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FDI in Multi - Brand Retail in India By: Dinu Chacko Jeetesh Menda Jiwanjot Singh Krishna Priya S Merin Mandanna
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FDI in Multi
-
Brand Retail in
IndiaBy:
Dinu Chacko
Jeetesh MendaJiwanjot Singh
Krishna Priya S
Merin Mandanna
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Retail in India
Accounts for 22% of GDP
Generates 8% of total employment
India is one of the five largest retail marketsin the world in economic value
Demographic dividend with over 50% of
country populace under 25 years of age is a
prime driving factor for modern retail sector
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Organized vs. Unorganized
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Recent News
Indian central government on Nov 24, 2011
announced major reforms paving way for
multi brand giants such as Walmart,
Carrefour and Tesco, as well single brandmajors such as IKEA, Nike, and Apple to
enter one of the fastest growing retail
market of 1.2 billion people.
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Upcoming Features
Over 1,000 hypermarkets and 3,000
supermarkets projected to come up by 2012
A Wall Street Journal article claims thatfresh investments in Indian organized retail
will generate 10 million new jobs between
2012-2014
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THE BIG REFORMS
Open sign for foreign retailers.
51% FDI in Multi-brand retail.
100% FDI in Single-brand retail.
The government’s decision is fraught with
great political risk.
Opening up of retail sector was a key itemin the list of suggestions put together by top
business leaders.
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REGULATIONS
Minimum investment of $100 million, 50%
in the back end.
Back end cannot include investments inland, rentals and front end stores.
At least 30% sourcing from small scale
industries.
Stores can only be in cities with at least one
million population.
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PROS
Consumers- better choice and cheaper
options.
Consumers and suppliers- better prices andlarger orders.
Retailers- opportunity to have foreign
investments.
Economy- fresh investments, new jobs and
lower retail prices.
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CONS
Intermediaries will be affected as the supply
chains will become leaner.
Local kiranas will have to modernize to stayrelevant.
Unfair competition- large scale exit of
domestic retailers.
India’s organized retail is still under
developed.
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Investment done by citizens and
government of one country (homecountry) invest in industries of
another country (host country).
Foreign
Investment
through
Foreign
Direct
Investments
Foreign
Institutional
Investors
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Automatic Route Government
No permission required Approval /License required.
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• 51% Single BrandRetailing
• 100%Cash and
Carry Model
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Incentives attract FDI.
Market size and potential are sufficient inducers.
Tax breaks, import duty exemptions, land and
power subsidies, and other enticements.
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SKILLEDWORKERS
COMPETITION
REALESTATE
PROBLEM
MARKETPOWER
SUPPLY CHAIN
MANAGEMENT
PROBLEM INRAISINGFUNDS
TAXATIONPOLICIES
INFLATION
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I N D I A N
• Pantaloons• Reliance
• Bharti retail
• RPG
•
Lifestyle• K raheja
• Subhiksha
• Piramyd
• Trent
• Vishal group
G L O B A L
• Tesco
• Walmart
• Metro
• Carrefour
• B&Q• Target
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• Market power is in hands of unorganized retail.
• Potential of Indian Market is US$ 200billion whereas India is just earning its 3%.
•95%Unorganized
•5%Organized
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In terms of corruption India stands at 85th position.
Because of paper work, corruption is present along the
entire supply chain.
In India, there are additional 2-3 intermediaries as
compared to USA.
i. They dominate the value chain.
ii. They flout mandi norms & their pricing lacks
transparency.
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India is still in developing stage in installing and
managing an effective IT system especially in rural areas
which hampers the overall growth of organized retail
sector.
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Banks are reluctant to finance retailers
because of falling demand of organized
retailers in India as it has witnessed
failure of many stores like Spencer's,
Subhiksha, etc.
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• Taxation laws in India favors only small retail
businesses.
• Implementation of non-uniform VAT across states.
• Octroi and entry tax in some states.
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• No Automatic Approval for FDI- Only 51% FDI is
allowed to one brand shops in Indian retail sector.
• Complications in issuance of licenses like a
hypermarket in Mumbai must apply for 29 unique
licenses & then when it has to come up with second
store it has to apply for same 29 licenses all over
again.
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Disturbed economic
status.
Challenge to get more customers at
low cost .
Liquidity pressure
