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DISSERTATION On Impact of FDI in Retail Sector on Marketing of Agricultural Produce in India



SUBMITTED TO: Dr Raj Kumar Singh Associate Professor, SMS, Varanasi

SUBMITTED BY: Neetu Singh PGDM 4th SEM PG/18/040

Declaration I hereby declare that the information presented in this report is based on secondary data. I have utilized the requisite concepts and applied the required methodologies to analyze the secondary data present in the report.

Neetu Singh PGDM 4th SEM Roll No PG/18/040


It is indeed a moment of immense gratefulness for me to express my deepest gratitude to the faculty of SMS for providing me the opportunity to work on the Impact of FDI in Retail Sector on Marketing of Agricultural Produce in India I express my sincere gratitude to my project mentor Dr Raj Kumar Singh (Associate Professor) for his valuable guidance and suggested by pursuing the project and for taking pain to give his valuable inputs to structure the report. Without his help and valuable inputs and guidances, the completion of this project would have not been possible.

Neetu Singh PGDM 4th SEM PG/18/040

Serial No 1. Topic Introduction FDI in retail sector and competition issues in India. Overview of Retail Sector in India. Types of product retailed. Agricultural Produce Marketing Committee Act. SWOT Analysis of Retail Sector. Impact of FDI on Farming Community. Benefits of FDI and Competition in Organized Retail in India. Analysis of FDI regulations in Single Brand and Multi Brand retail. Page No 1-2 3-4 5-9 10-11 12-16 17-20 21-25 26-28 29-50

2. 3. 4. 5. 6.

Objectives Research Methodology Findings Conclusions Recommendations and Suggestions Scope of the future study Bibliography

51 52-53 54-55 56 57-59

7. 8.

60 61

Impact of FDI in Retail Sector on Marketing of Agricultural Produce in India INTRODUCTION FDI in retail sector and Competition issues in India. The Eminent Economist and Prime Minister of India Dr. ManMohan Singh have played an important role in liberalizing Indian economics. First as opening the Indian market for world by allowing FDI and secondly to extend the FDI in multi brand retail sector. It has been said that arguing against globalization is like arguing against the laws of gravity. INDIAN HISTORY ON FDI: Pre-Liberalization Era FDI through foreign investors was welcomed in the areas of high technology and high priorities to build national competency and to protect and encourage domestic industries. The regulatory framework was consolidated through the enactment of Foreign Exchange Regulation Act (FERA), 1973 where foreign investor in a joint venture was permitted only up to 40 per cent. Afterwards, various exemptions were extended to foreign investors involved in export oriented businesses and high technology and high priority areas including allowing equity holdings of over 40 per cent.

Additionally, after watching success stories in Asia, Government not only recognized special economic zones (SEZs) but also designed liberal policy and provided encouragements for promoting FDI in these zones with a view to promote exports. Recognizing limitations partial liberalization in the trade and investment policy was introduced in the 1980s with the objective of enhancing export competitiveness, modernization and marketing of exports through Trans-national Corporations (TNCs). The announcement of the Industrial Policy (1980 and 1982) and Technology Policy (1983) provided for a liberal attitude towards foreign investments in terms of changes in policy directions. The policy was characterized by delicensing of some of the industrial rules and promotion of Indian manufacturing exports as well as emphasizing on modernization of industries through liberalized imports of capital goods and technology. This was supported by trade liberalization measures in the form of tariff reduction and shifting of large number of items from import licensing to Open General Licensing (OGL). Post-Liberalization Period A major shift occurred when India open up its economic for liberalization and reforms program in 1991. In directing to promotion its growth potential and integrating with the world economy. Industrial policy reforms gradually removed restrictions on investment projects and business expansion on the one hand and allowed increased access to foreign technology and funding on the other. Some of reforms included: (i) Introduction of dual route of approval of FDI RBIs automatic route and Governments approval The Foreign Investment Promotion Board (FIPB) route,

(ii) Automatic permission for technology agreements in high priority industries and removal of restriction of FDI in low technology areas as well as liberalization of technology imports, (iii) Permission to Non-resident Indians (NRIs) and Overseas Corporate Bodies (OCBs) to invest up to 100 per cent in high priorities sectors, (iv) Hike in the foreign equity participation limits to 51% for existing companies and liberalization of the use of foreign brands name and (v) Signing the Convention of Multilateral Investment Guarantee Agency (MIGA) for protection of foreign investments. These efforts were boosted by the enactment of Foreign Exchange Management Act (FEMA), 1999 [that replaced the Foreign Exchange Regulation Act (FERA), 1973] which was less stringent. This along with the sequential financial sector reforms paved way for greater capital account liberalization in India

Retail Sector in India Retailing defines the direct interface between the manufacturers and the end users who are basically individual consumers. The retail business owners stock up all goods after purchasing it directly from the manufacturers and then sell it to individual customers keeping a profit margin for themselves. Of late the retailing industry in India has bloomed with much coveted success causing positive impact on the national economy. As per the recent revelations by the popular International Management Consultancy AT Kearney, India has been considered the second most lucrative destinations of the world for retail business. In India, retailing industry is classified into two classesOrganized Retailing entails trading conducted by licensed retailers and Unorganized Retailing includes all types of low cost trading like local shops, small roadside stores and temporary shops or door to door selling of various goods

Organised retailing

Unorganised retailing

Now the announcement of retail FDI in India has triggered a series of debates on both positive and negative notes and thus become political issue. The organized and unorganized sector of retail in India can be seen as follow: (Source- Retail Sector: Seeks industry status). India's retail sector is worth US$ 350 billion and has a low organized retail penetration (ORP) of 5 per cent to 8 per cent and is now growing at a compound annual growth rate (CAGR) of 15 per cent to 20 per cent, according to a PricewaterhouseCoopers (PwC) research report titled 'Winning in India's retail sector: Factors for success'. Type of products retailed Retail sector in India is primarily categorized by the type of products retailed, as opposed to the different retail formats in operation. The Food and Grocery vertical is the largest segment and accounts for close to 60% of the total value addition. This category has the highest consumer demand across all income levels and various retail formats. The Indian consumer behavior of preferring proximity to retail formats is highly pronounced in this sector, with food, grocery and allied products largely sourced from the local stores or push-cart vendors. Food retail chains and traditional retailers in India In India, the number of street vendors increased after the economic liberalization policy was initiated in 1991. The street vendors in India constituted about 2% of the population of the metropolis. The total number of street vendors were estimated around 10 million. According to the study by National Alliance of Street Vendors in India (NASVI) around 20% of the earnings of the street vendors were taken as rent by municipal authorities and the police. In Ahmadabad, 30% of the vendors had taken to street vending due to

the loss of their jobs in formal sector. A similar study by SEWA in Ahmadabad, showed that half of the laid-off textile workers had taken to street vending. In Ahmadabad, around 40% of the 80,000 street vendors were women (Bhowmik, 2005). In Mumbai, 71% of the unorganized retailers reported decline in sales with the emergence of the organized retail. Only 18% of the shops/hawkers reported that their sales were unaffected by the large retail chain malls while only 11% reported an increase in sales as they opined that they offered products and services not available in the malls. Some eateries close to the malls also reported an increase in sales due to patronage of the mall employees. All the F&V retailers showed a decline in sales after the opening of organized retailers. Most frequently shops reported a 20% fall in sales but the intensity varied by type of product. 64% reported a loss of high value customers. The decline in sales had most frequently impacted larger shops (400-500 sq ft and 300-400 sq ft) and least commonly the size range of 100-200 sq ft. Only 14% reported some new sales initiatives like tele-orders, home delivery and sales on credit. Despite the falling sales, 96% of the retailers did not increase their working hours as they reported that their family members were already working for 11 to 14 hours per day. 63% of the unorganized retailers felt threatened by the opening of malls.16% of them felt threatened with closure. Hawkers, particularly women and children, faced eviction drives and harassment around the malls. 41% reported an increase in eviction drives, 24% in harassment by agents of the malls, while 17% reported an increase in bribes and hafta (weekly bribes to local officials and police). 72% of the hawkers experienced a fall in sales and all reported falling profits (Kalhan, 2007). Joseph et al (2008) carried out a study on impact of the organized retailing on unorganized retailers in India For this purpose, 1999 unorganized

retailers were surveyed in the vicinity of the organized retailers; of which 65% belonged to grocery and general store, 19.7% to textile and clothing shop, 7.6% to fixed FFV seller and 7.8% to push cart hawkers. Fixed FFV shops on an average had a shop size of 129 sq.ft. The unorganized retail outlets employed more family labor (1.5 persons/shop) than hired labor (1.1 persons/shop). The study revealed that there was an increase in employment in South (2.7%) and East (1%) but decline in the West (-3.4%) and no employment change in North (-0.1%); overall a negligible increase in employment (0.8%) after the emergence of organized retail outlets in India. The annual decline in turnover and profit was the highest in West (19% each) followed by East (11% in turnover and 16% in profit), North (10-11% each) and insignificant in South (1%); the overall annual decline in turnover and profit ranged between 8-9% in India. Further, unorganized retailers who reported decline in turnover due to competition from organized retailers was highest in West (59%), followed by East and North (48% each) and least in South (23%); the overall being 40%. Category-wise, 39% of the fixed fruit/vegetable sellers and 34% F&V hawkers reported decline in turnover. The adverse impacts on the sales and profit weakened over time. The annualized closure of the unorganized retailers due to the competition from organized retailers was higher in West region (3.2%), 1.5% each in North and South and least in the East (0.4%); the overall in India being 1.7%. The unorganized retailers had undertaken a number of steps in response to competition from the organized retailers such as: adding new product lines and brands (53-56% each), better display (60%), renovation of the store, introduction of self-service (34%), reduced expenses (34%), reduced prices discontinued some product (28%),enhanced home delivery (25%), more credit sales (21%) etc. Only 10% of the unorganized

retailers were willing to take up the franchisee with the organized retailers (Joseph et al, 2008).



The annual decline in turnover and profit was the highest in West (19% each) followed by East (11% in turnover and 16% in profit), North (10-11% each) and insignificant in South (1%); the overall annual decline in turnover and profit ranged between 89% in India. Further, unorganized retailers who reported decline in turnover due to competition from organized retailers was highest in West (59%), followed by East and North (48% each) and least in South (23%); the overall being 40%. Category-wise, 39% of the fixed fruit/vegetable sellers and 34% F&V hawkers reported decline in turnover. The adverse impacts on the sales and profit weakened over time. The annualized closure of the unorganized retailers due to the competition from organized retailers was higher in West region (3.2%), 1.5% each in North and South and least in the East (0.4%); the overall in India being 1.7%. The unorganized retailers had undertaken a number of steps in response to competition from the organized retailers such as: adding new product lines and brands (53-56% each), better display (60%), renovation of the store, introduction of selfservice (34%), reduced expenses (34%), and reduced 36 prices (33%), discontinued some products (28%), enhanced home delivery (25%), more credit sales (21%) etc. Only 10% of the unorganized retailers were willing to take up the franchisee with the organized retailers (Joseph et al, 2008). Another sample of 805 unorganized retailers (control sample) was also taken from unorganized retailers who were located away from the organized retailers to test whether the impact of the organized retailers had been confined only to traditional retailers in the vicinity of these retailers or not. The control sample recorded an overall growth in turnover and profit of about 2% and 5% respectively. Only 24-25% of unorganized retailers in the controlled sample reported decline in turnover

and profit each due to the emergence of the organized retail outlets. The study recommended that the cooperatives and associations of the unorganized retailers should be encouraged for direct procurement from suppliers and farmers and ensured better credit availability to unorganized retailers from banks and micro-credit institutions (Joseph et al, 2008). Gopalakrishnan and Srinivasan (2009) argue that corporate food retail which they turn as corporate food provisionwill accelerate many key elements of India.


Agriculture Produce Marketing Committee Act States and union territories have enacted the Agriculture Produce Marketing Committee (APMC) Act regulating the procurement of agricultural and fisheries produce, including fresh fruits and vegetables. A few States permit direct procurement from farmers. Others require the agricultural produce to be brought into designated market yards and sold through an auction mechanism. With a view to streamlining the procurement system, the government has asked state governments to review their APMC Acts and enable direct procurement from farmers, besides simplifying the procedures. The government has also taken measures to improve the existing supply chain and facilitating farm-to-fork integration. For example, tax benefits have been provided and foreign currency loans are permissible for establishing cold chain storage facilities. Many have been demanding an overhaul or scrapping of the APMC Act, which breeds profiteering middlemen, but the movement has been slow or inadequate. Political patronage among other factors is the reason for its slow movement. The Onion price crisis in 2011 was mainly due to the fact that wholesale traders indulged in price gouging though not necessarily in a cartelized fashion. This has happened many times before and will continue to happen in future also. Price leaders set the trend for increased prices, which may be termed as abuse of collective dominance. It is also a result of governance failure, when the administration was not alert and did not use recourse to law or other safeguards. One service which these middlemen offer to farmers is unsecured credit, which in fact ties them to bring their produce to them. Alternative credit mechanisms will need to be developed to help farmers.

SWOT Analysis of Retail Sector

1. Strengths: Major contribution to GDP: the retail sector in India is hovering around 33-35% of GDP as compared to around 20% in USA. High Growth Rate: the retail sector in India enjoys an extremely high growth rate of approximately 46%. High Potential: since the organized portion of retail sector is only 2-3%, thereby creating lot of potential for future players. High Employment Generator: the retail sector employs 7% of work force in India, which is right now limited to unorganized sector only. Once the reforms get implemented this percentage is likely to increase substantially. 2. Weaknesses (limitation): Lack of Competitors: AT Kearneys study on global retailing trends found that India is least competitive as well as least saturated markets of the world. Highly Unorganized: The unorganized portion of retail sector is only 97% as compared to US, which is only 20%.


Low Productivity: McKinsey study claims retail productivity in India is very low as compared to its international peers. Shortage of Talented Professionals: The retail trade business in India is not considered as reputed profession and is mostly carried out by the family members (selfemployment and captive business). Such people are not academically and professionally qualified. No Industry status, hence creating financial issues for retailers: the retail sector in India does not enjoy industry status in India, thereby making difficult for retailers to raise funds.

Opportunities (benefits): There will be more organization in the sector: Organized retail will need more workers. According to findings of KPMG, in China, the employment in both retail and wholesale trade increased from 4% in 1992 to about 7% in 2001, post reforms and innovative competition in retail sector in that country. Healthy Competition will be boosted and there will be a Check on the prices (inflation): Retail giants such as WalMart, Carrefour, Tesco, Target and other global retail companies already have operations in other countries for over 30 years. Until now, they have not at all become

monopolies rather they have managed to keep a check on the food inflation through their healthy competitive practices. Create transparency in the system: the intermediaries operating as per mandi norms do not have transparency in their pricing. According to some of the reports, an average Indian farmer realizes only one-third of the price, which the final consumer pays. Intermediaries and mandi system will be evicted, hence directly benefiting the farmers and producers: the prices of Commodities will automatically be checked. For example, according to Business Standard, Wal-Mart has introduced Direct Farm Project at Haider Nagar in Punjab, where 110 farmers have been connected with Bharti Wal-Mart for sourcing fresh vegetables directly. .Quality Control and Control over Leakage and Wastage: Due to organization of the sector, 40% of the production does not reach the ultimate consumer. According to the news in Times of India, 42% of the children below the age group of 5 are malnourished and Prime Minister Dr.Manmohan Singh has termed it as national shame. Food often gets rot in farm, in transit and in state-run warehouses. Cost conscious and highly competitive retailers will try to avoid these wastages and losses and it will be their endeavor to make quality products available at lowest prices, hence making food available to weakest and poorest segment of Indian society.

Heavy flow of capital will help in building up the infrastructure for the growing population: India is already operating in budgetary deficit. Neither the government of India nor domestic investors are capable of satisfying the growing needs (school, hospitals, transport etc.) of the ever growing Indian population. Hence foreign capital inflow will enable us to create a heavy capital base. There will be sustainable development and many other economic issues will be focused upon: Many Indian small shop owners employ workers, who are not under any contract and also under aged workers giving rise to childlabor. It also boosts corruption and black money.

4. Threats: Current Independent Stores will be compelled to close: This will lead to massive job loss as most of the operations in big stores like Wal-Mart are highly automated requiring fewer work forces. Big players can knock-out competition: they can afford to lower prices in initial stages, become monopoly and then raise price later. India does not need foreign retailers: as they can satisfy the whole domestic demand.

Remember East India Company it entered India as trader and then took over politically. The government hasnt able to build consensus.


Effects of FDI on various Stakeholders Impact on Farming Communities A supermarket revolution has been underway in developing countries since the early 1990s. Supermarkets (here referring to all modern retail, which includes chain stores of various formats such as supermarkets, hypermarkets, and convenience and neighborhood stores) have now gone well beyond the initial upper- and middle-class clientele in many countries to reach the mass market. Within the food system, the effects of this trend touch not only traditional retailers, but also the wholesale, processing, and farm sectors. When supermarkets modernize their procurement systems, they require more from suppliers with respect to volume, consistency, quality, costs, and commercial practices. Supermarkets impact on suppliers is biggest and earliest for food processing and food-manufacturing enterprises, given that some 80% of what supermarkets sell consists of processed, staple, or semi-processed products. But by affecting processors, supermarkets indirectly affect farmers, because processors tend to pass on the demands placed on them by their retail clients. Supermarket chains prefer, if they are able, to source from medium and large processing enterprises, which are usually better positioned than small enterprises to meet supermarketsrequirements. The rise of supermarkets thus poses an early challenge to processed food microenterprises in urban areas. By contrast, as supermarkets modernize the procurement of fresh produce (some 1015% of supermarketsfood sales in

developing countries), they increasingly source from farmers through specialized and dedicated wholesalers (specialized in product lines and dedicated to modern segments) and occasionally through their own collection centers. Where supermarkets source from small farmers, they tend to buy from farmers who have the most non-land assets (like equipment and irrigation), the greatest access to infrastructure (like roads and cold chain facilities), and the upper size treacle of land (among small farmers). Where supermarkets cannot source from medium- or large-scale farmers, and small farmers lack the needed assets, supermarket chains (or their agents such as the specialized and dedicated wholesalers) sometimes help farmers with training, credit, equipment, and other needs. Such assistance is not likely to become generalized, however, and so overtime asset-poor small farmers will face increasing challenges surviving in the market as it modernizes. When farmers enter supermarket channels, they tend to earn from 20 to 50% more in net terms. Among tomato farmers in Indonesia, for example, net profit (including the value of own labour as imputed cost) is 3339% higher among supermarket channel participants than among participants in traditional markets. Farm labour also gains. But supplying supermarket chains requires farmers to 29 make more up-front investments and meet greater demands for quality, consistency, and volume compared with marketing to traditional markets. Support for retail reforms In a pan-Indian survey conducted over the weekend of 3 December 2011, overwhelming majority of consumers and farmers in and around ten major cities across the country support the retail reforms. Over 90 per cent of consumers said FDI in retail will bring down prices and offer a wider choice of

goods. Nearly 78 per cent of farmers said they will get better prices for their produce from multi format stores. Over 75 per cent of the traders claimed their marketing resources will continue to be needed to push sales through multiple channels, but they may have to accept lower margins for greater volumes.


Farmer groups Various farmer associations in India have announced their support for the retail reforms. For example:

(AIVGA) claims his organization supports retail reform. He claimed that currently, it is the middlemen commission agents who benefit at the cost of farmers. He urged that the retail reform must focus on rural areas and that farmers receive benefits. Gadhve claimed, "A better cold storage would help since this could help prevent the existing loss of 34% of fruits and vegetables due to inefficient systems in place." AIVGA operates in nine states including Maharashtra, Andhra Pradesh, West Bengal, Bihar, Chhattisgarh, Punjab and Haryana with 2,200 farmer outfits as its members.

75,000 members says it supports retail reform. Ajay Vir Jakhar, the chairman of Bharat Krishak Samaj, claimed a monopoly exists between the private guilds of middlemen, commission agents at the sabji mandis (India's wholesale markets for vegetables and farm produce) and the small shopkeepers in the unorganized retail market. Given the perishable nature of food like fruit and vegetables, without the option of safe and reliable cold storage, the farmer is compelled to sell his crop at whatever price he can get. He cannot wait for a better price and is thus exploited by the current monopoly of middlemen. Jakhar asked that the government make it mandatory for organized retailers to buy 75% of Their produce directly from farmers, bypassing

the middlemen monopoly and India's sabji mandi auction system. Consortium of Indian Farmers Associations (CIFA) announced its support for retail reform. Chengal Reddy, secretary general of CIFA claimed retail reform could do lots for Indian farmers. Reddy commented, India has 600 million farmers, 1,200 million consumers and 5 million traders. I fail to understand why political parties are taking an anti-farmer stand and worried about half a million brokers and small shopkeepers. CIFA mainly operates in Andhra Pradesh, Karnataka and Tamil Nadu; but has a growing member from rest of India, including Shetkari Sanghatana in Maharashtra, Rajasthan Kisan Union and Himachal Farmer Organizations.

Horticulture & Livelihood of Himachal Pradesh, announcing his support for retail reforms claimed FDI is expected to roll out produce storage centers that will increase market access, reduce the number of middlemen and enhance returns to farmers. Highly perishable fruits like cherry, apricot, peaches and plums have a huge demand but are unable to tap the market fully because of lack of cold storage and transport infrastructure. Sales will boost with the opening up of retail. Even though India is the second-largest producer of fruits and vegetables in the world, its storage infrastructure is grossly inadequate, claimed Thakur.

(farmersassociation), has announced his support for retail reforms.[40] Joshi claims FDI will help the farm sector improve

critical infrastructure and integrate farmer-consumer relationship. Today, the existing retail has not been able to supply fresh vegetables to the consumers because they have not invested in the backward integration. When the farmers' produce reaches the end consumer directly, the farmers will naturally be benefited. Joshi feels retail reform is just a first step of needed agricultural reforms in India, and that the government should pursue additional reforms.


Case1.How various MNCs are helping Farmers PepsiCo India Helping Farmers Improve Yield and Income The companys vision is to create a cost-effective, localized agrosupply chain for its business by: 1. Building PepsiCos stature as a development partner by helping farmers grow more and earn more. 2. Introducing new high-yielding varieties of potato and other edibles. 3. Introducing sustainable farming methods and practicing contact farming. 4. Making world-class agricultural practices available to farmers and helping them raise farm productivity. 5. Working closely with farmers and state governments to improve agro sustainability and crop diversification. 6. Providing customized solutions to suit specific geographies and locations.

7. Facilitating financial and insurance services in order to derisk farming.


Case 2. Bharti Wal-Mart initiative through Direct Farm Project Corporate Social Responsibility (CSR) initiatives in Bharti WalMart are aimed at empowerment of the community thereby fostering inclusive growth. Through our philanthropic programs and partnerships, we support initiatives focused on enhancing opportunities in the areas of education, skills training and generating local employment, women empowerment and community development. In conjunction with the farmers development program in Punjab, community-building activities have been implemented in village, Haider Nagar. Due to lack of sanitation facilities, households tend to use the farm fields, thereby affecting yields and impacting the produce that is being supplied to stores. In order to improve the yields and the communitys way of life, we are working on the issues of Sanitation and Biogas, Education, Awareness Building and Health and Hygiene. Education: 100% children enrolled in formal education program. Childrens group had been formed to discuss children issues. All the nonschool going children had been given non-formal basic education required to mainstream them in the government schools. A sanitation block has been constructed, hand pump has been installed and school uniforms have been donated to create a better learning environment for children. Fifteen students have been mainstreamed back in school.

Health and Hygiene: A dispensary has been started in Haider Nagar to help people avail medical facilities in the village itself. Nearly 2000 patients have availed the dispensary facilities. Twenty Community Dustbins have also been installed in the village to bring about a change in the living conditions of the people and to provide them garbage free environment. Sanitation and Biogas: Ensured that 100% households have toilets in the village. Eighty Bio Gas plants have been installed to help people conserve gas energy and utilize the waste generated from their cattle and toilets; thus making the environment healthier. Waste Management: twenty Community Dustbins have been installed in the village to bring about a change in the living conditions of the people and to provide them garbage free environment thus ensuring a healthier living.


Benefits of FDI and Competition in Organized Retail in India The changing structure and scale of retail can critically impact several industries in the short term the retail industry itself, manufacturing, and real-estate, to name a few. And in the long term, spill-over effects can be felt in other industries. The growth of retailing has the potential to impact the performance of interlinked sectors such as manufacturing of consumer goods and agriculture-based industries. The potential benefits of allowing entry by large foreign discount retail chains on lowering inflation, improving distribution and warehousing technologies. We do so by comparing findings from US studies that examine the effects of Wal-Mart and other large chains entering the US retail sector and the upheaval in the retail landscape brought about in the US beginning in the early 1990s. The section concludes by describing a couple of policy recommendations made in the Indian Governments recent discussion paper on opening up the retail sector with a view to protecting domestic firms and increasing employment in the retail sector.

Improving Distribution and Warehousing Technologies It is expected that technical knowhow from foreign firms , such as warehousing technologies and distribution systems, for example, will lend itself to improving the supply chain in India,

especially for agricultural produce. Here there are multiple inefficiencies in the supply chain that leads from farm to the dinner table. While the Indian government is the largest purchaser of food crops for many farmers, the consequence of a poor distribution system is that much of the stockpile fails to reach consumers, and ends up rotting or as waste. India is the worlds second largest producer of fruits and vegetables in the world after China, producing around 180 million tonnes per year. Official estimates are that about 25-30 per cent of this produce goes waste between harvest and consumption. Encouraging wholesale trading can create demand throughout the supply chain. In this spirit, the recent discussion paper talks of earmarking 50 per cent of FDI inflows for building up of backend infrastructure, logistics and agro processing (DIPP Report, 2010). In theory, if fresh produce is collected efficiently at the farm-gate, and end-to-end cold-chain is maintained in storage and transportation until it reaches supermarket shelves as in developed countries, this wastage can be eliminated, translating into better prices for farmers and lower prices for consumers besides greater availability of the produce for processing, export and other value-addition. Creating better linkages between demand and supply also has the potential to improve the price signals that farmers receive. This could allow them to better respond to market demand, and thus reduce uncertainty. The Indian Prime Minister, Dr ManMohan Singh, called for a debate on the opening up of the sector on similar lines, pointing to the vast difference between farm gate and consumer prices.9 In this context, the DIPPs discussion paper points out that the farmers get just a third of the total price paid by the final consumer, as against two-thirds realized by farmers in nations with a higher share of organized retail. FDI in retail, therefore, could be an

efficient way of addressing concerns of farmers and consumers (DIPP Report, 2010). Employment Effects and Small Domestic Firms The Indian Government recommends that retail firms source a percentage of manufactured products from the small and medium domestic enterprises (DIPP Report, 2010). With a restriction of this sort, the opening up of the retail sector to FDI could therefore provide a boost to small-and medium enterprises. Moreover, expansion in the retail sector could also generate significant employment potential, especially among rural and semi-urban youth. The discussion paper considers the possibility of reserving 50 per cent jobs in FDI-funded retail outlets for rural youth. Other issues up for debate include identifying possible locations for such outlets. The current thinking is that these stores could initially be allowed to come up in cities with populations of over one million, particularly on the Outskirts.


Challenges for Foreign Firms in Organized Retail The first challenge is competition from the unorganized sector. Traditional retailing has been established in India for many centuries, and is characterized by small, familyowned operations. Because of this, such businesses are usually very low-margin, are owner-operated, and have mostly negligible real estate and labor costs. Moreover, they also pay little by way of taxes. Consumer familiarity that runs from generation to generation is one big advantage for the traditional retailing sector. It is often said that the mom-and-pop store in India is more like a father-and-son enterprise. Such small shops develop strong networks with local neighborhoods. The informal system of credit adds to their attractiveness, with many houses running up a tab with their neighborhood kirana store, paying it off every fortnight or month. Moreover, low labor costs also allow shops to employ delivery boys, such that consumers may order their grocery list directly on the phone. These advantages are significant, though hard to quantify. In contrast, players in the organized sector have to cover big fixed costs, and yet have to keep prices low enough to be able to compete with the traditional sector. Getting customers to switch their purchasing away from small neighborhood shops and towards large-scale retailers may be a major challenge. The experience of large Indian retailers such as Big Bazaar shows that it is indeed possible. Anecdotal evidence of consumers who return from such shops suggests that the wholesale model provides for major

bargains something Indian consumers are always on the lookout for. The other major challenge for retailers in India, as opposed to the US, is the storage setup of households. For the largescale retail model to work, consumers visit such large stores and return with supplies likely to last them for a few weeks. Having such easy access to neighborhood stores with whom, as discussed above, it is possible to have a line of credit and easy delivery service, congested urban living conditions imply that few Indian households might be equipped with adequate storage facilities. In urban settings, real estate rents are also very high. Thus the opportunities in this sector are limited to those retailers with deep pockets, and puts pressure on their margins. Conversely, for retailers looking to set up large stores at a distance from residential neighborhoods may struggle to attract consumers away from their traditional sources of groceries and other products.

The policy of allowing 100% FDI in single brand retail can benefit both the foreign retailer and the Indian partner foreign players get local market knowledge, while Indian companies can access global best management practices, designs and technological knowhow. By partially opening this sector, the government can reduce the pressure from its trading partners in bilateral and multilateral negotiations and can demonstrate Indias intentions in liberalizing this sector in a phased manner. Permitting foreign investment in agricultural retailing is likely to ensure adequate flow of capital into rural economy in a manner likely to promote the welfare of all sections of society,

particularly farmers and consumers. It will bring about improvements in farmer income and agricultural growth and assist in lowering consumer price inflation. Apart from this, by allowing FDI in retail trade, India will significantly flourish in terms of quality standards and consumer expectations, since the inflow of FDI in retail sector is bound to pull up the quality standards and cost competitiveness of Indian farmers. It, therefore, seems that FDI in agricultural retailing has the potential of sustaining agricultural growth.. It is to be noted that the Indian Council of Research in International Economic Relations (ICRIER), a premier economic think tank of the country, which was appointed to look into the impact of BIG capital in the retail sector, has projected the worth of Indian retail sector to reach $496 billion by 2011-12 and ICRIER has also come to conclusion that investment of big money (large corporate and FDI) in the retail sector will not harm interests of small and traditional retailers. In India the retailing industry has a long way to go and to become a truly flourishing industry, retailing needs to cross various hurdles. The first challenge facing the organized retail sector is the competition from unorganized sector. Needless to say, the Indian retail sector is overwhelmingly swarmed by the unorganized retailing with the dominance of small and medium enterprises in contradiction to the presence of few giant corporate retailing outlets. The trading sector is also highly fragmented, with a large number of intermediaries who operate at a strictly local level and there is no barrier to entry, given the structure and scale of these operations (Singhal 1999).The tax structure in India favors small retail business. Organized retail sector has to pay huge

taxes, which is negligible for small retail business. Thus, the cost of business operations is very high in India. Developed supply chain and integrated IT management is absent in retail sector. This lack of adequate infrastructure facilities, lack of trained work force and low skill level for retailing management further makes the sector quite complex. Also, the intrinsic complexity of retailing- rapid price changes, threat of product Obsolescence, low margins, high cost of real estate and dissimilarity in consumer groups are the other challenges that the retail sector in India is facing. The status of the retail industry will depend mostly on external factors like Government regulations and policies and real estate prices, besides the activities of retailers and demands of the customers also show impact on retail industry. Even though economy across the globe is slowly emerging from recession, tough times lie ahead for the retail industry as consumer spending still has not seen a consistent increase. In fact, consumer spending could contract further as banks have been overcautious in lending. Thus, retailers are witnessing an uphill task in terms of wooing consumers, despite offering big discounts. Additionally, organised retailers have been facing a difficult time in attracting customers from traditional kirana stores, especially in the food and grocery segment.


The Benefits of FDI in Retail to Indian Farmers and Consumers From the day the Government of India notified FDI in Retail allowing foreign companies to have 51% stake, there has been a flurry of opinions both for and against allowing Big Retailers like Wal-Mart an entry into India. Though most of the opinions have been in support of the move there have been a few voices of caution against the entry of Big Box Retail. Most of the debate arguing why Kiranas wont be hit or farmers will benefit, are sadly backed by very limited empirical evidence in terms of similar experiences in other countries. Let us look at some the biggest arguments in favor of FDI and examine why they might well turn out to be pipe dreams: 1. Wal-Mart will provide better prices to Farmers One of the biggest arguments in favor Big Box Retail has been that this will eliminate multiple layers of middlemen thereby giving better prices to the farmers. In theory this does sound very plausible, but in practice by eliminating layers of middleman Big Box retail manifests itself instead as the single biggest middleman leading to an Oligarchy very few Big Box retailers providing limited choice for both the farmers and end consumers. - Farmers in Punjab have supposedly benefitted by indulging in Contract Farming for Bharti-Wall-mart, PepsiCo (Lays Chips) etc. But there have also been reports of big firms entering into contract farming agreements with the farmers and then going back on their commitment when the produce is available cheaper

from other sources 1 - Tesco in the UK has been beset with multiple allegations of harming farmers interests. It has been fined 10 million pounds for price fixing of dairy products. - In a study of the Nicaraguan agricultural market a Michigan State University found prices paid by Wal-Mart are significantly lower than those paid by the traditional market9 2. Wal-Mart will not threaten local Kirana stores as they will build stores far away from urban centers The business model of Wal-Mart in the US has been to build massive stores in the suburbs offering free parking to shoppers. Real Estate availability and low car ownership makes that model unviable in India. That doesnt Wal-Mart will employ same strategy in India. Look at Tesco in the UK, almost every street/area has a small Tesco store which resembles a local Kirana Shop. Why will not Big Box retail adopt that model in India? Lately Wal-Mart in the US plans to open smaller shops called Mini-Express which resembles to take on local mom n pop stores3 3. Wal-Mart will provide additional employment One of the biggest arguments in favor of Wal-Mart has been that it will provide additional employment. Entry of big retail is touted to create millions of additional jobs. This again is not supported by experiences in the west. Indian Retail largely dominated by family owned Kirana stores already employs more than 4 million people. In addition to these a significant

number of people work in the supply chain and distribution areas. A government only talk about the jobs Wal-Mart is expected to created but does not consider the jobs that will be lost due to shutting down of thousands of Kirana stores. What this means is that in the near future an owner of Kirana store may end up becoming a minimum wage laborer in a Big Box University of California study suggests that for every new retail job created by Wal-Mart, 1.4 jobs are lost as existing businesses downsize. Hunter College study on the impact of Wal-Mart found a new store kills three local jobs for every two they create With their large entrenched supply chain in China, Big Box Retail will have a devastating effect on local manufacturing can be devastating. Studies indicate US has lost large number of manufacturing jobs to china ranging anywhere between 200,0006 to 1.2 millions7 jobs Wal-Mart worldwide employs about 2 million employees for an annual sale of $405 billion. That means a revenue generation of about $200,000 per employee. Indian Retail sector generates about $400 billion annually and employees close to 4 million people. Surely this means lesser number of people will be employed going by global standards 4. Wal-Mart will provide better wages to workers It is argued that Wal-Mart will help get workers get better pay. This is far from the truth. Wal-Mart is a cost competitor driving down costs of suppliers, farmers and employees to ensure low prices can be offered to consumers and large profits for the shareholders. Wal-Mart is known to provide one of the lowest paying jobs. Empirical evidence and studies show this: Wal40

Marts average annual pay of $20,774 is below the US Federal Poverty Level for a family of four Wal-Mart employees earns 20 percent less than retail workers on average. Wal-Mart not only drives down wages of its own employees but also reduces wages in supporting industries. National Employment Law Project (NELP) study shows that Wal-Marts outsourcing depresses wages In U.S. Warehouses 5. Wal-Mart will bring in much needed FDI Wal-Mart is touted to bring in the much needed FDI into India by making it mandatory to invest $100 million into the country. This looks to be very good proposition but there are lot of ifs and buts: - Will this investment be made via Mauritius route to ensure no taxes can be levied on any future transactions? - Like it happened in the case of Dabhol and 2G scam tainted telecom companies, which were touted as FDI turned out to be a big NPA on Indian banks as the proposed FDI dollars were in reality rupee loans! - How much of this money will be used to invest in building fresh capacity versus buying out existing Indian loss making retailers? This will help the rich businessmen the most - Most importantly over the year how much of money from India will be taken away by Wal-Mart as profits for its US Shareholders? 6. States have the freedom to prevent entry of Big Box Retailers


This is one of the biggest canards being spread by the government. India is a signatory to the Bilateral Investment Promotion & Protection Agreement (BIPAs) which makes it mandatory for the state governments to let the likes of Wal-Mart operate. It simply means if Reliance Retail or Food world has shops in West Bengal, MamataBanerjee cannot ban foreign retailers alone! In addition a Kerala HC judgment struck down the previous Left Front government decision to ban Indian Big Retail under the Shops & Establishments act. If Wal-Mart truly provided all the benefits being claimed why does our government shy away from telling us that Wal-Mart is banned in many big cities of the US like New York, San Francisco, and San Diego and so on? By eliminating middleman, distributors and small time retailers, Wal-Mart has become the single biggest middleman gobbling away all the profits from the farm to the fork, thus helping the founder Sam Waltons family earn a combined wealth in excess of $100 billion which is roughly equal to the wealth of the bottom 40% of Americans combined. Do we in India want emulate the US and help accelerate this wealth of the Waltons at the cost of our farmers, consumers and Kirana shop owners is the big question.


Foreign direct investment in retail to benefit rural economy: CII-SR Opening up the retail sector to foreign direct investment is a welcome move that represents significant benefits to farmers, according to Mr Manikam Ramaswami, Chairman, Agriculture Forum, CII Southern Region. Mr Ramaswami said entry of large multinationals into food retailing will help address major concerns for the farmers marketing, right pricing and market information. Multinationals have the capacity to provide adequate support, pricing and supply chain management, he said. However, he cautioned that the foreign players should be treated on par with their domestic counterparts here. Foreign investors should not be provided more favourable treatment than existing players as had been done in manufacturing sector. In a statement from the Confederation of Indian Industry, Mr Ramaswami said, foreign direct investment in retail sector in India can turn out to be an important inflation-busting measure. It would boost FDI, which dipped by 25 per cent to $19.42 billion in 2010-11 from $25.83 billion in the previous fiscal. Better supply chain and technical know-how will ensure efficient movement of produce from farm to shop floors, benefit farmers and consumers. Modern retail marketing will in the long term upgrade agriculture. Mr T.T. Ashok, Chairman, CII Southern Region, said the South has been looking forward to Foreign Direct Investment that will

enable backward integration and investment in farm-to-fork. Karnataka, Andhra Pradesh and Tamil Nadu will be able to move their produce more efficiently to access market across the country. Opening of FDI in retail will catalyse organised retailing, and provide opportunities for micro, small, and medium companies in food processing and packaging sectors.


Analysis of FDI regulations in Single Brand and Multi Brand retail: (NATIONAL MONTHLY REFEREED JOURNAL REASEARCH IN COMMERCE & MANAGEMENT) OF

1. Farmers prime beneficiaries Investment in back end infrastructure will help reduce wastage of farm produce, improve livelihood of farmers, lower the prices of products and ease supply side inflation, food safety, hygiene and quality. Direct farm initiatives shall also provide better remuneration to farmers. More investment is likely in farming sector. Since each retailer is expected to bring $ 100 million, it will have notable investment in back end and logistics and likely to push employment further. Farmers have chances to gain greater market access, higher profits, better technology and linkages with consumers due to direct back end linkages. Key farmer issues can be addressed which would help agricultural productivity. Intermediaries often flout mandi norms and their pricing lacks transparency. Wholesale regulated markets, governed by State APMC Acts, have developed a monopolistic and non-transparent character. According to some reports, Indian farmers realize only 1/3rd of the total price paid by final consumer, against 2/3rd by farmers in nations with a higher share of modern retail. 2. Real Estate sector likely to upscale their operationsThe decision to allow 51% in Multi brand retail is expected to prompt realtors to revive their plans to build malls and shopping complexes, which were shelved down in the past

few years due to economic slowdown. As per Jones Lang Lasalle India Consultant, Rs. 22,000 crores retail real estate market shall grow at CAGR of 25 % a year for the next five years, growing at 50- 100 %. With this, much needed capital too is expected to come into the country for retail which means more job creation in future. 3. Consumers and Common man to become real kings and queens now.. The oft quoted term- consumer as a king and queen - is finally wearing a garb of reality. Entry of global retailers is expected to have direct impact on consumers as well as common man. It is expected to bring down commodity prices for the common man. Large scale and high volume sourcing and technology edge of global retailers help in realizing greater operational efficiency and wide assortment of goods at lower prices may be made available to consumers. Food safety, hygiene and quality are value additions. More than 60% of the wastage can be prevented if specialized cold storage chains are built up on mass scales, which eventually shall help common man. 4. Other fringe benefits...... Long term cash liquidity: FDI will provide necessary capital for setting up organized retail chain stores. It is a long term investment because unlike equity capital, the physical capital invested in the domestic company is not easily liquidated.


Lead driver for the countrys economic growth: FDI in MBR would create a competition among the global investors, which would ultimately ensure better and lower prices thus benefiting people in all sections of the society. There would be an increase in the market growth and expansion. It will increase retail employment and suppress untrained manpower and lack of experience. It will ensure better managerial techniques and success. Higher wages will be paid by the international companies. Urban consumers will be exposed to international lifestyles. FDI opens new doors for Franchising: Retail giants who are at their wings, seeking entry into foreign market look for other available alternatives. These restrictions on the global retailers regarding the inflow of Foreign Direct Investment, leads them towards acquiring the market entry through franchises. Thus, countries which offer promising market potentialities for retail growth offers substantial growth in the franchising sector as well. 5. Adverse impact feared on supply chain intermediaries.It is feared that foreign retailers will directly impact existing supply chain intermediaries that are being fed by SMEs. Since sourcing from domestic SMEs Is not mandatory, foreign retailers may source the products from countries like China which is known as manufacturing hub of the world and it may put Indian SME sector in great danger. There may be a possibility of large scale unemployment if not checked. The current provision of 30% sourcing from Indian SMEs should be made mandatory and should be strictly monitored. Due to


predatory pricing strategies, vast class of Indias merchants ma y get affected directly. 6. Fear of survival of Small and unorganized retailers in the environment of intense competition. The local kiranas, small shopkeepers, hawkers, peddlers still form major section of Indian economy. Retail sector acts as a shock absorbing sector, providing opportunities for self employment in case of economic slowdown. The local shopkeepers in the vicinity of big retailers might find it difficult to compete. The prices will be determined by modern retailers and small shopkeepers may have to loose their profit margin due to predatory pricing strategy. the entry of large global retailers such as Wal-Mart would kill local shops and millions of jobs, since the unorganized retail sector employs an enormous percentage of Indian population after the agriculture sector; secondly that the global retailers would conspire and exercise monopolistic power to raise prices and monopolistic (big buying) power to reduce the prices received by the suppliers; thirdly, it would lead to asymmetrical growth in cities, causing discontent and social tension elsewhere.


Empirical Findings Agricultural retail market in India is in a very disadvantageous position suffering from lack of avenues to reach out to the vast domestic as well as world market. This has largely been due to the inability of this sector to access latest technology and improve its marketing interface. Development of organized retailing market either induced by indigenous capital or by foreign capital is very crucial where small and marginal farmers can supply their product directly to these big retailers (Indian or foreign).Due to lack of adequate infrastructure facilities and lack of proper storage facility farmers are forced to sell their products at very low price which sometimes cannot even cover their cost of production. Overproduction or glut both becomes the cause of farmers distress. The survey data presents that 28 % of paddy production is sold at zero profit margin and for 45% of paddy production profit margin varies from 5 to 10 percent. Only it is the rest 26% of total production where profit margin is above 10%. But the maximum profit margin is 15%.The main cause is the lack of storage facility, failure of the Government Mechanism to reach the farmers with minimum support price and virtual non-existence of organized marketing infrastructure. AGRICULTURAL MARKETING SCENARIO Profit Paddy Wheat Potato Oilseeds Vegetables margin 0 -5% 28 14 40 44 82 5- 10% 46 42 52 41 14 10- 15 % 26 08 05 33 06 Data Source: Authors field study (2009-10)

Prices Realized by Farmers Farmers are interested in prices realized by them than MSP per se. The ratio of price realized to MSP was higher than 1.0 for rice and wheat almost during the entire period (Table 6). Only in the case of rice, it was lower than 1.0 during 2000-01 to 2003-04. In the subsequent years the ratio was closer to one. On the other hand, the prices realized by farmers were more than MSP for wheat in all the years (except 2001-02) during the period 198182 to 2007-08. Growth rates of prices realized in real terms show that rice prices showed a declining trend in both periods, while wheat prices showed a positive growth rate and 9 increased in the second period. In other words, prices realized by wheat farmers have been higher and increasing as compared to that of rice farmers. Prices and the Farmer's Share In the case of onion, based on the weekly average minimum price, the consumers paid Rs.404 per quintal, the farmer received only Rs.158 per quintal. In the case of cauliflower, whereas the customer paid Rs.1475 per quintal, the farmer received only Rs.422 per quintal. Some of the lowest shares are seen in the case of cauliflower at 28.6 per cent, and onion at 39.1 per cent, and some of the highest shares are seen in potato at 59.1 per cent, and green-peas at 73.5 per cent. The share of the farmer in the price paid by the consumer was frequently very low and varied in the range of about 30 to 70 per cent. Some of the lowest shares were seen in the case of cauliflower at 28.6 per cent, and onion at 39.1 per cent, and some of the highest shares were seen in potato at 59.1 per cent, and green-peas at 73.5 per cent. In the case of fruits the difference in prices across these three levels was even greater. For example, in case of mango the

consumer pays Rs.1260 per quintal; whereas the farmer received only Rs.361 per quintal.14 In case of apple the consumer paid Rs.6143 per quintal while the farmer receive only Rs.1594 per quintal. Thus the share of the farmer in the consumer price was very low and varied from as low as 25.2 per cent in the case of pomegranate to 57.1 per cent in the case of sapota.

Costs Incurred in Agricultural Marketing- an Overview The cost of marketing of agricultural produce frequently amounted only about to about 10 to 20 percent of the price difference (i.e. The difference in prices paid by the consumer to retailer and the price paid by trader to farmer).16 On an average, the marketing cost hovered around 8 per cent of the consumer price for vegetables and around 11 to 15 per cent for fruits. Or onion, the transport cost amounted to 10 per cent of the consumer price, and the commission 3-4 per cent. However, in case of green peas, while transport cost amounted to only 2 per cent of the consumer price, commission amounted to about 5 per cent of the consumer price. Here the term 'cost' covers costs incurred in transportation of the produce and the commission charged by agents. It must be noted that the 'commission' is not a random rate but has been limited at 5 or 6% by the law. The profit margin, on the other hand, comes out very high and is frequently 80 to 90 percent of the price difference. According to the authors, this was an indicator of the poor level of marketing efficiency in these APMC markets.


Regional Disparities in Price Realization There are significant regional disparities when we consider the ratio of price realized to MSP.There was a decline in the ratio in the triennium ending 2006-07 at the all-India level and in 10 several states excluding Punjab, HP and Haryana for rice. It was much lower in states like Orissa, Bihar, Assam, WB and UP In the case of Haryana, the ratio was higher by 32% in the same triennium, which means that the realized price is 32% higher than respective support price. The ratio for wheat was much higher than for rice. For example, the realized price for wheat was 22% higher as compared to MSP at all India level in the TE 2007-08.The higher ratio for wheat is true for all the reported states.



1. To know the effect of FDI on farmers. 2. To know of how middleman affect the process and how their implications will be affected by FDI. 3. To know about the development of facilities due to coming of FDI. 4. To identify its effect on common man in terms of purchasing power. 5. To identify what are the negative consequences the country may have to face in future.



RESEARCH DESIGN: A research design is the arrangement of conditions for the collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure. In fact, the research design is the conceptual structure within which research is conducted. It constitutes the blueprint for the collection, measurement and analysis of data. Research design facilitates smooth selling of various research operations, thereby making research as efficient as possible yielding maximum with minimal expenditure of effort, time and money. Research design stands for advance planning of methods to be adopted for collecting the relevant data and the techniques to be used in their analysis, keeping in view the objectives of the research and the availability of time and money. A Sample design is a definite plan for obtaining a sample from a given population or universe. Sample is determined before data are collected.

Nature of Study: Descriptive study Descriptive studies are those which are concerned with describing the characteristics of a particular individual, or a group. Studies concerned with specific predictions, with

narration of facts and characteristics concerning individual, group or situations are all examples of descriptive studies. In descriptive studies, researcher is able to define clearly, what he wants to measure and able to find adequate methods for measuring it with clear-cut definition of population.

Type of Research: - The type of research used in the present survey is the Descriptive Research which describes the state of affairs as it exists at present. It also describes data and characteristics about the population or phenomenon being studied and answers the questions who, what, where, when and how. Data Type: -Secondary data.


FINDINGS Due to 100%FDI in multi-brand retailing, the demand of local products has reduced. Farmers will get good amount for their product due to elimination of role of middlemen. Foreign product is lushed with advance promotional techniques like quality approved etc. Farmers and local players will benefitted by increment of facilitated warehouses, good infrastructure and introduction of advanced technology and machinery. The foreign players have agreed on certain terms to use local resources but in reality they are not using to that extent. Local players are logging in regards to variety of products. There has also emerged the problem of pricing for the local players as foreign players are able to bring products at reduced price. Local players have benefit of localization and hence they are benefitting by easily acquiring untapped markets. Branding has emerged as major problem for local players.


On one hand, the commission of middlemen has reduced but on the other hand, the retailers and supermarket owners are asking for higher margin to introduce local product in their cost. Due to lack of adequate infrastructure facilities and lack of proper storage facility farmers are forced to sell their products at very low price which sometimes cannot even cover their cost of production. Agricultural retail market in India is in a very disadvantageous position suffering from lack of avenues to reach out to the vast domestic as well as world market.



1. There are both positive and negative effects of FDI in retail for marketing of Agricultural Produce. 2. Farmers will get benefit of established warehouse, introduction of new machinery and tools for the development of infrastructure. 3. Consumers would certainly gain from enhanced competition, better quality, assured weights and cash memos. 4. Innovative government measures could further mitigate adverse effects on small retailers and traders. 5. Growing economy and increasing purchasing power would more than compensate for the loss of market share of the unorganized sector 6. There will be initial and desirable displacement of middlemen involved in the supply chain of farm produce, but they are likely to be absorbed by increase in the food processing sector induced by organized retailing. 7. Farmers will get another window of direct marketing and hence get better remuneration, but this would require affirmative action and creation of adequate safety nets.



1. Local players should try to sell more products as raw materials to foreign players. 2. Government should put a stronger limit on the income the foreigners can carry to their home country.

3. Government should increase the limit of the domestic raw materials to be used by the foreign players. 4. Government should organize training programmes for farmers regarding How to compete with foreign players. 5. Research institutions should be more vigilant to carry the applied research regarding these issues in favor of local players.



1. Improvements done so far in relation to farmers as a result of FDI in agricultural produce. 2. Actual motive of MNCs behind introducing FDI in agricultural produce. 3. Enhancement in infrastructural and technological aspects in the country due to FDI in agricultural produce.



1. Lack of adequate storage facilities cause heavy losses to farmers in terms of wastage as well as selling price. 2. There has been a lack of investment in the logistics of the retail chain, leading to an inefficient market mechanism in the economy.

3. Though FDI is permitted in cold-chain to the extent of 100%, through the automatic route, in the absence of FDI in Retailing, FDI flow to agricultural retailing is almost nonexistent. 4. The major problem that agricultural produce faces in India is that of storage. With around 33% of food getting wasted due to lack of proper storage.




Marketing management By Philip Kotler Publication Pearson Education Edition 3rd Page 49 -54

Research methodology By O.R.Krishnaswami M.Ranganathan

Publication House



Edition 2nd revised Page 2 -5


ARTICLES 1. Competition Commission of India REPORT 2. ICRIER Report on Indian Retail, New Delhi, 2008.

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