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8/2/2019 FDI in Indian Retail Sector Final
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FDI- An Introduction Refers to the net inflows of investment to acquire a
lasting management interest in an enterpriseoperating in an economy other than that of theinvestor.
It is the sum of equity capital, reinvestment ofearnings, other long-term capital, and short-term
capital. It usually involves participation in management,
joint-venture, transfer of technology and expertise.
A measure of foreign ownership of productive assets.
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Retail Sector in India One of the pillars of Indian Economy: contributes
13% of GDP.
Over 12 million outlets operate in the country
India has the highest number of outlets per person(7 per thousand)
Indian retail space per capita is lowest at 2 sq.ft/
person. Only 4% outlets are bigger than 500 sq ft
Over 90% trade is conducted through independentlocal stores
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Organized & Unorganized Retail
Organized
Trading activitiesundertaken bylicensed retailers
Hypermarkets
Retail ChainsPrivately ownedstructured business
Growing at 35%anually
Unorganized
Traditional formatsof low-costretailing
Kirana stores
Owner managed
stores
Hand cart/pavement vendors
Growing at 6%anually
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FDI in Retail Sector
FDI in single-brand retailing was permitted in2006, up to 51 per cent of ownership.
57 proposals out of 94 were approved.
FDI inflow of US$196.46 million under the
category of single brand retailing was received.
Retail stocks rose by as much as 5%.
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Effects of 100% FDI in Single Brand
Foreign players get local market knowledge
Indian companies can access global best management
practices and technology
Adequate flow of capital
Study shows that investment of big moneyin the retailsector would in the long run not harm interests of
small, traditional, retailers.
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FDI in Multi BrandFDI in Multi Brand retail implies that a retail store with a foreign
investment can sell multiple brands under one roof.
At present FDI is not permitted in Multi Brand Retailing in India.
But FDI in Cash and Carry wholesale trading is 100% allowedwhich involves building of a large distribution infrastructure toassist local manufactures. The wholesaler deals only with smaller
retailers and not consumers.
Opening it up will mean that global retailers (Wal-Mart,Carrefour, Tesco) can open stores offering a range of items
directly to consumers.
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Why Indian Market? Growth in working population
Rising disposable incomes
Changing consumer lifestyles
Development of rural markets
Reduce dependency on Chinese exports
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Need for FDI in Retail Sector
Increased Efficiency
Efficient and tested management practices
Economies of scale
Adoption of global best practices
Adoption of modern technology
The organized model adopted by organized retailers
may be adopted by other players gradually, leading tooverall efficient system.
Would lead to stability in prices by eliminating
hoarding and speculations.
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FDI- Good or Bad?
Arguments Against FDI
Wipe out the mom-pop stores
Displace labour in a labour-surplus society
Control over pricesArguments For FDI
Multiplier effect on generating jobs in allied sectors like construction,furnishing, hardware, food processing ,packing, management, data
processing, etc Readily available equity funds, Investment in technology
Development in supply chain infrastructure, reduced wastage
Improved quality
Increase in exports
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ChallengesSKILLED
WORKERS
COMPETITION
REAL
ESTATE
PROBLEM
MARKET
POWER
SUPPLY CHAIN
MANAGEMENT
PROBLEM IN
RAISING
FUNDS
TAXATION
POLICIES
INFLATION
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The Challenge
A strong competition from mom and pop shops:-
Easily accessible & approachable.
Provide services like Free home delivery and goods on
credit.
They change consumer focus.