scale: the global players have economies of scale and are perfect i n cost cutting and providing the consumer the best at lowest price which still i s a major challenge for Indian retail firms. The way they perform their process itself builds an entry barrier for other new firms. Brand name: They bring with them world class products which have high quality an d a highly valued brand name. The domestic brands don’t have that charm and attrac ting power as of global brands. Technology: Global players are highly advanced in technology. The tools, equipme nts, kind of warehouses they use, their way of performing processes are highly a dvanced and cannot be compared with those used by Indian retail firms, which in turn provides better services and better quality products even in categories lik e perishable food etc. Attract skilled employees: The work culture of global players is quite different from those of Indian players. They believe in earning profits by cutting costs as much as possible and at the same time are conscious towards career of their e
after Brazil. ball bearings. its highest reading since the Apri l-June 2007 quarter. This is possible when 100% FDI is allowed in multi-brand retail. electric fans and the tire industry. Exports from Indian SEZs grew by over 68 percent (to US$12. make it an attractive destination for manufacturers. auto components. crude oil. Their approach is more oriented towards achieving ends rather than mea ns. nitrogen fertilizer s. Rieter Nittoku Au tomotive Sound Proof Products India Pvt Ltd. Doosan Heavy Industries and Construction Co Ltd of South Korea has shown interes t in setting up a power equipment manufacturing unit in Haryana to be fully owne d by the overseas corporation. Tamil Nadu. better transportation medium a nd high investment can pose another threat to Indian retail firms which can hard ly match the capabilities of giants on their own. The work and category of FDI has changed significantly since India has open ed up to world markets. construction equi pment. India is ranked second in the world in terms of manufacturing capability. Floating by India’s reaction to its su per-machines. with an initial establishing cost of U S$26 million. accord ing to the “2010 Global Manufacturing Competitiveness Index’” by Deloitte Touched Tohm atsu and the US Council on Competitiveness. natural gas. Growth in India’s manufacturing sector Approximately 50 sectors in India’s domestic manufacturing sector grew by 39 perce nt during the April – December 2010 period. together with its English-speaking workforce and democrat ic regime.55 billion) as compar ed to the corresponding period of 2009-10. the manufacturing industry showed positive results despite less than impressive performance in other secto rs. Field Fresh. Attractive salary and high incentives can also attract skilled employees tow ards global players which is also a threat for big Indian retail firms. However. FDI stocks and production ar e equally reinforcing the domestic manufacturing sector. for the m anufacturing of products in the defense and aerospace sectors. electrical and cable wires. power tra nsformers.5 for the appraisal quarter. India’s workforce of scientists. resea rchers. Pipavav Shipyard has signed a memorandum of under standing (MoU) with SAAB Dynamics AB. the 50:50 JV of Bharti Enterprises and Filipino firm Del Monte Pacific Ltd formed in 2007. Joint ventures: Global players may not prefer to enter into joint ventures with Indian firms and may also close down the existing ventures in wholesale and sing le brand which may adversely affect the Indian firms. alcoholic beverages and textile machinery have registe red around 10-20 percent growth. and engineers. achieving the “excellent growth” category. registering a growth of 17. part of Sweden’s Wallenberg Group.mployees. This will be its second establishment outside the United States. energy meters. it turns out that the developmen t effects of FDI differ extensively across sectors. In the last quarter of the year. has started its R&D and manufacturing unit at Hosur. the report says. This has fuelled high prospect that FDI may serve up as a channel to advanced economic growth. a joint venture between Rieter grou . Better infrastructure: Better storage facilities.3 percent during the first nine months o f the existing fiscal. These segments are air conditioners. Twenty-two segments entered the “high growth” group. iconic American superbike maker Harley Davidson is setting up an a ssemblage unit at Bawal. 11 – Foreign direct investment (FDI) has risen considerably in post-reform In dia. Haryana. tractors. The Impact of FDI on India’s Manufacturing SectorFeb. In 2010. Industries such as utility vehicles. the indicator of the overall condition of the manufacturing sector has moved up to 126.
are expected to lead to even more FDI. These results show that India is emerging as a lucrative de stination in the long term. the bur eaucratic layers and the numerous bodies from which clearances are to be obtaine d all add up to considerable business costs and management time. Ma in objectives of these NMIZs are: • To promote investments in the manufacturing sector and make the country a hub fo r both domestic and international markets • to increase the sectoral share of manufacturing in GDP to 25 percent by 2022 • to double the current employment level in the sector • To enhance global competitiveness of the sector Reasons for Dissatisfaction One of the main reasons for the dissatisfaction amongst foreign investors is pro cedural delays. This is a cheering figure mainly when one views it in light of the fact t hat a large amount of companies that reported losses in their India operation (2 1 percent) belong to the category of firms that have been in service in India fo r less than 5 years. coupled with t he ease of use of skilled labour force in this sector. A huge number of foreign direct investors (around 62 percent) stated that they w ere making profits in their current operations in India according to the FICCI s urvey. 2010. that have been recognized f or excellence in quality. India has taken in a huge amount of FDI in a var iety of sectors. The government is also planning to set up National Manufacturing and Investment Zones (NMIZs). India is quickly rising as a worldwide manufacturing hub with a huge number of c ompanies changing their manufacturing base to the country. . Most investors feel that projects handled at the state level are disorganized and unstructured in comparison to the projects handled at central level. whereas FDI inflow in the manufacturing se ctor is upbeat and encouraging. outside of Japan. has boosted the FDI inflo w.p of Switzerland and Nihon Tokushu Toryo Co Ltd of Japan. Conclusion In the post liberalization age. creating an iss ue of severe concern for investors. The large market for computer hardware in India. Nissan Motors and Nokia have alrea dy shown interest in increasing their unit size in India. The government has issued the new “Consolidated Foreign Direct Investment Policy. India ha s the largest number of companies. The time-intense administration and compliance measures. Furthermore. in terms of increased utilization in India as we ll as increasing demand for exports. But it is evident now that some foreign investors sho w dissatisfaction in only some areas.” which came into effect April 1. has invested US$15 mil lion in a new unit at Oragadam. near Chennai. Soaring expansion prospects.