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REPORT ON FDI IN RETAIL IN INDIA (INTERNATIONAL ECONOMIES OF BUSINESS)

SUBMITTED TO: PROF. IRFAN

SUBMITTED BY: MEHAK SETHI: JIML11082 NEHA SHAHI: JIML11093 PANKHURI SARAN: JIML11110 PALLAVI MEHROTRA: JIML11107 NITIN TIWARI: JIML11RM009

We are highly indebted to prof. Mohammad Irfan for his guidance and constant supervision as well as for providing necessary information regarding the project & also for his support in completing the project. it would not have been possible without the kind support and help of group members. . However.2|Page ACKNOWLEGEMENT We have taken efforts in this project.

3|Page INDEX TOPICS INTRODUCTION FDI POLICY OPPORTUNITIES CHALLENGES GROWTH SOURCES PAGE NUMBER 4 5 6 7 8 9 .

but for use and consumption by the purchaser. Example of RETAIL: Manufacturers sell large quantities of products to retailers. Example: kirana stores and Paan beedi shops . Example: Retail chains like Wal-Mart UNORGANIZED SECTOR In this sector there are owner manned general stores which follows the traditional format of retailing. Manufacturers sell large quantities of products to retailers. RETAIL Retail is the sale of goods to end user. It is a measure of foreign ownership of domestic productive assets such as factories. usually where the company being invested in is controlled by the foreign corporation. ORGANIZED SECTOR It is a kind of sector which has a license to trade its activities and they are registered for sales tax. and retailers sell small quantities of those products to consumers. It is divided in two parts: 1. Organized sector 2. Un-organized sector There is only 3% organized sector and 97% unorganized sector prevails in Indian economy.4|Page INTRODUCTION FDI An investment abroad. not for resale. income tax and other duties. land and organizations Example of FDI: American company taking a majority stake in a company in India. and retailers sell small quantities of those products to consumers.

was notified in January 2012. The changes. Tesco and Carrefour . restricting foreign investment to the owner of the brand. including Trinamool Congress. The policy to allow FDI in multi-brand retail.5|Page GROWTH India’s retail sector growth rate is 46. most retail companies preferred to wait for the result before hazarding a guess on the fate of FDI in multi-brand retail. Hermes and Gucci MULTI BRANDING Since December 5. FDI POLICY IN RETAIL SECTOR IN INDIA Retail investment is divided into two brands: 1. Louis Vuitton.64% and it the fastest growing sector in Indian economy. Example: Walmart. 13 days after the Cabinet decision to open the sector. claiming they would either form the UP government or sit out as Opposition. global and domestic retail chains have been looking for a solution in the state election results. Single branding 2. Nike. 2011 the union cabinet allowed 100% FDI in single branding but now there again a new norm. according to sources. With no sign of a clear majority and political parties. Largest players in India retail market are Reliance Raheja. when the government put on hold the move to allow 51 per cent FDI in multi-brand retail. The sector is largest source of employment after agriculture. Bharti Airtel and ITC. Multi branding The above types of branding have no proper definition given by the government or Supreme Court of India. was put on hold by the government in the wake of strong objection from the opposition BJP and UPA's key allies. including Congress. SINGLE BRANDING In India 51% FDI investment in single branded is allowed. when 100% FDI was allowed in single-brand retail. Example: Adidas. would address the concerns of the foreign retailers about 30 per cent mandatory sourcing of their requirements from MSEs even after they become big and lose MSE tag. on November 24. The government is likely to modify the guidelines for FDI in single-brand retail to ensure that foreign retailers can have long term relationship with micro and small enterprises (MSEs). mainly that of Uttar Pradesh. which would have allowed global retailers to open outlets in India.

thereby creating a multiplier effect for employment. 10. This will provide the scales to encourage domestic value addition and manufacturing. both in prices and choices.6|Page OPPORTUNITIES FROM FDI IN RETAIL 1. could be a direct consequence of foreign companies opening retail shops in India. Further. barcode scanning etc. packing. sorting. Sourcing of a minimum of 30% from Indian micro and small industry is mandatory. billing. . 2. 4. marketing. 7. This is expected to considerably reduce post-harvest losses. Huge investments in the retail sector will see gainful employment opportunities in agro-processing. transportation facilities can get a boost. Thus real estate can get a further facelift in India and receive more investment with the opening up of FDI in multi-brand retail. including cold chains. Improved technology in the sphere of processing.. 11. transportation. logistics management and front-end retail. in the form of increased number of refrigerated vans and precooking chambers which can help bring down wastage of goods. grading. including predatory pricing. giving consumers a better deal. A strong legal framework in the form of the Competition Commission is available to deal with any anti-competitive practices. refrigeration. sorting and processing. 6. FDI in retail will help farmer’s secure remunerative prices by eliminating exploitative middlemen. technology up gradation and income generation 8. Foreign retail majors will ensure supply chain efficiencies. Retail is closely dependant on real estate as any retailer will require substantial spaces for setting up business. which perishes due to inadequate infrastructure. will not be wasted. Real estate in India has gone through a revamp due to the demand of high-end retail malls and people’s changing perception towards an enjoyable shopping experience. At least 10 million jobs will be created in the next three years in the retail sector 3. Policy mandates a minimum investment of $100 million with at least half the amount to be invested in back-end infrastructure. This is also because food. the entry of retail giants likely to hot up competition. This will have a salutary impact on food inflation from efficiencies in supply chain. If anything. 5. 9. handling and packaging of goods and further technical developments in areas like electronic weighing.

000 people. So.7|Page CHALLENGES OF FDI IN RETAI IN INDIA As there are so many ruling and opposition parties in India and it has been divided into many states and these states are ruled by different parties like in case of multi branding UTTAR PRADESH government rejected multi branding so similar kind of issues always come whenever there is implementation of any new policy. Jobs in the manufacturing sector will be lost because structured international retail makes purchases internationally and not from domestic sources. China is predominantly a manufacturing economy. being controlled by foreign organizations 3. Consolidated markets make the consumer captive. India in contrast will lose both manufacturing and services jobs. South East Asian countries had to impose stringent zoning and licensing regulations to restrict growth of supermarkets after small retailers were getting displaced. Allowing foreign players with deep pockets leads to consolidation. Fragmented markets give larger options to consumers. This has been the experience of most countries which have allowed FDI in retail 5. Global retail giants will resort to predatory pricing to create monopoly/oligopoly. 95% of these are small shops run by self-employed people. 4. including food supplies. Now there are many criticisms by opponents which are the basic challenge for FDI IN RETAIL IN INDIA. International retail players have no role in building roads or generating power. there will be a spurt in jobs. Argument that only foreign players can create the supply chain for farm produce is bogus. 2. it merely displaces existing markets. This can result in essentials. It's the largest supplier to Wal-Mart and other international majors. This could be done by governments in India. India has the highest shopping density in the world with 11 shops per 1. A major argument given by opponents of FDI in retail is that there will be major job losses. It obviously cannot say no to these chains opening stores in China when it is a global supplier to them. 1. in the short run.2 core shops employing over 4 crore people. . It has 1. 7. Move will lead to large-scale job losses. Small retail has virtually been wiped out in developed countries like the US and in Europe. They are only required to create storage facilities and cold chains. International retail does not create additional markets. Big retail chains are actually going to hire a lot of people. Comparison between India and China is misplaced. International experience shows supermarkets invariably displace small retailers. 6.

8|Page CONCLUSION: As there are more positive points for FDI IN RETAIL and less negative points so Indian government should consider the argument and should allow single and multi branding as per the demand. as such. In our view. generate employment for those keen to work in this sector FDI would lead to a more comprehensive integration of India into the worldwide market and. the government has an opportunity to utilize the liberalization for achieving certain of its own targets:    improve its infrastructure. If done in the right manner. it is imperative for the government to promote this sector for the overall economic development and social welfare of the country. access sophisticated technologies. India needs to take a lesson from China where organized and unorganized retail seem to co-exist and grow together. Further. Although there would be job losses for kirana stores but that is only for the short run because these shops owner would become the part of the retail giants in the long term so if government ignores the short losses so it would earn the long term gains from the approval of the deal. it can prove to be a boon and not a curse . India’s local enterprises will potentially receive an up gradation with the import of advanced technological and logistics management expertise from the foreign entities.

9|Page SOURCES Primary sources: class notes and reports Secondary sources: Wikipedia and times of India articles .

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