FDI IN RETAIL SECTOR
TABLE OF CONTENTS
Overview of retail sector
Division of retail industry
FDI and its benefits
Single Brand Retail
Multi Brand Retail
Effects of FDI
Current scenario in fdi retail
Advantages, disadvantages, conclusion
Overview of retail sector
Retailing in India is one of the
pillars of its economy and
accounts for 14 to 15 percent of
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's retail industry is largest
employer of India, employs
about 44 million Indians (3.3% of
DIVISION OF RETAIL INDUSTRY
The retail industry is mainly divided into :Organized retailing
Organized retailing refers to trading activities undertaken by
licensed retailers, that is, those who are registered for sales tax,
income tax, etc.
the publicly traded supermarkets, corporate-backed hypermarkets and
and also the privately owned large retail businesses.
Unorganized retailing refers to the traditional formats of low-
the local corner shops,
owner manned general stores,
paan/beedi shops, convenience stores,
ORGANISED VS UNORGANISED RETAIL AT GLOBAL LEVEL
THE INDIAN RETAIL MARKET
Supermarkets and similar organized retail accounted for just 4%
of the market
India has highest number
of outlets per person (7 per
thousand), Indian retail space per capita at 2 sq ft (0.19 m2)/
person is lowest in the world, Indian retail density of 6 percent
is highest in the world
To become a truly flourishing industry, retailing in India needs to cross some
A McKinsey study claims retail productivity in India is very low compared to
international peer measures. For example, the labor productivity in Indian
retail was just 6% of the labor productivity in United States in 2010.
Geographically dispersed population
Absence of developed supply chain, and little use of IT systems
Low skill level for retailing management
WHAT IS FDI ?
FDI is a direct investment into production or business in a
country by an individual or company of another country
Mostly by buying a company in the target country or by
expanding operations of an existing business in that country
Such investments can take place for many reasons, including
to take advantage of cheaper wages, special investment
privileges (e.g. Tax exemptions) offered by the country.
WHY COUNTRIES SEEK FDI ?
Domestic capital is inadequate for purpose of economic
Foreign capital is usually essential, at least as a temporary
measure, during the period when the capital market is in the
process of development
Foreign capital usually brings it with other scarce productive
factors like technical know how, business expertise and
WHAT ARE THE MAJOR BENEFITS OF FDI
Improves forex (system for dealing in the currencies
of other countries)position of the country
Helps in transfer of new technologies, management
Increases competition within the local market and
this brings higher efficiencies
Helps in increasing exports
Increases tax revenues
Employment generation and increase in production
WHAT IS SCOPE OF FDI IN INDIA? WHY WORLD IS
LOOKING TOWARDS INDIA FOR FDI
India is the 3rd largest economy of the world.
In last few years, certainly foreign investments have
shown upward trends but the strict FDI policies have
put hurdles in the growth in this sector.
Some of the major economic sectors where India can
attract investment are as follows:Telecommunications, Apparels, Information
technology, Pharma, Auto parts, Jewelry, Chemicals
WHY INDIA FOR RETAIL SECTOR…?
We are the second highest producer of fruits and vegetables in the
world but still we are not able to utilize it properly because of
inadequate infrastructure facilities.
It will reduce pre and post harvest wastage/losses and thus help
control food inflation.
It will create 1.5 million more jobs in 5 years. Apart from the huge
number of indirect employment.
It will increase competition which is always beneficial for the
It will remove the middleman from the equation. It will reduce
costs which in turn will reduce prices.
In January 2012, Indian government continues the hold on retail reforms for
On 14 September 2012, the government of India announced the opening of FDI in
multi-brand retail, subject to approvals by individual states. This decision was
welcomed by economists and the markets, but caused protests and an upheaval
in India's central government's political coalition structure.
On 20 September 2012, the Government of India formally notified the FDI
reforms for single and multi brand retail, thereby making it effective under Indian
On 7 December 2012, the Federal Government of India allowed 51% FDI in multibrand retail in India. The government managed to get the approval of multi-brand
retail in the parliament despite heavy uproar from the opposition
FDI IN SINGLE BRAND RETAIL
In-principle approval granted for increase in FDI in single brand retail from
51% to 100% under the approval route. This is subject to, inter alia, the
Products to be sold under the same brand internationally.
Foreign investor must be the owner of the brand.
Single brand retail would cover only products branded during
For FDI above 51%, 30% sourcing must be from SMEs.
FDI IN MULTI BRAND RETAIL
In–principle approval has been granted for FDI in multi-brand retail up to
route. This is subject to, inter alia, the following conditions:
51% under the approval
Minimum amount to be brought in by the foreign investor to be USD 100 million.
At least 50% of the total FDI must be invested in back-end infrastructure (includes capital
expenditure on all activities, excluding front-end units. Excludes expenditure on land cost and
30% procurement of manufactured/ processed products must be from SMEs.
Government to have first right on procurement of agricultural products.
Retail sales locations may be set up only in cities with a population of more than 10 lakh as per
2011 Census and may also cover an area of 10 kms around the municipal/urban agglomeration
limits of such cities.
DIFFERENT PARTIES AFFECTED
IMPACT ON FARMERS
Small farmer faces post-harvest losses at farm because of poor
roads, inadequate storage technologies, inefficient supply chains and
farmer's inability to bring the produce into retail markets
Government claims India's post-harvest losses is 40%, on average, every
year for each farmer, by an report by Ministry of Agriculture on post
harvest losses it is from 0.3% to 18%
Aim to provide farmers a remunerative price for crops in comparison to
hard-bargaining “Mandi agents” . Farmers gets 1/3 in grains and 15% in
"Direct Farm Project" in Punjab, where 110 farmers have been connected
with Bharti Walmart for sourcing fresh vegetables hence reducing waste
and bringing fresh produce
IMPACT ON CONSUMERS
Consumers stand to gain most because :
Check on rising retail inflation via competitive
prices, stable prices, back hand infrastructure and
proper supply chain
• Improvement in product quality
• Time reduction in product search
• Reduction in travel time in large cities to different
location of specialty markets
IMPACT ON GOVERNANCE
FDI Reforms will lead to greater FDI inflows
Reducing Current Account Deficit (a negative net sales
Adoption of global best practices
Indian small shops employ workers without proper
contracts. Many unorganized small shops depend on
child labour. A well-regulated retail sector will reduce
IMPACT ON SMES
Small manufacturers will benefit from condition of 30
per cent procurement from Indian small industries in
single and multi-brand retail conditions
Enabling them to get integrated with global retail
chains like Walmart, Tesco etc.
Opportunities for new contracts would enhance their
capacity to export products from India and bring in
more dollars for India
Even domestic corporate houses were not prohibited from
entering the retail sector.
e.g. Reliance Fresh, Mahindra Retail, Big Bazar etc.
The only difference in case of FDI is that ownership would
Rangarajan (Chairman economic Advisory Council) argues that :
Large retailers would be restricted to metropolitan towns
Not much worries for Small Retailer/ Kiraanas
Rule : All multi-brand and single brand stores must
confine their operations to 53-odd cities with a
population over one million, out of some 7935 towns
and cities in India.
It is expected that these stores will now have full access
to over 200 million urban consumers (20 crores)
1 : FDI will provide employment-A MYTH
A Wall Street journal article claims 40 lakh people will be directly
employed(refer : wiki). WalMart has 21 lakh employees worldwide. Their
largest store has 214 employees. At this rate they have to open 18,000
stores in India. For Tesco or Carrefour, it is lesser; so there are 36,000
stores that need to be opened in 53 cities - that is 600 stores per city.
2: Small retailers will get affected
3: Fear of monopoly
4: Loss in jobs of middleman(who have prevailed since
centuries and have never contributed in a positive way)
5: Middle man will be included due to bulk buying (reverse eg. of
5: Emergence Of Foreign Middlemen
There are instances where there are no middlemen in India. For
example, in the sugar sector, the sugarcane farmers are contracted by
sugar mills to sell their produce directly to the mills.
When FDI comes in India, MBR will act as new middlemen. To say that
middlemen will no longer exist is totally wrong.
• Today retail is US$ 450 billion if growth is 8%, it
will become US$ 1.3 trillion market by 2020.
• Modern sector is 4% of US$ 20 billion if rate of
growth is 24 %, it will be US$ 200 billion market
and unorganized sector will go to US$ 1.1 trillion
TWO DIFFERENT EXAMPLES
China : employment increased from 28 million to
54 million, doubled in 10 years, corner shops
increased from 1.9 million to 2.5 million
Thailand : in Thailand 60% shut down in grocery
stores in 5 years
FDI RETAIL IN DELHI
On January 13, 2014 The Aam Aadmi Party (AAP) Government in Delhi has
written to the Department of Industrial Policy and Promotion (DIPP)
formally disapproving the setting up of Foreign Direct Investment-funded
multi-brand retail stores in the State.
On January 21, 2014 Commerce and Industry Minister Anand Sharma on
reacted bitterly to the letter written to the Department of Industrial Policy
and Promotion (DIPP), Sharma went ahead warning the state
government, ‘States have the option to join. But it is not a revolving door.
Policy has to have stability for investor confidence’.
It is interesting to watch Congress quarrel, yet the alliance does not fall
CURRENT SCENARIO IN FDI RETAIL-1
Tesco is the first global retailer to apply for multi-brand retailing after the
government allowed 51 per cent FDI in the segment in September last
On December 30, 2013 The Foreign Investment Promotion Board (FIPB)
approved UK-based Tesco Plc's proposal to enter the Indian multi-brand
retail segment in joint venture with Tata Group company with an initial
investment of USD 110 million (about Rs 680 crore).
Tesco will pick up a 50 per cent stake in Trent Hypermarket Ltd, a whollyowned subsidiary of Trent Ltd, a Tata group company.
This investment, believed to be for the first three years of business, is likely
to be increased later. For now, Tesco has plans to invest only in Karnataka
CURRENT SCENARIO IN FDI RETAIL-2
The joint venture—Bharti Wal-Mart Pvt. Ltd.—was set up to operate
wholesale stores under the Best Price Modern Wholesale brand. It was
not catering directly to retail consumers in the country.
The American retail major Walmart and Bharti Enterprises decided to
part ways in October last year, bringing an end to their six-year long
In December 2013, Wal-Mart received the green signal from the
Competition Commission of India (CCI) to purchase Bharti group’s almost
50% stake in their Indian joint venture for wholesale stores business.
On January 15, 2014 the retailer has registered a new company called
Wal-Mart India Pvt. Ltd. in the country, according to the data available
with the ministry of corporate affairs.
ADVANTAGES OF FDI
IMPROVED TECHNOLOGY AND LOGISTICS.
companies may lose their ownership to
enterprise may not compete with the foreign
players and may ultimately be edged out of business.
giants of the world may monopolies the highly
In the final analysis, for India, FDI in multi-brand retail should be
seriously considered by the government. Despite country wide
speculation on the plight of small retailers, India needs to take a lesson
from China where organized and unorganized retail seem to co-exist
and grow together.
In my view, the government has an opportunity to achieve certain of its
own targets: improve its infrastructure, technologies, generate
employment for those keen to work in this sector FDI would lead to a
more comprehensive integration of India into the worldwide market
and, as such, it is imperative for the government to promote this sector
for the overall economic development and social welfare of the
country. If done in the right manner, it can prove to be a boon and not a