problems and prospects of FDI in Retail in India

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detail analysis of FdI in retail in india

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PROBLEMS AND PROSPECTS OF FDI IN RETAIL IN INDIA:

PROBLEMS AND PROSPECTS OF FDI IN RETAIL IN INDIA

INDEX:

INDEX Introduction Definitions of FDI Indian Scenario Problems of FDI in Retail Prospects of FDI in Retail Analytical study Swot analysis Conclusion Recap webliography

INTRODUCTION:

In recognition of the important role of FDI in accelerating the growth of a country, govt of India initiated a slew of economic and financial reforms in 1991. as a result of the various policy initiative taken, India has been rapidly changing from a restrictive regime to a liberal one and FDI is encouraged in almost all economic activities under automatic route. INTRODUCTION

RETAILING :

Retailing is the interface between the producer and the individual consumer buying for personal consumption, this exclude direct interface between the manufacturer and institutional buyers such as government and other bulk consumers RETAILING

DEFINITION OF FDI:

According to Dictionary of Economics (Ghram Bannock et.al). “Investment in a foreign country through the acquisition of a local company or establishment there of an operation on a new site”. International monetary organization (IMF) and organization for economic development (OECD). “FDI as a category of cross border investment made by a resident in one economy with the objective of establishing a lasting interest in an enterprise that is resident in an economy other than that of the direct investor”. International bank for reconstruction and development(IRBD) and United nations conference on trade and development (UNCTAD). “FDI refers to capital inflows from abroad that is invested in or to enhance the production capacity of the economy. It is non-volatile, non-debt creating and results in economic development, modernization and employment generation in the economy”. DEFINITION OF FDI

INDIAN SCENARIO:

Retailing in India is one of the pillars of its economy and accounts for 14 to 15% of its GDP. The Indian retail market is estimated to be US$ 450 billion and one of the top five retail markets in the world by economic value. India is one of the fastest growing retail markets in the world, with 1.2 billion people. India's retailing industry is essentially owner manned small shops. In 2010, larger format convenience stores and supermarkets accounted for about 4% of the industry, and these were present only in large urban centers. India's retail and logistics industry employs about 40 million Indians (3.3% of Indian population). Until 2011, Indian central government denied foreign direct investment (FDI) in multibrand 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 INDIAN SCENARIO

STRUCTURE OF INDIAN RETAILING SECTOR :

STRUCTURE OF INDIAN RETAILING SECTOR The retail industry is mainly divided into: - 1) Organized 2) Unorganized Retailing Organized retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses. Unorganized retailing , on the other hand, refers to the traditional formats of low-cost retailing, for example, the local kirana shops, owner manned general stores, paan/ beedi shops, convenience stores, hand cart and pavement vendors, etc. The Indian retail sector is highly fragmented with 97 per cent of its business being run by the unorganized retailers. The organized retail however is at a very nascent stage. The sector is the largest source of employment after agriculture, and has deep penetration into rural India generating more than 10 per cent of India‘s GDP

PROBLEMS OF FDI IN RETAIL IN INDIA:

IMPACT ON MOM-AND-POP STORES: FDI is often opposed on the grounds that it will put mom-and-pop stores out of business. IMPACT ON FARMERS : so politicians argue that FDI in retail will harm farmers most as most of the retail gaints may import goods globally. UNEMPLOYMENT PROBLEM MAY INCREASE: Another major concern about FDI in retail is that it will leave many people job less as more than 97% of the retail sector is unorganised . PROBLEMS OF FDI IN RETAIL IN INDIA

PROSPECTS OF FDI IN RETAIL IN INDIA:

SECTOR WILL BECOME MORE ORGANISED: a recent study by CII and Boston Consulting Group estimated that the Indian retail sector would grow to US$ 1.25 trillion by 2020. INFRASTRUCTURE DEVELOPMENT: FDI in retail will attract big retail giants in the country who will bring big money to contribute towards infrastructural developments in the country. CREATES MORE JOBS: When big retail giants like Wal-Mart, IKEA and TESCO etc. come to India for expansion of their retail business they need more man power resulting in creation of more jobs. MORE TRANSPARECY: with the entry of big retail giants in the retail sector, the retail sector will become more competitive and transparent ALL THE PARTIES WILL BE BENEFIT: FDI in retail will provide benefits to all the parties viz.. Consumers by better quality at lower price, farmers with greater transparency and corporate with greater profits. PROSPECTS OF FDI IN RETAIL IN INDIA

PROSPECTS OF FDI IN RETAIL IN INDIA:

Cheaper production facilities: FDI will ensure better operations in production cycle and distribution. Due to economies of operation, production facilities will be available at a cheaper rate thereby resulting in availability of variety products to the ultimate consumers at a reasonable and lesser price. Availability of new technology: FDI enables transfer of skills and technology from overseas and develops the infrastructure of the domestic country. Greater managerial talent inflow from other countries is made possible. Domestic consumers will benefit getting great variety and quality products at all price points. Long term cash liquidity: FDI will provide necessary capital for setting up organized retail chain stores. It is a long term investment because unlike equity capital, the physical capital invested in the domestic company is not easily liquidated PROSPECTS OF FDI IN RETAIL IN INDIA

COMPARATIVE STUDY:

COMPARATIVE STUDY

PowerPoint Presentation:

Rank Country 2009-2010 (April-March) 2010-2011 (April-March) 2011-2012 (April-March) Cumulative inflows (April ‘’00-March ‘12 ) %age to total inflows (in terms of US $) 1. MAURITIUS 49,633 (10,376) 31,855 (6,987) 46,710 (9,942) 289,471 (64,169) 38% 2. SINGAPORE 11,295 (2,379) 7,730 (1,705) 2,712 (5,257) 77,588 (17,153) 10% 3. U.K 3,094 (657) 3,434 (755) 45,229 (9,257) 74,661 (15,896) 9% 4. JAPAN 5,670 (1,183) 7,063 (1,562) 14,089 (2,972) 57,851 (12,313) 7% 5. U.S.A 9,230 (1,943) 5,353 (1,170) 5,347 (1,115) 47,889 (10,564) 6% 6. NETHERLANDS 4,283 (899) 5,501 (1,213) 6,698 (1,409) 32,325 (7,109) 4% 7. CYPRUS 7,728 (1,627) 4,171 (913) 7,722 (1,587) 29,670 (6,400) 4% 8. GERMANY 2,980 (626) 908 (200) 7,452 (1,622) 20,828 (4,621) 3% 9. FRANCE 1,437 (303) 3,349 (734) 3,110 (663) 13,378 (2,927) 2% 10. U.A.E 3,017 (629) 1,569 (341) 1,728 (353) 10,320 (2,243) 1% TOTAL FDI INFLOWS 123,120 (25,834) 88,520 (19,427) 173,946 (36,504) 775,006 (170,407) -

PowerPoint Presentation:

Sector 2009-2010 (April-March) 2010-2011 (April-March) 2011-2012 (April-March) Cumulative inflows (April’ 00-March’ 2012) % age to total inflows (In terms of US $) 1. SERVICES SECTOR (financial & non-financial ) 19,945 (4,176) 15,053 (3,296) 24,656 (5,216) 145,764 (32,351) 19% 2. TELECOMMUNICATIONS (radio paging, cellular mobile, basic telephone services) 12,270 (2,539) 7,542 (1,665) 9,012 (1,997) 57,078 (12,552) 7% 3. CONSTRUCTION ACTIVITIES (including roads & highways) 13,469 (2,852) 4,979 (1,103) 13,672 (2,796) 52,253 (11,433) 7% 4. COMPUTER SOFTWARE & HARDWARE 4,127 (872) 3,551 (780) 3,804 (796) 50,118 (11,205) 7% 5. HOUSING & REAL ESTATE 14,027 (2,935) 5,600 (1,227) 3,443 (731) 49,717 (11,113) 7% 6. CHEMICALS (OTHER THAN FERTILIZERS) 1,726 (366) 1,812 (398) 36,227 (7,252) 47,904 (9,844) 6% 7. DRUGS & PHARMACEUTICALS 1,006 (213) 961 (209) 14,605 (3,232) 42,868 (9,195) 5% 8. POWER 6,138 (1,272) 5,796 (1,272) 7,678 (1,652) 33,214 (7,299) 4% 9. AUTOMOBILE INDUSTRY 5,893 (1,236) 5,864 (1,299) 4,347 (923) 30,785 (6,758) 4% 10. METALLURGICAL INDUSTRIES 1,999 (420) 5,023 (1,098) 8,348 (1,786) 26,936 (6,041) 4%

PowerPoint Presentation:

Future Predictions In the last four year, the consumer spending in India climbed up to 75% By the year 2013, the organized sector is also expected to grow at a CAGR of 40%. The total number of shopping malls is expected to expand at a CAGR of over 18.9 per cent by 2015.

SWOT ANALYSIS:

SWOT ANALYSIS

STRENGTHS:

Major contribution to GDP: the retail sector in India is hovering around 33-35% of GDP as compared to around 20% in USA. High Growth Rate: the retail sector in India enjoys an extremely high growth rate of approximately 46%. High Potential: since the organized portion of retail sector is only 2-3%, thereby creating lot of potential for future players. High Employment Generator: the retail sector employs 7% of work force in India, which is now limited to unorganized sector only. Once the reforms get implemented this percentage is likely to increase substantially. STRENGTHS

WEAKNESS:

Lack of Competitors: AT Kearney‘s study on global retailing trends found that India is least competitive as well as least saturated markets of the world. Highly Unorganised : The unorganized portion of retail sector is 97% as compared to US, which is only 20%. Low Productivity: Mckinsey study claims retail productivity in India is very low as compared to its international peers. Shortage of Talented Professionals: the retail trade business in India is not considered as reputed profession and is mostly carried out by the family members (self-employment and captive business). Such people are not academically and professionally qualified. No ‗Industry‘ status, hence creating financial issues for retailers: the retail sector in India does not enjoy industry status in India, thereby making difficult for retailers to raise funds. WEAKNESS

OPPORTUNITIES :

Healthy Competition will be boosted and there will be a check on the prices (inflation): Retail giants such as Walmart , Carrefour, Tesco, Target and other global retail companies already have operations in other countries for over 30 years. Until now, they have not at all become monopolies rather they have managed to keep a check on the food Inflation through their healthy competitive practices. Create transparency in the system: the intermediaries operating as per mandi norms do not have transparency in their pricing. According to some of the reports, an average Indian farmer realises only one-third of the price, which the final consumer pays. OPPORTUNITIES

THREATS:

Current Independent Stores will be compelled to close: This will lead to massive job loss as most of the operations in big stores like Walmart are highly automated requiring less work force. Big players can knock-out competition: they can afford to lower prices in initial stages, become monopoly and then raise price later. THREATS

Support for FDI in retail:

Praveen Lakra had put up road blockade and observed fast when Reliance’s Fresh chain of stores that sell branded products including vegetables and fruits were set up in this state.He had vandalized one of its stores in Ranchi over five years ago. Himself a vendor who sold vegetables and fruits from a mobile thela,Lakra had feared that Reliance will threaten the livelihood of millions of small sellers like him.The protesters were led by politicians who cut across the party lines.This was in 2007. Five years later,a day after the UPA government allowed 51 percent Foreign Direct Investment(FDI) in multi- brand retail,triggering outrage among some of its allies including the Trinamool and the Samajwadi Party as well as the Left parties,BJP and traders across the country,Lakra is not ready to back their agitation. “I was fooled by some politicians.They had told us that our business will be ruined once the Reliance super market comes up.Nothing of that sort has happened.While Relaince thrived,I continued to earn by selling fruits”,said Lakra,who was booked by the police on charge of vandalizing the Relaince store near Lalpur in Jharkhand’s capital. Predictably,therefore,Lakra is happy that the business of the vendors like him and that of the Relaince’s Fresh stores grew side by side without causing any harm to any of them.Ranjit Mahato,a farmer,who sold and supplied vegetables to Reliance,echoed Lakra’s sentiments Support for FDI in retail

Support for FDI in retail:

Farmers will be derived from their rights is the most common verdict being spread across the country right from the time the concept of FDI in retail came into papers. Well those who are saying that farmers suicide cases are increasing and government is not doing anything to save the lives of the farmers for them FDI in retail is the best policy action being provided. Moreover till date Indian farmers were struggling to make a living. Over the past year with 18 of the 28 states reported more suicides among the farmers. The farmer suicide graph has been steadily rising. According to the National Crime Records Bureau (NCRB) data from 2009, more than 216, 000 farmers have killed themselves since 1997. Add the figures for 1995, 1996 and 2010 and the total crosses 250,000. That is, two farmers a day for the past 15 years. Well where are those political parties who have been crying today protesting against the FDI in retail . Support for FDI in retail

CONCLUSION:

In view of the above analysis, if we try to balance opportunities and prospects attached to the given economic reforms, it will definitely cause good to Indian economy and consequently to public at large, if once implemented. Thus the period for which we delay these reforms will be loss for government only, since majority of the public is in favour of reforms. All the above mentioned drawbacks are mostly politically created. With the implementation of this policy all stakeholders will benefit whether it is consumer through quality products at low price, farmers through more transparency in trading or Indian corporates with 49% profit share remaining with Indian companies only. CONCLUSION

WEBLIOGRAPHY:

1. http://www.legallyindia.com/1468-fdi-in-retailing-sector -in- india - pros-cons-by- hemant - batra . 2. http://knowledge . wharton.upenn.edu / india / article.cfm?articleid =4702 3. http://siadipp.nic.in/policy/changes/pn3_2006.pdf 4. http://www.cci.in/pdf/surveys_reports/indias_retail_sector.pdf 5. INVISIBLE ANALYSIS Trends,Analysis,Foresight Of Global Economy and Equities: VISION BEYOND ANALYSIS SUNDAY, SEPTEMBER 16, 2012 WEBLIOGRAPHY

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