RETAIL MARKETING CIA-2

IMPACT ON FDI IN MULTI-BRAND RETAIL TRADING

SUBMITTED BY, B.KARTHIK 0911308 5-BBM D

FDI ININDIA: BRIEF INTRODUCTION:The Indian Government embarked on liberalizing the Indian regulatory framework with specific reference to foreign investment, through the Statement on Industrial Policy of 1991. Since then the Indian regulatory environment for foreign investment has been eased consistently to make it increasingly investor-friendly.

ENTITY OPTIONS:A foreign company looking at setting up operations in India has the following options for formulating its entry strategy:

1. Operating as an Indian Company, through:-

(A) Wholly owned Subsidiary Company:-

A foreign company can set up a wholly owned subsidiary company in India for carrying out its activities. Such subsidiary is treated as an Indian resident and an Indian Company for all Indian regulations (incl. Income Tax, FEMA and Companies Act), despite being 100% foreign owned. At least two and seven members are mandatory for a private limited and public limited company respectively.

(B) Joint Venture with Indian Partner :-

Equity participation Though a wholly owned subsidiary has been the most preferred option, foreign companies have also been setting up shop in India by forging strategic alliances with Indian partners. The trend in this respect is to choose a partner who is in the same field/a rea of activity or brings synergy to the foreign investors plans for India.

2: Operating as a Foreign Company, through:

(A) Liaison Office (B) Project Office (C) Branch Office Foreign Investment not permitted Under the current FDI framework, foreign investment is permitted from all categories of investors and in all sectors except in certain sectors, namely: Atomic Energy Lottery Business, Gambling & Betting Agriculture (excluding floriculture, horticulture, seed development, Animal husbandry, pisciculture and cultivation of vegetables, Mushrooms etc.) Plantations (excluding Tea plantation) Retail Trading (other than Single Brand retail) Real Estate (except construction development projects)

Sectors where Foreign Investment is permittedFor other sectors, there are two approval routes for foreign investment in India:

Automatic route under delegated powers exercised by the Reserve Bank of India (RBI), Approval by the Government through the Foreign Investment Promotion Board (FIPB) under the Ministry of Finance.

FDI is permitted under the automatic route (i.e. without requiring prior approval) for all items/activities except the following:

where the foreign collaborator has an existing venture/tie -up in India in the same field (same field means 1987 NIC code) as on January 12, 2005, with the exception of following cases which would not require

prior FIPB approval : investment by a Venture Capital Fund registered with SEBI; existing joint venture has less than 3% investment by either party; existing joint venture is defunct or sick. Proposals falling outside notified sectoral policy/caps or sectors in which FDI is not permitted.

Automatic Route is not available to:

Unregistered entities overseas Investments other than shares and convertible debentures For consideration other than cash (except for capitalization of ECB due for repayment and interest on such ECB, technology ro yalty due for payment)

FIPB Route

In all other cases of foreign investment, where the project does not qualify for automatic approval, as given above, prior approval is required from FIPB. The proposal for foreign investment is decided on a case -tocase basis depending upon the merits of the case and in accordance with the prescribed sectoral policy.

IMPACT OF FDI RETAIL IN INDIA:The opening up of retail trade for foreign direct investment (FDI) promises to usher in revolutionary changes to the Indian consumer market in the days to come. Recently, in a significant step towards liberalizing India's retail trade, the government had decided to partially open the retail sector by announcing 51 percent FDI in single brand retailing - a move that should pave way for big names like Nike, Versace, Addidas, Marks & Spencer to set up their own stores in India. This means that foreign companies willing to enter the Indian market will now be able to invest up to 51 percent in setting up production facilities, distribution network and retail shops and the rest will come from Indian investors. But at the moment, the entry of retail giants of multiple brands like Wal-Mart is not allowed. The government is yet to announce the guidelines that will make the picture more clear. However, experts are still divided on the problems and prospects of this move. Some say it will shrink employment opportunities, completely alter the retail distributional structure and deal a deathblow to the corner shop structure. The optimists, on the other hand, see a whole range of opportunities -from improved collection, processing and better distribution of farm products to generation of more opportunities for the rural and urban unemployed.

Until now, global retailers were required to sell their products through franchises or wholesale trading. This move will help them setting their own base in India and will attract foreign capital along with better quality products and services for the consumers. The Indian retail market currently estimated to be worth $250 billion is presently dominated by millions of mom-and-pop stores that cater to 97 percent of the total market. According to a recent study, the Indian retail Industry is expected to grow at about 36 percent by 2008 and with the inc rease in foreign investment the industry is expected to do a business of Rs. 1.60 trillion by the year 2008. With the new regulations in place, the debate is that what will happen to these stores? Will the entry of global retailers wipe out these local stores or will it make no impact? If we take China's example, the FDI in retail has little or no impact on the local retailers and they still dominate the retail sector. Secondly, the decision may not trigger the FDI flow as such as single brand retailers who wanted to be in India like Nike and Reebok are already here through franchise and may find it tough to find local partners willing to invest in the business. Indian retail sector is the second largest employer after agriculture in the country and the entry of foreign companies will not only increase the number of employment opportunities but also exports.

With foreign companies setting up their own stores in India, the consumer will get access to some of the major global brands. Entry of foreign brands would also improve the quality and variety of products, increase competition and expand manufacturing. Organised retailing holds the promise of lowering the prices of foreign goods sold through these large stores. This also means that some of these retail chains will eventually have to start manufacturing locally or outsource from domestic manufacturers in order to be in the competition. This is more so considering the fact super and corner markets are very likely to co-exist in the Indian market and it would make the latter more competitive and skilled in terms of operations. Also, several Indian corporates such as the Tatas, ITC, the RPG Group and the Rahejas have already established their outlet chains. Others such as Viveks in Chennai have established multi-brand stores.

MukeshAmbani's Reliance, too, is reported to be planning a major foray into retail business. All this promises to make the Indian retail market a real happening place in the days ahead while at the same time offering immense business opportunities to the domestic entrepreneurs. In fact, this is likely to transform the whole contours of the India market, making it a part of the overall global market.

FDI INMULTI-BRAND RETAIL STILL FACES HURDLES IN INDIA:India is yet to decide on allowing foreign direct investment in multi -brand retail, a senior government official said, despite a government panel's recent recommendation in favour of such a policy to help fight inflation, an indication that hurdles remain. An inter-ministerial group (IMG) headed by Kaushik Basu, chief economic adviser in the finance ministry, last week recommended allowing foreign direct investment in multi-brand retail to tame inflation and cut farm gate and retail price differences. His comments gave a strong signal that a decision could be made soon to open up the USD 450 billion retail sector to foreign investment, though it has been pending for years. "The issue is still at discussion stage, and no Cabinet note has been prepared in this regard by the DIPP (Department of Industrial Policy and Promotion)," R.P. Singh, industry secretary told Reuters on

Thursday.Global retailers such as Wal-Mart Stores, Carrefour, Tesco and Metro AG have long sought greater access to a fast-growing but restrictive Indian retail sector that is dominated by mom and pop operators.India currently allows 51% FDI in single -brand retail and 100% in wholesale cash-and-carry operations. The industry department had issued a discussion paper last year asking for inter-ministerial and public comments on opening of the multi -brand retail.The finance ministry has not yet submitted its views on the issue, while opposition parties led by the BharatiyaJanata Party are not in favour of it, citing its impact on domestic industr y.

"The IMG has recommended allowing FDI in multi -brand retail with strong regulatory provisions to ensure competition and protection of the domestic industry," said DipakDasgupta, principal economic adviser in the ministry of finance.The share of organised retail could go up to 12% to 20% of the domestic retail market once foreign investment is allowed from about 4% now, besides improving productivity, and its spillover impact on the domestic retail sector, he said.FDI flows in cash and carry wholesale trading totalled USD 1.78 billion from April, 2000, to March, 2010."We expect the government would take a call on opening the sector shortly," said Dasgupta, a government adviser on prices and macro economy.

Wal-Mart has said it is ready to open hundreds of retail outlets if rules are liberalised. It operates five wholesale outlets in India in partnership with agriculture-to-telecoms group Bharti Enterprise.Analysts say the

government may find it difficult to push controversial reform in the near future as opposition parties and the domestic players are against it, while the government is reeling under anti-corruption campaigns by civil society groups."BJP is strongly against allowing foreign direct investment in retail sector in any form -- 26%, 51% or 74%," said YashwantSinha, former finance minister and senior BJP leader. "I do not subscribe to the chief economic adviser's views that opening of organised retail would lead to decline in inflation, for which distribution chains have to be fixed," said Sinha.India's inflation, highest among the major Asian economies, eased to 8.66% in April, while the food inflation stood at 8.71% from a year ago period.

BENEFICIAL EFFECTS OF RETAIL IN INDIA:The main driver for this policy seems to be the recognition that the Indian economy faces serious supply-side constraints, particularly in the food-related retail chains:The government recently came out with a concept note on foreign direct investment (FDI) in multi-brand retail trading. This is an emotional issue, and has been placed on the back burner by successive governments in response to fears about its impact on small retailers, who are large generators of employment. This fear is worthy of examination. Trade constitutes around 15% of our gross domestic product, of which retail trade makes up at least half. The retail sector is the second largest employer after agriculture, providing job opportunities to at least 33 million people. Few can underestimate the importance of being circumspect with regard to any legislation that will affect so many jobs. The main driver for this policy seems to be the recognition that the Indian economy faces serious supply-side constraints, particularly in the foodrelated retail chains. The government would like to improve back -end infrastructure, and ultimately reduce post -harvest losses and other wastage. There is also a general concern, highlighted by the persistence of food inflation, that intermediaries obtain a disproportionate share of value in this chain and farmers receive only 15% of the end consumer price.

In its concept note, the government has asked 12 questions, which relate to the regulatory framework that ought to be in place to protect farmers and small retailers. The intent of this article is to ask a few more questions that may in turn enable a response to those 12. A crucial argument against foreign investment in retail is the belief that small retailers will suffer. This, in some sense, suggests that low price is all that counts in the retailing industry. Small retailers offer of personalized service, home delivery and credit seems to have been given little importance. One question is whether customers, used to these services for long, will give them up easily. Second, large retail has typically succeeded wh ere consumers have been willing to buy in large quantities to avail volume-related discounts. In a country where the marketing ethos has been dominated by the paisa pack, and marketeers obsess about the fact that the unit outlay for a commodity must be small for it to be attractive, another question is whether there is a willingness to make large outlays. There is also the so -called car problem in retail: Only if large parts of the population own cars would they be able to carry 24 cartons of orange juice and 2kg tubs of ice cream conveniently. If only car owners are targeted by big retail, one wonders if there would be a material impact on the small store. Undoubtedly, lower prices psychologically propel buyers to spend more than they otherwise would. The resulting growth in private consumption creates jobs. It is not clear if this aspect has been considered. What we must avoid is a situation similar to the one in the US, where increased consumption does take place, but actually creates jobs in China. If w e can

ensure that procurement from large -format retail takes place within India, it may have a beneficial impact on jobs. India has had several retailers with deep pockets and access to skills. That they have not been able to swamp the domestic small retai ler says something about consumer behaviour and small retails resilience. Answers to these questions will suggest that FDI in retail could have a profound impact, but not necessarily on small retailers. One should also examine whether greater benefits to farmers due to greater consumption, and the consequent impetus to manufacturing, can offset a marginal impact on the small retailer. Most importantly, we should not write off the inherent entrepreneurship of small retail in India. Hence, it should be possible for the government to manage this FDI in a calibrated manner, ensuring that its benefitsthrough development of infrastructure, provision of rural employment, and support for local sourcingbalance potential risks to the retail trade.

THE FDI SCENARIO IN THEBUZZING INDIA RETAIL SECTOR

It is submitted that retail trading in India constitutes as one of those few sectors where FDI is not freely and healthily allowed. Although, FDI is fully admissible in cash and carry wholesale (back -end retail), it is admissible only up to 51 per cent in single -brand front-end retail. Importantly, there is a complete ban on foreign investment in multi brand, front-end retail. This has resulted in keeping all the giant corporate backed retailers of the world like Walmart (USA), Carrefour (France), Tesco (UK), and Metro (Germany), who are very keen to foray into Indias retail sector, away from entering into the country. All of these retailers, therefore, to make their presence felt in the country, have e ither tied-up or trying to tie-up with local corporates, to offer their services for back-end operations like sourcing, logistics, inventory management, among others, for front-end, multi-brand retail operations of such corporates.

The retail industry in India is of late often being hailed as one of the sunrise sectors in the economy. AT Kearney, the well-known international management consultancy, recently identified India as the second most attractive retail destination globally from among thirty emergent markets. It has made India the cause of a good deal of excitement and the cynosure of many foreign investors eyes. With a contribution of an overwhelming 14% to the national GDP and employing 7% of the total workforce (only agriculture employs more) i n

the country, the retail industry is definitely one of the pillars of the Indian economy.

The Indian retail sector is very different from that of the developed countries. In the developed countries, products and services normally reach consumers from the manufacturer/producers through two different channels: (a) via independent retailers (vertical separation) and (b) directly from the producer (vertical integration). In the latter case, the producers establish their own chains of retail outlets, or develop franchises. On the other hand, Indian retail industry is divided into organised and unorganised sectors. Organised retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate -backed supermarkets and retail chains, and also the privately owned giant retail businesses. Unorganised retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the local kirana s hops, owner manned general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc.Unorganized retailing is by far the prevalent form of trade in India constituting 98% of total trade, while organised trade accounts only for the remaining 2% and this is projected to increase to 15-20 per cent by 2010.

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.

Moreover, the retail sector also acts as an important employment absorber for the present social system. Thus, when a factory shuts down rendering workers jobless; or peasants find themselves idle during part of the year or get evicted from their land; or the stagnant manufacturing sector fails to absorb the fresh entrants into the job market, the retail sector absorbs them all.

According to the Investment Commission of India, the retail sector is expected to grow almost three times its current levels to $660 billion by 2015. It is expected that India will be among the top 5 retail markets then. The organized sector is expected to grow to $100 bn and account for 12 15% of retail sales by 2015.

According to SubhaKalathur, analyst at Valuenotes, there is certainly a lucrative opportunity for foreign players to enter the Indian terrain. Growth rates of the industry both in the past and those expected for the next decade coupled with the changing consumer trends such as increased use of credit cards, brand consciousness, and the growth of population under the age of 35 are factors that encourage a foreign player to establish outlets in India. However, it is not out of place to mention here that the government policies towards FDI are the only hindering factor s that do not make this a fairy tale for foreign players 

PREDATORY PRACTICES OF THE MULTINATIONAL RETAILCHAINS:The case for FDI in retail is often made on the basis of the need to develop modernsupply chains in India, in terms of the development of storage and warehousing, transportation and logistic and support services, especially in order to meet therequirements of agriculture and food processing industries. While the infrastructureand technology needs are undeniable, the belief that the entry of the multinationalfood retailers is the only way to build such infrastructure or upgrade technology isunfounded. That can also be achieved by increasing public investment andgovernment intervention. Moreover, the pitfalls of relying upon an agrarianstrategy driven by food retail chains and giant agribusinesses havealready become clear through the experiences of several developing countries likeMalaysia, Thailand and Vietnam. Small horticultural farmers find it almost impossibleto meet the private quality and safety standards set by the food retailers, which aregenerally much higher than the national standards. Even the big farmers have to bearhigh risks while supplying their produce to the food retailers and many get eliminatedunder the preferred supplier system. A FAO paper based on the proceedings of aFAO/AFMA/FAMA workshop states, Farmers experience many problems insupplying supermarkets in Asia and in some cases this has already been reflected infairly rapid declines in the numbers involved, as companies tend to delist supplierswho do not come up to expectations in terms of volume, quality and delivery.

Moreover, farmers also face problems related to depressed prices due to cutthroatcompetition among the food retailers, delayed payments and lack of credit andinsurance. The emergence of such problems in India,

especially in the context of thedeep crisis that has engulfed the agrarian economy, is totally avoidable.It is often argued that in case FDI is allowed in retail, the Indian consumers wouldbenef it from the low prices offered by the multinational retailers. It is also argued thatif the multinational retailers are allowed to operate in India they would develop anefficient supply chain, not only to cater to the Indian consumers but also theinternational market and therefore our manufacturing and agriculture sector wouldbenefit from their entry. The ability of the multinational retail chains to sell at lowprices is often attributed to their efficiency in sourcing goods from their lowest costproduc ers around the world. What underlies this so -called efficiency or costreduction through better inventory and cost management is the ability of these retailchains to squeeze producers across the globe using their monopsony power. Thesheer size of a giant retail chain like Wal-Mart enables it to exercise buyer power overthe producers of all kinds of goods, from agro products to FMCGs, across the globe.If these retailers are to sell goods to Indian consumers at prices, which are cheaperthan what prevails t oday while sourcing their goods from Indian producers, the latterare definitely going to be at the receiving end in terms of declining incomes. In casethe multinational retailers import the cheaper goods from abroad, domestic producerswould be displaced anyway. It is difficult to understand therefore how the domesticproducers would benefit from these multinational retailers.It can of course be argued that the Indian farmers and manufacturers are going toenjoy access to international markets by supplying commodities to these multinationalretailers. However, the experience of the producers, especially those producingprimary commodities in the developing world, is not encouraging in this regard.

According to a source, while a cocoa farmer from Ghana gets only a bout 3.9% of theprice of a typical milk-chocolate bar, the retail margin would be around 34.1%.

Thesame source suggests that a banana producer gets around 5% of the final price of abanana while over 34% accrues to distribution and retail. Similarly, 54% of the finalprice of a pair of jeans goes to the retailers while the manufacturing worker getsaround 12%. International market access available to the global retail chains do notbenefit the producers from the developing countries since they are unable to se cure afair price for their produce in the face of enormous monopsony power wielded bythese multinational giants. The growth of global supply chains have only ensuredenhanced profit margins for the multinational retailers. The terms of trade forproducers in developing countries, especially for the primary pro ducts, have beenworsening steadily.It is true that the entry of multinational retailers can initially make a certain range ofluxury goods available at cheaper prices for consumers, especially those belo nging tothe upper classes of society. Using their deep pockets the multinational retailers canunder price domestic retailers thus pushing them out of business. However, once these multinational retailers capture a sizeable market share the consumers are goingto be squeezed as well

The growingdomination exerted by a handful of powerful play ers in the retail sector furtherenables them to command market power over suppliers and consumers alike and earnsuper -normal profits as a result. In the context of growing concentration in the retailsector in the developed countries, the promise of cheaper goods being made available to Indian consumers through competition induced by the entry of the multinationalretailers may at best be a short -lived one.

Further, the introduction of very large retail chains would push large brands, mostlyMNC brands, much deeper into the domestic e conomy. Since large retail chains findit much easier to negotiate with a few large brands, which are then carried by all itsbranches, the rich diversity of products and producers that exist in an economy likeIndia would be destroyed. The big branded producers achieve a larger marketpresence less due to lower costs or better products and more due to their ability to sell life styles. Celebrity involvements through powerful media campaigns play acrucial role in ensuring their market dominance. Their surplus is used to power evenmore advertisement campaigns for the consumers eye. It is not an accident that ashoe produced by Nike that costs $5 to produce but sells for $50-100 while Nike paysits entire Indonesian workforce less than what it pays Michael Jordan for endorsing Nike Products. The competition between Coke and Pepsi is not waged throughbetter products or lower prices but through compet itive ad campaigns. Theconsumer therefore benefits little from this victory of the larger brands while the localdomestic producers get progress ively eliminated in the process.

THERECENT DEVELOPMENTS CONTEMPLATING A SEA CHANGE IN RETAIL SECTOR:The history has witnessed that the concern of allowing unrestrained FDI flows in the retail sector has never been free from controversies and simultaneously has been an issue for unsuccessful deliberation ever since the advent of FDI in India. Where on one hand there has been a strong outcry for the unrestricted flow of FDI in the retail trading by the ruling UPA government and by an overwhelming number of both domestic and as well as foreign corporate retail giants; to the contrary, the Left wing along with the critics of unrestrained FDI have always fiercely retorted by highlighting the adverse impact, the FDI in the retail trading will have on the unorganized retail trade, which is the source of employment to an enormous amount of the population of In dia.

However, it is to be noted that lately there has been an remarkable surge in the demand for the liberalization of the Indian retail sector both by at the domestic and as well as at the international front and it seems that the government is giving the matter a very pensive and careful consideration. Some of the factors that have contributed to this trend are the evident profits in the ever growing but conserved Indian retails sector, reduction in tariff, cheaper real time communications, and cheaper transport. The main reasons for such an unequivocal demand stems from the realisation that (i) while the retail sector requires heavy investment for expansion, there is hardly any local capital left in the capital markets as a consequence of global financi al meltdown, and (ii) efficient management of multi-brand, multi-product, multi location retail, especially in the area of back-end operations, require heavy dose of technology, which over the years has been developed and perfected by foreign players.

In wake of relentless protests for the opening up of the Indian retail market for the reception of unrestrained FDI, the Investment Commission in July, 2006, suggested that 49% FDI be allowed in the Indian retail sector without any restrictions on the number of outlets or location of stores. The Indian retail boom and the Investment Commissions suggestions renewed the debate on the issue of allowing FDI in the retail sector. The Commission opined that that foreign investment would help in improving the retail and supply chain infrastructure, and generate large-scale employment in the country. In addition, the Indian retailers could absorb some of the best operational practices of these international retailers and gain in experience. Ultimately, the consumers w ould benefit due to the availability of more product offerings, lower prices, and efficient service.

The recommendations of the Investment Commission proved to be very promising and paved the way for a positive feedback by then ruling UPA government and also the BJP government on the issue of liberalization of the retail sector. It is interesting to note that Prime Minister Dr. Manmohan Singh while speaking on the occasion of the mid term appraisal of the Tenth Five Year Plan of the Government announced th at his Government has been considering permitting FDI in retail sector ostensibly to attain the target of employment generation.Moreover, the Indian Council for Research on International Economic Relations (ICRIER) drafted a report which suggested that the opening up of the FDI regime should be gradualover a 3 to 5 year timeframe to give the domestic industry enough time to adjust to the changes. In the initial stage FDI up to 49 per cent should be allowed which can be raised to 100 per cent in 3 to 5 years (depending on the growth of the sector).

GOVERNMENT PANEL RECOMMENDSOPENING DOORS FOR MULTI-BRAND FDI:NEW DELHI:- A government panel has recommended allowing

multinational retailers such as Walmart, Carrefour and Tesco to set up shops in the country because it will help keep food and commodity prices under check.

"It is time for India to allow FDI (foreign direct investment) in multiproduct retail and the inter-ministerial group recommends that the government consider this at the earliest," said Chief Economic Advisor Kaushik Basu, who heads the group.

This is the first endorsement by a government panel for allowing FDI in multi-brand retail, a sensitive issue that has been debated for about a decade now.

Companies such as Walmart and Carrefour have been lobbying for entry into the country's $400-billion and booming retail industry, but critics, including the Left and the BJP, believe opening up the sector will impact the livelihood of small shopkeepers and traders.

"We are taking a clear position on FDI in multi -brand retail. Of course, it is a recommendation, not policy," Basu told reporters.

The Department of Industrial Policy & Promotion has already begun the groundwork for preparation of a formal cabinet note for opening up multi-brand retail.

It is expected to suggest a cap of 51% for FDI in the sector with stringent conditions for investment in backend infrastructure such as development of cold chains, said a government official.

The inter-ministerial group (IMG), set up by Prime Minister Manmohan Singh to suggest ways to tackle high inflation, believes organised retail will reduce the margin between the price farmers get and what consumers pay by eliminating traders and this will bring down prices.

"This (opening up) will bring more competition in the market and reduce the gap between prices at the farm and retail levels," Basu said.

Other members in the group include secretaries of finance, industry, food, commerce, and agriculture ministries, some experts and Planning Commission Member Secretary SudhaPillai.

Retailers and industry experts say allowing FDI will cut wastage because big players will build backend infrastructure.

"Foreign capital and international best practices will help in building the necessary distribution infrastructure and in removing supply chain inefficiencies," PwC Executive Director AkashGupt said. "It would be a win-win for consumers, companies and farmers," he added.

CONCLUSION:It needs to be underscored that FDI in retail is fundamentally different from Greenfield foreign investment in manufacturing. While the latter enhances the economys productive base, enhances technological capability and generatesemployment in most cases, entry of multinational retail chains has few positive spinoffs. In fact the negative effects in terms of job loss and the displacement of small retailers and traditional supply chains by the monopoly/monopsony power of the multinational retailers far outweigh the supposed benefits accruing to the organized retail sector in terms of increased efficiency. Moreover, India does not have any prior commitments the WTO to open up the retail sector. Therefore, the case for opening up of the retail sector to FDI does not seem to be justifiable.