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Impact Of FDI in Retail

Pranavkumar Jain

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What is FDI?

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Possible Views

FDI refers to the net inflows of investment (inflow minus outflow) in an enterprise operating in an economy other than that of the investor. It usually involves participation in management, joint-venture, transfer of technology and expertise.

It brings private funds from overseas into products or services.

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Why FDI?

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Company’s Point

• Why any companies wishes for FDI when decide of going global?• Circumventing trade barriers, hidden and otherwise• Making the move from domestic export sales to a locally-based

national sales office• Capability to increase total production capacity• Opportunities for co-production, joint ventures with local partners,

joint marketing arrangements, licensing, etc

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Host Nation

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.

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Retail Sector in India

• Vast, huge potential for development, majority of its constituents are un-organized

• Contributes about 15% to the GDP, employs a massive workforce following agriculture

• Organized retail sector’s expected growth rate is 15-20% per year

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FDI in Retail

• Single Brand Retail• Multi Brand Retail

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FDI in Retail

• Until 2011,Central Government denied FDI in multi-brand retail, forbidding foreign groups from any ownership in supermarkets, convenience stores or any retail outlets.

• Even single-brand retail was limited to 51% ownership and a bureaucratic process.

• In November 2011, India's central government announced retail reforms for both multi-brand stores and single-brand stores.

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FDI in Retail• In December 2011, Indian government placed the retail reforms on hold

till it reached a consensus.• In January 2012, India approved reforms for single-brand stores

welcoming anyone in the world to innovate in Indian retail market with 100% ownership, but imposed the requirement that the single brand retailer source 30% of its goods from India.

• In 14 Sepetember 2012, Cabinet approved FDI upto 51% in multi-brand retail, along with a slew of economic reforms, subject to many riders. This move has led to the political situation heating upto a boiling point, with TMC having withdrawn support from the government.

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Pros

Benefit to Farmers: • 7-10% higher price to farmers than what they get from Mandi• Expert advice on better crop planning and management• Efficient crop calendar management aimed at catching early

and late seasons for better prices• Opportunity to maximize and improve income by offering

better quality

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Pros• Huge investments will see gainful employment opportunities in agro-

processing, sorting, marketing, logistics management and front-end retail

• At least 10 million jobs will be created in next three year in the sector(As per GoI)

• Will help farmers secure remunerative prices by eliminating exploitative middlemen

• Foreign retail majors will ensure effective supply-chain efficiencies, it will also create an opportunity for the local players to learn from them

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Pros

• Policy mandates a minimum investment of $100 million with at least half the amount to be invested in back-end infrastructure, including cold chains, refrigeration, transportation, packing, sorting and processing

• Will have a impact on food inflation from efficiencies in supply chain

• Sourcing of a minimum of 30% from Indian micro and small industry will encourage domestic value addition and manufacturing

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Pros

Benefit to stores & customers:• Fresh produce

• Local source• Consistent quality• Safer food• Value for money• Lower cost compared to open market buys

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Cons• Move will lead to large-scale job losses• International experience shows supermarkets invariably displace small retailers• Small retail has virtually been wiped out in developed countries like the US and

in Europe. South East Asian countries had to impose stringent zoning and licensing regulations to restrict growth of supermarkets after small retailers were getting displaced

• India has the highest shopping density in the world with 11 shops per 1,000 people

• It has 1.2 crore shops employing over 4 crore people; 95% of these are small shops run by self-employed people

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Conclusion

• Fears of small shopkeepers getting displaced are vastly exaggerated

• Mega retail chains need to keep price points low and attractive• The argument that farmers will suffer once global retail has

developed a virtual monopoly is also weak. • Secondly, it can't be anyone's case that farmers are getting a

good deal right now. The fact is that farmers barely subsist while middlemen take the cream

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Bibliography

Internet:• http://en.wikipedia.org/wiki/Foreign_direct_investment• http://www.fibre2fashion.com/industry-article/7/604/fdi-in-retailing1.asp• http://

articles.timesofindia.indiatimes.com/2011-11-29/india/30453728_1_retail-sector-small-retailers-global-retail-giants

• http://sanjaykaul.wordpress.com/-reasons-why-fdi-in-retail-is-a-bad-idea• http://

businesstoday.intoday.in/story/govt-may-announce-fdi-package-for-retail-aviation-sector/1/187955.html

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Thanks for Patience Hearing