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SYNOPSIS

ON

THE ROLE OF FDI IN INDIAN RETAIL SECTOR

Submitted To:- Submitted By:-

Mr. Ashwani Kachroo Arjun Agrawal (1641108026)

Avdesh Kumar (1641108029)

6TH SEM

Guided By:-

Mr. Saurabh Kataria


THE ROLE OF FDI IN

INDIAN RETAIL

SECTOR
INTRODUCTION

Retailing is the interface between the producer and the individual consumer
buying for personal consumption. India is one of the fastest growing retail markets
in the world, with 1.2 billion people. India's retail and logistics industry employs
about 40 million work forces (3.3 percent of population). It is contributing around
15 percent for the nations GDP and 8 percent of employment. In India retail sector
was grouped into two categories such as organized and unorganized retail
marketing. Organized retailing refers to trading activities undertaken by licensed
retailers, i.e., those who are registered for sales tax, income tax, etc., which include
supermarkets, corporate-backed hypermarkets and retail chains, and also the
privately owned large retail businesses. On the other hand, Unorganized retailing
refers to the traditional formats of low-cost retailing, such as the local corner
shops, owner manned general stores, paan/beedi shops, convenience stores, hand
cart and pavement vendors, etc. which account for 96 percent of the Indian market.
Organized retailing was absent in most rural and small towns of India in 2010.
Supermarkets and similar organized retail accounted for just 4 percent of the
market which were present only in large urban centers. Until the 1990s, regulations
prevented innovation and entrepreneurship in Indian retailing. Some retails faced
complying with over thirty regulations such as "signboard licenses" and "anti-
hoarding measures" before they could open doors. There are taxes for moving
goods to states, from states, and even within states in some cases. Farmers and
producers had to go through middlemen monopolies. The logistics and
infrastructure was very poor, with losses exceeding 30 percent. Through the 1990s,
India introduced widespread free market reforms, including some related to retail.
During 2000-10, consumers in selected Indian cities have gradually begun to
experience the quality, choice, convenience and benefits of organized retail
industry FDI, also known as International Direct Investment, forms part of the
capital account of the balance of payments. ‘Direct Investment’ is defined as an
investment that adds to, deducts from, or acquires a lasting interest in an enterprise
operating in an economy other than that of the investor where the purpose is to
have an ‘effective voice’ in the management of the enterprise. As India becoming
more and more attractive for the foreign investors, the investors are investigating
on the possibilities of developing malls and hypermarkets. India being a nation
which practices traditional retailing yet expects to adopt organized retailing and
reach around $30 billion by 2010. The Indian retail market is estimated to be US$
450 billion and one of the top five retail markets in the world by economic value.
REVIEW OF LITERATURE

FDI and retailing are the current burning issues and several researches were
conducted in this area. It is an interesting subject for research scholars and policy
makers. The literature review mainly focused on huge untapped markets in Indian
retail and the opportunities available in the Indian market for the growth of
organized retail. Chopra (2006) reports that Retailing in India is evolving rapidly
with an increasing number of global retail firms and several foreign investors are
willing to invest in this sector. The sector is on a high-growth trajectory and is
expected to grow by more than 27 percent over the next five to six years. Sinha
(2003) viewed that traditional outlets are preferred as consumers can bargain while
modern outlets are preferred because they link entertainment with shopping.
Joseph and Soundararajan (2009) preferred modern outlets as they provide better
product quality, lower prices, one-stop shopping, choice of more brands and
products, better shopping experiences with family and fresh stocks etc. Mukherjee
and Patel (2005) opined that consumers are the major beneficiaries of the retail
boom as organized retailers are initiating measures such as tracking of consumer
behaviour and consumer loyalty programmes to retain their market share. Rao
(1998, 2000) reported that Indian consumers recognize the value addition made by
a brand and there is a preference for foreign brands. Kinra (2006) viewed that
consumers perceive foreign brands to be of better quality than Indian brands. Kaur
and Singh (2007) found that children are becoming key decision-makers in
household purchases who are much interested in branding. According to Arabi
(2005) and Agarwal (2001), FDI in India has remained domestic market seeking. It
is widely believed that the type of FDI and its structural composition matter at least
as much for economic growth effects as does the overall volume of inward FDI.
Basu ( 2012) states that as of now only ten states in the country have endorsed the
Centre's decision to allow FDI in multi-brand retail. AT Kearney, the well-known
International Management Consultant, recently identified India as the ‘Second
most attractive Retail Destination’ globally from among thirty emergent markets.
Singhal (2011) reports that with a contribution of 14 percent to the national GDP
and employing 7 percent of the total workforce in the country, the retail industry is
definitely one of the pillars of the Indian economy. A publication of the World
Bank and the International Finance Corporation (2009) indicates that FDI assists in
increasing the income that is generated through revenues realized through taxation.
METHODOLOGY

The Indian retail market is going through a revolution. Increasing urban


demographics, rapid development of shopping malls, an emerging class of brand-
conscious consumers, and various influences from the western world are changing
the face of the Indian retail industry. India has been ranked as the most attractive
nation for retail investment among 30 emerging markets by the USbased global
management consulting firm, A T Kearney in its 8th Annual Global Retail
Development Index (GRDI) 2009. India remains among the leaders in the 2010
GRDI and presents major retail opportunities. India's retail market is expected to
be worth about US$ 410 billion, with 5 per cent of sales through organized retail,
meaning that the opportunity in India remains immense. According to the
Department of Industrial Policy and Promotion Statistics (2012), retail should
continue to grow rapidly up to US$ 535 billion in 2013, with 10 per cent coming
from organized retail, reflecting a fast-growing middle class, demanding higher
quality shopping environments and stronger brands. A comprehensive expansion
of the retail sector in India would create more than 50 million jobs. A new policy
of 30 percent by obtaining manufactured and processed products should be secured
from small industry. Foreign direct investment (FDI) inflows during 2000-10, in
single-brand retail trading, stood at US$ 194.69 million. The need to analyse the
role of FDI in retailing arises because of the recent considerable importance that
the Government of India (GOI) has placed on this sector. Given the fact that India
has adopted overwhelming economic reforms in the retailing sector, an analysis
like this would provide first-hand empirical evidence on whether further efforts in
promoting FDI are warranted study analysed and categorized the challenges facing
foreign direct investment in India. The relevant literature and industry observations
formed the data sources for our content analysis concerning the current Indian
retail market environment. The general objective of this study is to analyze the FDI
strategy in Retailing for India’s development and compare its market performance
to that of other developing countries.
OBJECTIVES OF THE STUDY
Despite certain attempts made to study different aspects of Retailing industry,
there remain certain very pertinent gaps. In order to fill the gaps, the present study
was undertaken. With this background the present study “ROLE OF FOREIGN
DIRECT INVESTMENT IN RETAIL SECTOR ” has been formulated with the
following objectives:
 To discuss the nature of Retailing in India.
 To study the present scenario of Retailing in India
 To analyze the need of Retailing in India related to various sectors/ areas or
groups.
 To study the need of opening up of FDI in Multi-Brand Retail.
 To analyze the positive and negative impacts of the reforms to be undertaken.
 To assess the market situations for the same changes in other countries.
 To review the challenges to be faced by FDI‘s while investing in India.
 To evaluate the change in the customer‘s requirements after the introduction of
FDI in retail.
BENEFITS OF FDI

India needs large amount of foreign exchange through FDI in retailing to sustain
and enhance its economic growth. There are a number of issues with the opening
of the retail sector for FDI. FDI in the retail sector could bring various benefits for
the country, such as: Improvement in the supply chain infrastructure by bringing
improved technical know-how and capital.
 Up-gradation in agriculture, manpower and skill development and may also lead
to an improvement in the overall
 Productivity. Improvement in farmers’ income through the removal of structural
inefficiencies and direct sales to organized retailers
 Benefits to customers by providing better quality of products at lower prices.
 Acts as a tool to alleviate poverty especially as most MNEs take an interest in
furthering social cohesion and labour
 Standards. Growth of GDP by encouraging exports to grow by 8 to 10 per cent
per year.
 Increased capital inflow by raising the rate of investment as well as generating
demand for the increased goods and
 Services produced. Improving Retailing services by acquiring market-savvy,
market-intelligent and best management practices, Retail giant
 Houses such as Wal-Mart, Carrefour, A hold, JC Penny can bring their best
management practices. IT-friendly techniques to cut wastage and set up integrated
supply chains to gradually replace the presented disorganized
 And fragmented retail market.
PLACE OF WORK
The above analysis was done to find out the perception of the small retailers upon
big stores in awake of allowing FDI in multi-brand retail which may lead to a
closure of unorganized, conventional and small mummy-pop stores. Questions
were asked about impact of mall on small business, fear of closure of shops due to
big organized mall; surprisingly majority of respondents (80%) did not feel any
impact on their current business so the fear of closure of the small retail shops is
not so sound to think about it. They are confident of the fact that the market
segment is different; their business is mostly run by the loyal customers. As
mentioned earlier that middle and lower middle class customers, who are the lion
share of the market feel comfort to shop in conventional market where they can
argue and bargain with. On the other hand the retailers feel the opening of Mall
will create more jobs for all kind of people viz. for producers, suppliers, farmers,
graduates and even for the unskilled labours, which may increase the standard of
living of the society and consequence increase in sales of their shops also. It has
also been noticed that based on a big mall, several supporting and relevant
businesses are flourished and the overall standard of living of the surrounded areas
also raised as found in the data analysis.
REFERENCES

1. A.T. Kearney (2010): “Expanding Opportunities for Global Retailers-2010


Global Retail Development Index”, A.T. Kearney, 2010
http://www.atkearney.com/
images/global/pdf/2010_Global_Retail_Development_Index.pdf.
2. A.T. Kearney (2011): “Retail Global Expansion: A Portfolio of Opportunities-
2011 Global Retail Development Index”, A.T. Kearney, 2011
http://www.atkearney. com/images/global/pdf/Retail_Global_Expansion-
GRDI_2011.pdf Accessed on 02/10/2012
3. Agarwal, P. (2011). Foreign Direct Investment in Indian Retail Sector - An
Analysis: Available from: http://www.articlesbase.com/investing-articles/foreign-
direct-investment-inretailing-in-india-its-emergence-prospects- 1354932.html
(Accessed on September 22, 2012).
4. Arpita Mukherjee & Divya (2011): “Impact of the Retail FDI Policy on Indian
Consumers & the Way Forward” ICRIER Policy Series, August, No.5.
5. Asha Vaidehi & Alekhya (2012): “Role of Foreign Direct Investment in
Retailing”, Asia Pacific Journal of Marketing 7 Management, October, Vol.1, No.2