FDI in retail

BACKGROUND & POLICY

PLEASE TAKE FEW MINUTES AND READ ABOUT THE CABINET DECISION ON FDI IN RETAIL

EXISTING POLICY
FDI In Multi Brand Retail Trading (MBRT) Is Prohibited.
FDI, Up To 51%, In The Single Brand Retail Trading (SBRT) Sector, Is Permitted, Under The Government/FIPB Route.

RATIONALE FOR LIBERALIZATION Leveraging foreign investment in supply chain infrastructure

RATIONALE FOR LIBERALIZATION Lack Of Investment In The Logistics Of Retail Chain Creating Inefficiencies In The Food Supply Chain.

RATIONALE FOR LIBERALIZATION Though India Is The Second Largest Producer Of Fruits And Vegetables (About 200 Million MT), It Has A Very Limited Integrated Cold-chain Infrastructure, With Only 5386 Stand-alone Cold Storages, Having A Total Capacity Of 23.6 Million MT, 80% Of This Is Used Only For Potatoes.

RATIONALE FOR LIBERALIZATION Lack Of Adequate Storage Facilities Cause Heavy Losses To Farmers In Terms Of Wastage In Quality Of Produce In General, And Of Fruits And Vegetables In Particular. Post-harvest Losses Of Farm Produce, Especially Of Fruits, Vegetables And Other Perishables, Have Been Estimated To Be Over Rs.1 Trillion Per Annum, 57 Per Cent Of Which Is Due To Avoidable Wastage And The Rest Due To Avoidable Costs Of Storage And Commissions.

RATIONALE FOR LIBERALIZATION As Per Some Industry Estimates, 35-40% Of Fruits And Vegetables And Nearly 10% Of Food Grains In India Are Wasted. Though FDI Is Permitted In Cold-chain To The Extent Of 100%, Through The Automatic Route. In The Absence Of FDI In Front-end Retail, Investment Flows Into This Sector Have Been Insignificant.

RATIONALE FOR LIBERALIZATION Indian Farmer Realizes Only 1/3 rd Of The Total Price Paid By The Final Consumer As Against 2/3 rd With Higher Degree Of Retail. A World Bank Study Of 2007 Demonstrates That The Average Price A Farmer Receives For Horticulture Produce Is Barely 12 To 15% Of What Is Paid At The Retail Outlet.

RATIONALE FOR LIBERALIZATION An 11th Plan Working Group Has Estimated a Total Investment Of Rs. 64,312 Crores In Agricultural Infrastructure. A Storage Capacity Gap Of 35 Million Tonnes Has Been Assessed, Requiring An Estimated Investment Of Rs. 7,687 Crores During The 11th Plan.

SUPPLY CHAIN EFFICIENCIES Foreign Retail Majors Have Gained Decades Of Experience, Technologies And Management Practices Which Will Ensure Supply Chain Efficiencies.

IMPACT ON FOOD INFLATION The opening up of Multi Brand Retail will also have a salutary impact on food inflation as it would contribute to savings to the food which perishes on account of inadequate infrastructure.

PRICES FOR THE FARMERS In the present dispensation, there is a complex chain of procurement involving several middlemen. FDI in retail will create the enabling environment which will ensure direct procurement, at least of horticultural produce from farmers to enable them secure remunerative price

EMPLOYMENT OPPORTUNITIES Huge Investments In The Retail Sector Will See Gainful Employment Opportunities In Agro-processing, Sorting, Marketing, Logistic Management And The Front-end Retail Business.

EMPLOYMENT OPPORTUNITIES Industry Estimates Suggest Employment Of One Person Per 350-400 Sq.Ft Of Retail Space, About 1.5 Million Jobs Will Be Created In The Front-end Alone In The Next 5 Years .

EMPLOYMENT OPPORTUNITIES Assuming that 10% extra people are required for the back-end, the direct employment generated by the organized retail sector in India over the coming 5 years will be close to 1.7 million jobs

EMPLOYMENT OPPORTUNITIES Indirect Employment Generated On The Supply Chain To Feed This Retail Business Will Add Millions Of Jobs.

FDI POLICY IN OTHER COUNTRIES CHINA - 100% FDI LIMITS THAILAND - 100 % FDI LIMITS RUSSIA - 100% FDI LIMITS INDONESIA- 100 % LIMITS

FDI POLICY IN OTHER COUNTRIES Brazil , Argentina , Singapore & Chile allow 100% FDI in retail sector while Malaysia permits FDI to a certain limit.

CABINET DECISION FDI In Multi Brand Retail Trade (MBRT) May Be Permitted Up To 51%, With Government Approval

CABINET DECISION Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products, may be unbranded .

CABINET DECISION Minimum Amount To Be Brought In, As FDI, By The Foreign Investor, Would Be US $ 100 Million

CABINET DECISION At Least 50% Of Total FDI Brought In Shall Be Invested In 'Backend Infrastructure'

CABINET DECISION At least 30% of the procurement of manufactured/ processed products shall be sourced from 'small industries'

CABINET DECISION Retail sales locations may be set up only in cities with a population of more than 10 lakh as per 2011 Census only 53 cities qualify for FDI in multi-brand retail out of nearly 8000 towns and cities

CABINET DECISION The FDI In Multi-brand Retail Is Being Opened In 53 Cities Only With Population Of 1 Million And For The Rest Of The Country, Current Policy Regime Will Apply

CABINET DECISION Government will have the first right to procurement of agricultural products

CONDITIONS FDI in single brand retail trading may be permitted up to 100% with Government approval

CONDITIONS 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

CONDITIONS ‘ Single Brand’ Product-retailing Would Cover Only Products Which Are Branded During Manufacturing .

CONDITIONS The foreign investor should be the owner of the brand.

CONDITIONS In respect of proposals involving FDI beyond 51%, 30% sourcing would mandatorily have to be done from SMEs/ village and cottage industries artisans and craftsmen.

Condition of 30% sourcing from small scale sector This condition will ensure that our SME sector, including artisans, craftsman, handicraft and cottage industry benefits, especially in sectors like textiles, gems and jewellery, leather and jute.

Rationale for enhancing FDI ceiling to 100% in single brand retail trading In the last 5 years, under the current regime of 51% FDI in single brand retail, foreign direct investment of only US$ 44.45 million have been received, constituting barely 0.03% of total FDI inflows.

Rationale for enhancing FDI ceiling to 100% in single brand retail trading Globally, single brand retail follow a business model of 100% ownership and global majors have been reluctant to establish their presence in a restrictive policy environment.

Rationale for enhancing FDI ceiling to 100% in single brand retail trading The current cap of 51% confers a right to pass all ordinary resolutions, while enhancing cap to 100% will confer full ownership and control.

For More : http://pib.nic.in/newsite/erelease.aspx?relid=77619 Web conference by Hon’able Minister http://pib.nic.in/newsite/webcastplay.aspx?webcastid=149

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FDI in retail

by Gaurav Kulshrestha

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FDI in retail Presentation Transcript