FDI IN RETAIL SECTOR BY: ANKIT CHAWLA (1211310007)
CONTENTS• FDI• Retail• FDI Policy in India• FDI Policy with Regard to Retailing in India• Entry Options for Foreign Players prior to FDI Policy• FDI in Single and Multi-brand• Foreign Investor‟s concern regarding FDI Policy in India• Concerns for the Government for only Partially Allowing FDI in Retail Sector• Benefits to different groups• Limitations of the Present Setup• Prerequisites before allowing FDI in Multi-brand Retail and lifting cap of Single Brand retail• Opinion and Reactions of different groups and individuals
FDIFDI is an investment to acquire long-term interest inenterprises operating outside of the economy of theinvestor.FDI is a source of external finance which means thatcountries with limited amounts of capital can receivefinance beyond national borders from wealthiercountries.FDI is considered to be considered an ingredient ineconomic growth.
INTERNATIONAL MONETARY FUND“foreign direct investment, commonlyknown as FDI, "refers to an investmentmade to acquire lasting or long-term interestin enterprises operating outside of theeconomy of the investor.”
HISTORY OF FDI• Started at the time of East India Company of Britain.• After world war II, Japanese companies entered Indian Market.• UK was the most dominant investor in India.• In 1965, MNC‟s of foreign allowed to set collaborated investors in India• In 1980, Government set Foreign Investment Board and Foreign Exchange Regulation Act.
HISTORY CONTINUED• In early nineties, Indian economy faced severe Balance of Crisis. Dr. Manmohan Singh with the help of World Bank and IMF introduced the macro-economic stabilization and structural adjustment programme .As a result of these of these reforms India open its door to FDI inflows .• Then Foreign Investment Promotion Board is established
FDI INFLOWS IN INDIA (FROM 1948-2010)
FDI FLOW IN INDIA (1948-2010)
WHY FDI• Raising the level of investment• Upgrading the Technology• Exploitation of Natural Resources• Development of Basic Economic Infrastructure• Improvement of Export Competitiveness• Improvement in BOP• Benefit to Customer• Revenue to Government
WHAT IS RETAILING?Retailing is the interface between the producerand the individual consumer, buying forpersonal consumption. It is the last link thatconnects the consumer with the manufacturingand distribution chains.
INDIA IN RETAIL SECTOR• India is the fifth largest retail market globally.• Retail contributes to 15% of India’s GDP.• India has highest retail density in the world with 15 million outlets.• It provides employment to 40 million Indians (3.3 % of Indian Population)• Retailors such as Nike, Wall-mart, IKEA, Apple etc.
DIVISION OF RETAIL INDUSTRY O r g a n i ze d R e t a i l i n g U n o r g a n i ze d R e t a i l i n gOrganized retailing refers to trading Unorganized retailing, on the otheractivities undertaken by licensed han, refers to the traditional formatsretailers, that is, those who are registered of low-cost retailing, forfor sales tax, income tax, etc. These example, the local kiranainclude the corporate-backed shops, owner manned generalhypermarkets and retail chains, and alsothe privately owned large retail stores, paan/beedibusinesses. shops, convenience stores, hand cart and pavement vendors, etc.Only 5% of the total retail share. 95% of the total retail share.
FDI POLICY IN INDIA• FDI permitted in almost all activities• Up-to 100% FDI allowed in manufacturing• Most FDI allowed on the ‘automatic route’• Liberal policy for foreign technology collaboration• Policy supported by a legal framework• National treatment to investment• Investment being constantly reviewed and liberalized• Policy is independently to be liberal and progressive.
ENTRY OPTIONS FOR FOREIGNERS• Franchise Agreements• Cash and Carry Wholesale Trading• Strategic Licensing Agreements• Manufacturing and Wholly Owned Subsidiaries
FDI IN SINGLE BRAND• Single brand retail is one in which a single item is sold across all outlets. Such as Reebok, Titan, Puma etc.• Policy Before 2011• FDI up to 51 %, with prior Government approval, is allowed in retail trade of single brand products, subject to the following conditions:• FDI up to 51 % would be allowed, with prior Government approval, for retail trade of Single Brand Products;• Products to be sold should be of a „Single Brand‟ only.• Products should be sold under the same brand internationally.• „Single Brand‟ product-retailing would cover only products which are branded during manufacturing.
THE CHANGE:The Government finally has permitted 100 percent FDI in Single brand retail under the government approval route subject to certain conditions. Some of the stipulatedconditions are:(a) Products to be sold should be of a ‘Single Brand’ only.(b) Products should be sold under the same brand internationally i.e. products should be sold under the same brand in one or more countries other than India.(c) ‘Single Brand’ product-retail trading would cover only products which are branded during manufacturing.(d) The foreign investor should be the owner of the brand.(e) In respect of proposals involving FDI beyond 51%, mandatory sourcing of at least 30% of the value of products sold would have to be done from Indian ‘small industries/ village and cottage industries, artisans and craftsmen’. .
MULTI BRAND RETAIL IN INDIA• Marketing of similar and competing products by the same firm under different and unrelated brands. For example: walmart, big bazar, tesco etc.• FDI in multi brand retail was not permitted in India. However, the Government of India proposed some policy changes in late 2011. they are as follows..• A decision has been taken by the Government to permit FDI in all products, in a• calibrated manner, subject to the following conditions:•FDI in Multi Brand Retail Trade (MBRT) may be permitted up to 51%, with Government approval;•Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery andmeat products, may be unbranded.•Minimum amount to be brought in, as FDI, by the foreign investor, would be US $ 100 million.•At least 50% of total FDI brought in shall be invested in back-end infrastructure’.• Back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware -house, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if any, will not be counted for purposes of backend infrastructure.
•At least 30% of the procurement of manufactured/ processed products shall besourced from Indian small industries which have a total investment in plant& machinery not exceeding US $ 1.00 million. This valuation refers to thevalue at the time of installation, without providing for depreciation. Further, ifat any point in time, this valuation is exceeded, the industry shall not qualify asa small industry for this purpose.•Self-certification by the company, to ensure compliance of the condition atserial nos. (iii), (iv) and (v) above, which could be cross-checked as and whenrequired.• Accordingly, the investors to maintain accounts, duly certified by statutory auditors.•Retail sales locations may be set up only in cities with a population of morethan 10 lakh as per 2011 Census and may also cover an area of 10 kms aroundthe municipal/urban agglomeration limits of such cities; retail locations will berestricted to conforming areas as per the Master/Zonal Plans of the concernedcities and provision will be made for requisite facilities such as transportconnectivity and parking;•Government will have the first right to procurement of agricultural products
BENEFITS• Direct benefit to Farmers• Reduction in Food Inflation• Earning of For-ex• Huge Employment Benefits• Drop in Food Wastage• Better Consumer Choice• Benefit to Kirana Stores• Creation of backend Infrastructure• More Purchase from SMEs
LIMITATION TO THE PRESENT SETUP• Infrastructure• Intermediaries dominate the value chain• Improper Public Distribution System• No global reach
OPINIONS AND REACTIONSIn the last few months, there has been significant discussion on permittingForeign Direct Investment (“FDI”) in Multi-Brand Retail Trading. As part of thatprocess, the Department of Industrial Policy and Promotion (“DIPP”) released adiscussion paper on “Foreign Direct Investment (FDI) in Multi-Brand RetailTrading” (“Discussion Paper”) and invited views on the same. The Confederationof Indian Industry (“CII”) had responded to the Discussion Paper earlier(attached as Annexure 1 is a copy of the response for your reference). In additionto the views set out in the attached response, this note seeks to outline CIIperspective on key issues relating to FDI in retail trading sector based on certainrecent press reports on the recommended proposal of the DIPP, whilehighlighting the need to adopt a different approach for food and non-food sector. By : Greeta Varughese [Senior Director] Special Initiatives (SI) - CO Confederation of Indian Industry
I believe that union governments policy to allow foreign direct investment in retailbusiness is destructive for the country, because it wont bring technology...only foreignmoney will be invested in Indian markets. By: K N Govindacharya Former BJP IdeologuePeople reject FDI in Retail in the Public Hearing organized by East Delhi MunicipalCorporation: Trade Unions, Street Vendors Associations, RWAs & Civil Societyexpressed their opinion: 98% voted against FDI in Retail in the opinion poll;Respecting Peoples verdict EDMC will not grant trade licences to FDI Retailers By: Annupurna MIsra Mayor, EDMC
I think the advocates of FDI have probably put too much emphasis on it. India isreally in a different position than a small, developing country. It is different in twoways. First, you have a large pool of entrepreneurs and they are globally savvy. Theyhave access to global technology and they have a lot of wealth. So, if there were largereturns to large-scale supermarkets, the domestic industry would have supplied it. Theyare supplying to some extent. It is possible that more competition would spur growthbut not having access to FDI is not an impediment in India. I think you have to askthe question - the way to get access to technology to run a supermarket in other ways.A store like Wal-Mart has developed a supply chain in China that is able to procuremany goods at lower prices than others because of the huge buying power they haveand will use that power then to bring Chinese goods to India to displace Indianproduction. So the worry is not so much about the displacement of the small retailstore but displacement further down the supply chain. So that is what I am worriedabout. There are other two other issues also I would worry about. Some of the profitsof the companies like Wal-Mart come from free riding on our society. They dontprovide healthcare benefits to their workers and they assume that the husbands orwives of the workers get healthcare benefits from their other employees or they getmoney through some other mechanism. In the US, the salary is so low, it is difficult forthem to pay for it. They might not be a good employer. So the question is to bring inthe Indian context the firms that are not good employers. By: Shobhan Saxsena Editor Sunday Times of India
Supreme CourtThe Supreme Court on Oct 15 refused to stay the Centres decision to allow Foreign DirectInvestment (FDI) in retail sector. A bench of justices R M Lodha and A RDave, however, said that the policy suffers from "curable" irregularity of want of legalsanction and asked the RBI to amend the Foreign Exchange Management Act (FEMA)regulations to allow implementation of the governments policy.The bench said the RBI should have amended the FEMA regulations before theimplementation of FDI policy and asked the banking regulator to take steps to remove thelacunae in the way of giving a final shape to the policy.The court observed that the regulations should have been amended before the Centreissued the notification, but clarified that the irregularity can now be cured with RBIamending FEMA regulation. "At least it can be said that it is an irregularity that is curableand as soon as amendment is brought, it would be cured," the bench said.During the argument, the court said the policy cannot be stayed just because of thisirregularity. Attorney General G E Vahanvati submitted that he would talk to the RBIGovernor to take immediate steps for bringing amendment in the FEMA regulations. Thebench after hearing his submission adjourned the matter for further hearing on November5.The court was hearing a PIL filed by lawyer M L Sharma, who has said that RBIs nod wasmissing from the Centres policy allowing FDI in retail sector. By: R M Lodha and A R Dave Bench of Judges Supreme Court
STRIKE AGAINST FDI IN RETAILCall on 20th September for a nationwide strike (Bharat Bandh) by trade unionsof street vendors, small traders, and most of the political parties from left toright and including of parties within the Govt. and parties supporting theGovt. was historical. Millions of retailers and thousands of trade associationsobserved the bandh demanding rollback of FDI in multi-brand retail. Allmajor markets were closed throughout India. Public transport was off theroads and colleges, schools, offices and transport services remain shut in mostpart of India. Trains were blocked by political activists of BJP, SP and CPI(ML) in many places including Bihar, Uttar Pradesh, West Bengal, Orissa andJharkhand. The station Master of Patna Railway Station was locked. Theimpact of the strike was also seen in states of the North East. The bandh wastotal in Manipur. Banks, markets, shops and educational institutions wereclosed, with government offices recording low attendance in Meghalaya.Railway, road and others services were heavily impacted in Jharkhand. Mostcolleges reported only 20-50% attendance in Mumbai.
Small Farmers will get better pay for their production; Currently on 10-25% ofamount is paid to farmer than market selling price. Wastage of Food production iscontrolled to huge extent as the biggies will be able to get the cold storage of highvolume. Tax is paid to govt, whereas local kiranas won‟t pay the proper tax. Choicefor customers, as there will be lot of options. Low prices offered to customers dueto Heavy competition. Immediate employment in real estate and retail sectors.Quality fruits and vegetables without chemicals. Expiry date issued on eachproduct. Export of Indian products to other countries. Global access totechnology in retail sector and many more ....One of the best chances to see betterIndia. By : Easyday Store Manager SirsaFDI will ensure better operations in production cycle and distribution. Due toeconomies of operation, production facilities will be available at a cheaper ratethereby resulting in availability of variety products to the ultimate consumers at areasonable and lesser price. By: Pradeep Madaan Lecturer Govt Senior Secondary School Sirsa
FDI in retail has both a negative and positive impact on economy of India.Positive aspects is it helps to boost the growth of economy by increasingforeign investment, availability of goods in less prices and helps towardsbetter infrastructure. Negative part is it leads to unemployment or we can sayit destructs the general kirana business and their livelihood too. India businessgoes to foreign hands, so it may increase the danger of economy failure. By: Ms. Shweta Sharma Asst. Professor JCD Vidyapeeth Sirsa
FDI AT DUSSEHRAMythology touched by a tinge of modernism isn‟t a bad idea for creativity.The modern day demon in Indore is an effigy of „FDI Ravan‟ which will beburnt on Dussehra evening. Jaipur, like every year, is all geared up to celebrateDussehra in the brightest magnificence. "The tallest effigy of 120 feet iserected by us at the Central Spine in Vidhyadhar Nagar. We are planning tomake it a delightful evening for the devotees," said a member of theorganising committee at Vidhyadhar Nagar. Pune celebrates this day in adifferent way altogether. As the traditional practice, Apta leaves that representgold are exchanged by people. During Dussehra people worship the Shamiand in Maharashtra, they exchange leaves of the Apta tree (also known asSonpatta). In some parts of south India, the leaves of the Shami are soaked inwater until the day before Diwali when people bathe with this water. BY: Aryani Banerjee Correspondent India TV
One thing that concerns me is the influx of cheap / low-cost products fromChina, Mexico.. etc, which would kill the manufacturers in India. While one couldtalk about healthy competition, some countries may be able to produce cheaplypurely on the basis of currency exchange rate and cheap labour environment(violating human rights). Would we actually be supporting something we need tocondemn, by purchasing from Walmarts and other FDI sponsored outlets? By: J C Chawla Branch Manager Punjab National Bank SirsaThere is a lot to be said for big retail to come to India, but we cannot simply betaken in and mimic something which is being pushed down our throats becausethose who make the policy appear to not have the faintest clue on how retail reallyworks in India. By: Mohamud Yunus Professor, Punajabi University Patiala