Implication of FDI in Indian retail

Group No.1

• Sanoop Manoharan• Neeraja Vijayan

• Shajina M V• Mridula. C• Sajila K P• Pravija M• Mithun T

FDI or Foreign Direct Investment• A company from one country making a

physical investment into building a factory in another country

• FDI has come to play a major role in the internationalization of business

Implementation stages of FDI in IndiaYear stages

1995 World Trade Organization’s general agreement on Trade in Services, which includes both wholesale and retaililng services,came into effect

1997 FDI in cash and carry (wholesale) with 100% rights allowed under the Govt. Approval route

2006 FDI in cash and carry brought under the automatic route Up to 51% investment in single brand retail outlet permitted

2011 100 FDI in single brand retail permitted

RETAIL sector in India•The Retail Industry is the sector of economy which is consisted of

• individuals stores,• commercial complexes,•agencies, •companies, and •organizations, etc

•They involved in the business of selling or merchandizing finished products or goods to the end-user consumers directly and indirectly

• Indian retail sector today is valued at $450 billion, and is increasing day by day due to its increasing middle class population and their spending power.

• Indian retail sector has two parts: organized and unorganized sector.• Organized sector which forms around 20 -30 % in other countries .• In India it forms only about 6% while rest is all unorganized consisting

of small retailers called as ‘kirana shops’, paan/beedi wala, convenience stores, departmental stores, pavement vendors etc.

• Organized retail consists of supermarkets, hypermarkets and modern retail outlets, malls, exclusive brand outlets etc which are located in urban areas or metros.

• India's growing economy(8% per year) opens new and new opportunities to the foreign investors

• Global Jurix, a full-fledged legal organization prominent worldwide, provides all-encompassing services and advice for most lucrative and secured fdi in indian retail sector.

• Diverse foreign direct investment in indian retail is greatly cherished by most of the major and leading including• Walmart (USA),• Tesco (UK),• Metro (Germany), and• Carrefour (France)

FDI in Retail sector• FDI in retail sector is not allowed, it is only allowed up to 51 % in

single brand and government is still considering the opinion of allowing FDI in multi brand segment

• 100% FDI is allowed in cash and carry wholesale and export trading, both wall mart and Carrefour have already entered in India in this segment.

• Many big giants like Wall mart, Carrefour are waiting to earn their fortune in continuously growing market.

• FDI in retail sector will have both positive and negative effect if allowed. Both organized and unorganized sector will face adverse competition from global players. Wal-Mart has a turnover of $256 billion and growing at an average of 12 -13 % annually. Average size of its stores is 85000sq ft and average turnover is $51 million

Forms of FDI in Indian retailing

• Joint Ventures• Franchising• Sourcing of Supplies from small-scale sector• Cash and Carry Operations• Non-Store Formats

Challenges of FDI in Retailing

• Economies of scale:– economies of scale and perfect cost cutting– providing the consumer the best at lowest price

• Brand name:– They bring with them world class products which

have high quality and a highly valued brand name.– The domestic brands don’t have that charm and

attracting power as of global brands.

• Technology: – Global players are highly advanced in technology.– The tools, equipments, kind of warehouses they use, their way of

performing processes are highly advanced and cannot be compared with those used by Indian retail firms,

– they provides better services and better quality products even in categories like perishable food etc.

• Attract skilled employees:

– They believe in earning profits by cutting costs as much as possible and at the same time are conscious towards career of their employees.

– Attractive salary and high incentives can also attract skilled employees towards global players which is also a threat for big Indian retail firms.

• Better infrastructure: – Better storage facilities, better transportation medium and

high investment can pose another threat to Indian retail firms which can hardly match the capabilities of giants on their own.

• Joint ventures:

– Global players may not prefer to enter into joint ventures with Indian firms and may also close down the existing ventures in wholesale and single brand which may adversely affect the Indian firms.

– This is possible when 100% FDI is allowed in multi-brand retail.

Why they choose India………..?

• Liberalization of trade policy • loosening of barriers and restrictions to the

foreign investment • Another important reason is changing

consumer pattern• Growing urban population

Classification Annual household income (‘000)

1995-96 2005-06 2009-10 (P)

Deprived <90 1,31,176 1,32,249 1,14,394

Aspirers 90-200 28,901 53,276 75,304

Seekers 200-500 3,881 13,183 22,268

Strivers 500-1,000 651 3,212 6,173

Near Rich 1,000-2,000 189 1,122 2,373

Clear Rich 2,000-5,000 63 454 1,037

Sheer Rich 5,000-10,000 11 103 255

Super Rich >10,000 5 52 141

Total 164,876 204,651 221,945

Source: NCAER (2005) and http://www.fadaweb.com/indian_mkt_05.htmNote:    These figures are given at 2001-02 prices., P - Projected

Indian Consumers are Changing…

1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2010- 11 2020-21 2030-310

5

10

15

20

25

30

35

40

45

17.5 1820

2325

2731

3542

Percentage of Population

Percentage of Urban Population

Trends of Urban population

Why FDI is BAD…..?

• One of the conditions for this proposal is that multi-brand companies should source at least 60% of their farm produce from small farmers. – The justification is that this will give a boost to small

farmers but there is an inherent flaw in the argument• The second argument is that this FDI will create jobs.

– there is no specification regarding • the kind of jobs it will create• The kind of jobs that it will threaten, namely the small grocer and kirana shops that is the hallmark of any Indian neighborhood

• The model of multi-brand supermarkets is hardly working nor is it sustainable.– It involves

• massive supply chains ranging from remote corners of the globe

• encourages consumerism, cheap produce and planned obsolescence.

• India already struggles with massive infrastructural problems with waste management– what is the proposal to deal with the excessive amounts

of waste created by the FDI investment

• The multi-brand supermarket is a failed business model even in those countries that pioneered them, notably the United States.

• Indian government still fears that if FDI is allowed in retail then unorganized sector will be affected very badly and it will result in a large lot of unemployed retailers

• youth which is employed in the supply chain, this unemployed lot can’t be absorbed in manufacturing or service sector which can ultimately push a large chunk of population below poverty line

CONCLUSION

• If the Indian government is really serious about encouraging small farmers, then they will be rejecting GMO and making sure locally produced organic food is more widely available.

• If the government is serious about creating jobs then they should be focusing on improving sectors within the country namely waste management, agriculture and infrastructure development.

Thank You