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INTRODUCTION Foreign direct investment (FDI) plays an extraordinary and growing role in global business.

It can provide a firm with new markets and marketing channels, cheaper production facilities, and access to new technology, products, skills and financing. For a host country or the foreign firm which receives the investment, it can provide a source of new technologies, capital, processes, products, organizational technologies and management skills, and as such can provide a strong impetus to economic development. Foreign direct investment, in its classic definition, is defined as a company from one country making a physical investment into building a factory in another country. As such, it may take many forms, such as a direct acquisition of a foreign firm, construction of a facility, or investment in a joint venture or strategic alliance with a local firm with attendant input of technology, licensing of intellectual property. Foreign direct investment (FDI) is considered to be the lifeblood for economic development as far as the developing nations are concerned Foreign direct investment (FDI) has the potential to generate employment, raise productivity, transfer skills and technology, enhance exports and contribute to the long-term economic development of the world¶s developing countries. More than ever, countries at all levels of development seek to leverage FDI for development. Foreign affiliates of some 64,000 transnational corporations (TNCs) generate 53 million jobs. FDI is the largest source of external finance for developing countries.

Retailing is the largest private sector in India and second to agriculture in employment. 2.000 crores. Foreign direct investment (FDI) has become a key component of national development strategies for all most all the countries over the Globe. Out of this. FDI to developing countries in the 1990s was the leading source of external financing. Organized retailing is primarily urban centric. The entire retail trade contributes about 10-11% to India¶s GDP and is valued at an estimated Rs 9. 30. That is investment taking the form of acquisition of existing assets (mergers and acquisitions) grew much more rapidly than investment in new assets particularly in countries undertaking extensive privatization of public enterprises. productivity and employment. Growing at more than 30%. organized retailing industry is around Rs 35.Developing countries´ inward stock of FDI amounted to about one third of their GDP. the organized sector is driving the retail growth in India and contributes significantly to the growth of the economy.000 crores. its share as represented in urban scenario is projected to be 12 to 20%. FDI IN RETAIL BUSINESS India is tipped as the second largest retail market after China. FDI is considered to be an essential tool for jump-starting economic growth through its bolstering of domestic capital. . compared to just 10 per cent in 1980. India today has perhaps the highest retail outlet density ± with approximately 15 million retail outlets. This economic growth comes primarily from increased consumer spending. The rise in FDI volume was accompanied by a marked change in its composition.

development of new airports. The entire retail trade contributes about 10-11% to India¶s GDP and is valued at an estimated Rs 9. industrial explosives and hazardous chemicals. captive mining of coal and lignite. India today has perhaps the highest retail outlet density ± with approximately 15 million retail outlets.The Government approved sweeping reforms in FDI with a first step towards partially opening retail markets to foreign investors. 100 percent FDI is allowed in distillation and brewing of potable alcohol. FOREIGN DIRECT INVESTMENT IN RETAIL SECTOR IN INDIA Retailing is the largest private sector in India and second to agriculture in employment. laying of natural gas pipelines. cash and carry wholesale trading and export trading. Limit for telecoms services firms raised to 74 per cent from 49 per cent. Indian investor allowed to transfer shares in an existing company to foreign investors.000 .000 crores. Out of this. processing and warehousing of coffee and rubber. organized retailing industry is around Rs 35. It will now allow 51 per cent FDI in single brand products in the retail sector. petroleum infrastructure. other sectors are being opened: 100 per cent allowed in new sectors such as power trading. Besides retail. 30. FDI limit raised to 100 percent under automatic route in mining of diamonds and precious stones. Subject to other regulations. 3.

This economic growth comes primarily from increased consumer spending. The government. Growing at more than 30%.26 per cent. Within the retail sector.1. is examining what could be the possible cap on foreign investment. WHAT IS THE SCOPE FOR THE RETAILING INDUSTRY IN INDIA? The present size of the retail industry in India is around USD 180 billion. This increased spending and consumer confidence is a positive indication for the growth of the Indian economy. grocery constitutes the biggest component with about 50 per cent share. India today represents the most compelling investment opportunity for mass merchants and food retailers looking to expand overseas. Apparel is another high growth area in the retail sector. according to official sources. India¶s retail market. 49 per cent or 51 per cent. According to AT Kearney¶s Annual Global Retail Development Index for 2005 ± an annual study of retail investment attractiveness among 30 emerging markets ± India displaced Russia to move from the second place to the first. is vastly underserved and has grown at an average rate of 10% in the last five years. if and when it will open the sector . its share as represented in urban scenario is projected to be 12 to 20%. 4. the organized sector is driving the retail growth in India and contributes significantly to the growth of the economy. This is expected to touch USD 450. 4.500 billion by 2010.crores. totaling $300 billion. FDI in Retail ± Benefits & Concerns . Organized retailing is primarily urban centric.

some of the global retailers are already coming in through other channels there is no justification to keep FDI in Retail on hold. Another objective of FDI is to enhance infrastructure. it will lead to overall economic growth and create benchmarks. FDI would serve the purpose of much needed capital and bring a boom in the Retail sector.Provide better value to end customers Hence. Retail is a sunshine sector with tremendous growth potential ± allowing them to invest in retail companies in the primary market will enable many of these emerging companies to increase operations. set up the latest systems. As.Models similar to airline operators and telecom operators need to be explored. With this the focus would be on . FDI should be initially allowed in Tier±2 and lower cities to facilitate infrastructure building.Benefits and Impact on the country: ±Inflow of investment and funds ±Growth of Infrastructure ±Knowledge Base / Technical know-how ±Reduced Cost and Increased Efficiency ±Franchising opportunity for local entrepreneurs ±Investment in supply chain. achieve critical mass and enhance employment opportunities. While there is no dearth of potential investors in metro cities. improve infrastructure. cold chains and warehousing ±Implementation of IT in retail ±Stimulate Infant industries and other supporting industries ±Increased Local sourcing ±Increase number and improve quality of Employment . the more incentives to operate in Metro cities. the Tier-2 and lesser cities are getting sidelined. The more such investment.

inclusion of a clause for reserving at least 500-600 sq ft (out of 10. and the Medicine Shoppe.incremental business and create a level playing field for all and not on cutthroat competition. Retail business s growing at 5-6 per cent per annum. Benetton. Adidas.Well-established business houses such as Wadia. Food World. Ebony. Sharp. Hero.000 sq ft) of retail space for foods & processed foods alone will further help to protect the interests of certain sectors like agriculture and integrate them with the organized retail supply chain. Kodak. Wills Lifestyle. Vivek's. via the licensee/franchisee route. since Foreign Direct Investment (FDI) is not allowed in the sector. The size of organized retailing was estimated . The Government is already considering a host of conditions for bringing in FDI. Café Coffee Day. Raymond. Also. with an objective of enhancing Indian economy by increasing consumption. are drawing up plans to enter the fastgrowing organized retail market in India. Titan. Pantaloon.000 sq ft on the floor space of foreign retail chains and limit the number of stores to one per million once FDI in retail is allowed. Swarovski. Tata.. Pizza Hut. Lifestyle. Levis. Global players are entering India indirectly. Subhiksha. as the Department of Industrial Policy and Promotion (DIPP) is considering easing some of these restrictions with time. Lee. The international players currently in India include McDonald's. These measures are to be applicable for a short while only. Nike. Dominos. This also serves to create level playing fields for all players. One of them is to impose a minimum limit of 10. and Bata . Malhotras. Crosswords. Nilgiris. TGIF. Sony. etc. Hence. a recommended CII policy for introducing FDI in retail is as follows: The big Indian retail players looking to expand their operations include Shopper's Stop. Godrej.

And the total size of the Indian retail industry is expected to touch the $300 billion mark in the next five years from the current $200 billion. the Government announced its intention to open up the retail sector to foreign investment. It is indeed unfortunate that this issue is hanging fire for nearly four years now. it is unlikely to increase its share beyond 20 per cent. which allowed 49 per cent FDI in the retail sector since 1992. The fears expressed in certain quarters that FDI in retail sector will shortchange the local kirana stores and smaller players and that there will be job losses are exaggerated. organized retailing makes for over 70 per cent of the total business. At present. In developed countries. it is now set to grow at 25-30 per cent per annum. Recently. largely due to its fragmented structure. Since the total size of the retail trade is expected to grow at a robust pace in the coming years and the consumer segments patronizing the big malls are going to be different.around Rs 26. even as the government has allowed foreign investment in a number of sectors including banking. debating whether to allow 26 per cent or 49 per cent FDI in the sector. However. In contrast. telecom and insurance. Even though organized retailing is set to grow at 25-30 per cent per annum over the next decade. suffers from limited access to capital. about three per cent of the total.000 crore in 2004. around 40 foreign retail players account for almost 20 per cent of the organized retailing in that country.however. labor and suitable real estate options. benefited immensely with foreign players bringing capital and new technologies and growing export market for domestic products. In China this segment accounts for 20 per cent of the overall business. As of now. Now one may ask where the grocer's shop in every . the Indian retail sector. China. It is still. the traditional outlets are unlikely to be affected.

It would simultaneously lead to better prices for the producers and lower prices for the consumers. Thirdly. well packed. Instead. it is one of deciding on transparently opening up the FDI in retail trading. Secondly. Hence. The efficiency of organized sector in retailing is manifested in some of the newer supermarkets in urban/metropolitan India. The entry of the organized sector in retail trade is capable of mitigating the huge waste involved in the current system. circulation of black money and tax evasion will be curbed. And therein lies part of the fears of the rader's lobby. as big employers. and through lesser wastage throwing up exportable surpluses. accounting for over 70 per cent of the retail trade. Presently. will also benefit the economy as a whole. far better paid than the underage labor working in the local shops. and often cheaper than the local shopkeeper. as distinct from ownermanaged chains. it can be broadly divided into two segments: food and apparel.colony figures in the scheme of things. will have to keep proper records. If one looks at the domestic retail business. retail trade in India is highly unorganized and inefficient. allowing foreign companies to operate freely instead of having to resort to back-door entry tactics. grocery is the largest segment. a number of new jobs will be created. Of this. efficient distribution and retailing are very important. fresher. One of the fundamental facts is that the circle of economic activity cannot be completed until what is produced reaches the consumer. Firstly. There are other benefits too of transforming retail sector into an organized sector.the produce is cleaner. the benefits to the producer and consumer through better prices. Thus one can see that .

are drawing up plans to enter the fast-growing organised retail market in India. Malhotras. debating whether to allow 26 per cent or 49 per cent FDI in the sector. has entered the domestic retail business with a home textile brand. 5. The impact of FDI in retail is far fetched and too a great extent benefiting to the end user or the consumer and at the same time will generate a decent amount of employment and more and more entrepreneurs will be coming forward to invest and taste the new generation retail marketing. FOREIGN DIRECT INVESTMENT . Market liberalization. Hero. Similarly. and increasingly assertive consumers are sowing the seeds for a retail transformation that will bring more Indian and multinational players on the scene. It is still. Recently. kitchen and table linen. Welspun. bath.allowing foreign direct investment in retailing is beneficial to all the stakeholders involved. etc. Spaces. Godrej. Well-established business houses such as Wadia. Also. This is expected to tremendously boost the organized retail sector by enabling it to create better and modern infrastructure. a growing middle-class. which will offer a range of bed. Tata. specifically for the Indian market.IMPACT AND ANALYSIS BRIEF REPORT The local Indian retail market will go through a metamorphosis of a change when you have the big players with long term planning and with FDI. The local stores may be the thing of the past or restricted to last minute unplanned buying. a leading manufacturer of terry towels. the extension of confessional duty scheme . the Government announced its intention to open up the retail sector to foreign investment. The company currently exports to 32 countries.. however.

the opening up of the sector to FDI will lead new economic opportunities and there will be more employment generation.000 square metres and implementation of VAT will significantly help organized retailing. However. suffers from limited access to capital. . China. which has been perceived as relatively unattractive locations for . especially with the help of foreign investors. Indian retail chains would get integrated with global supply chains since FDI will bring in technology. benefited immensely with foreign players bringing capital and new technologies and growing export market for domestic products. quality standards and marketing. Even though organized retailing is set to grow at 25-30 per cent per annum over the next decade. the Indian retail sector. As of now. which allowed 49 per cent FDI in the retail sector since 1992. largely due to its fragmented structure. On the contrary. this has not been the case in Southern and Eastern Africa. around 40 foreign retail players account for almost 20 per cent of the organized retailing in that country. The size of organized retailing is expected to touch $30 billion by 2010 or approximately 10 per cent of the total. At present. Various retailers from across the word have been visiting India over the past few months with a view to establishing their presence in a market that is expected to witness exiting developments. CONCLUSION Many developing countries have made dramatic progress in promoting private sector participation in their infrastructure sectors.for import of capital goods by retailers with minimum area of 1. it is unlikely to increase its share beyond 20 per cent. labor and suitable real estate options. In contrast.

Although each country has unique policy problems. takes stock of actual and potential projects in the various sectors. Regulatory environments either did not exist or did not provide investors enough guarantees that their future operating environment would be sufficiently reliable. FIAS has encountered common features in key areas that pose stumbling blocks for private infrastructure investments. This study synthesizes this experience and derives lessons for facilitating and encouraging foreign direct investment in infrastructure. . Legal frameworks tended to address traditional public-sector responsibilities and not investor concerns.investment. and analyzes the main impediments to private investment in the region's infrastructure services. This paper describes the state of infrastructure in the region.