FDI in Multi-Brand Retail Trading

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  • 1. FOREIGN DIRECT INVESTMENT IN RETAIL INDUSTRY: INDIA ABHIRAJ PATEL (IM-2K8-001) AVIJIT SINGH THAKUR (IM-2K8-14) ANKUR PANDEY (IM-2K8-007)
  • 2. About the Presentation This presentation deals with the Current Issue of allowing 51% Foreign Direct Investment in Multi-Brand Retail Trading (MBRT) in India. It includes all the possible aspects relating with the Business Environment, that will certainly effect the entire business of Retail Industry in India, once it gets implemented.
  • 3. What is MBRT Allowing giant retailers like Wal-Mart, Carrefour (France ), Metro (Germany), Tesco (United Kingdom), Lidl Stiftung & Co (Germany) etc. to set up operations in the country. (Wal-Mart Annual Revenue: US$ 446.950 billion; employing about 2.2 million (2012). In contrast, the Indian Retail Sector is accounting for about 12% of GDP – Rs. 10,38,000 crores, employing about 5 crores. In due course of time while the relationship with the producers will be that of “Oligopsony” and with the consumers, it is likely to be one of “Oligopoly”.
  • 4. What is MBRT Giant retailers like Wal-Mart can source 70% of the products/goods from anywhere in the world resulting in the decimation of the not so competitive manufacturing sector and loss of job to millions of workers; and even the agricultural sector would be crippled. The decimation of „Forced Employment‟ Sector (Retail) may have an unbearable human cost for sizeable population of the country. The poor and the unemployed/underemployed may become poorer and strive for their survival.
  • 5. Before Launching MBRT The Govt. should make the Manufacturing Sector competitive – In China, the manufacturing sector‟s contribution is around 60% of GDP (In India, it is only about 20%) Strengthen the agricultural sector – Micro Credit system, etc. Strengthen the quasi-judicial machinery and ensure their proper functioning – This to a great extent can act as a major disincentive for those who sell defective goods and is likely to enhance the competitiveness of goods made by Indian manufacturers.
  • 6. Before Launching MBRT Enhance investment to strengthen the infrastructure, including refrigerated storage facilities, which could ensure better price for the farmers and fresh produce for the consumers. Strengthen the PDS so as to protect the „aam admi’ from inflation and to ensure adequate off- take from the villages. Strengthen the CCI so that the monopolistic tendencies of the Companies can be monitored and curbed. Introduce a Regulatory mechanism for prescribing support price.
  • 7. Rationale of Liberalization Lack of adequate shortage facilities cause heavy loses to farmers in terms of wastage in quality 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% of which is due to avoidable wastage and the rest due to avoidable cost of storage and commission. Leveraging Foreign Investment in supply chain Infrastructure.
  • 8. Rationale of Liberalization Indian farmer realizes only 1/3 of the total price paid by the final consumer as against 2/3rd 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 he retail outlet. Lack of investment in the logistics of retail chain creating inefficiencies in the food supply chain.
  • 9. Rationale of Liberalization Tough India is the second largest producer of Fruits and Vegetables (about 200 Million MT), it has very limited integrated cold-chain infrastructure, with only 5386 stand-alone Cold Storage, Having a total capacity of 23.6 million MT, 80% of this is used only for Potatoes.
  • 10. Rationale of Liberalization As per some Industry estimates, 35-40% of fruits and vegetables and nearly 10% of food grains in India are wasted. Tough 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 in to this sector is insignificant. An 11th plan working group has estimated a total investment of Rs.64,312 crores in Agricultural infrastructure. A storage capacity of 35 Million tones has been assessed, requiring an estimated investment of Rs.7687 crores during the 11th plan.
  • 11. Rationale of Liberalization
  • 12. Employment Opportunities Indirect employment generated on the supply chain to feed this retail business will add millions of jobs. Huge investments In the retail sector will see the gainful employment opportunities In agro- processing, sorting, marketing, logistic management and the front end retail business. Industry estimates suggests employment of one person per 350-400 sq. feet of retail space, about 1.5 Million jobs will be created in the front end alone in the next five years.
  • 13. 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.
  • 14. Impact on Food Inflation The opening of Multi Brand Retail will also have salutary Impact on food inflation as it would contribute to savings to the food which perishes on account of inadequate infrastructure.
  • 15. Supply Chain Efficiencies Foreign Retail Majors have Gained decades of experience, Technologies and Management practices which will ensure supply chain efficiencies.
  • 16. 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 that will ensure direct procurement, at least of horticultural produce from farmers to enable them secure remunerative price.
  • 17. Rationale for enhancing FDI ceilingto 100% in single brand retailtrading The current cap of 51% confers a right to pass all ordinary resolutions, while enhancing cap to 100% will confer full ownership and control. In the last 5 years, under the current regime of 51% in Single Brand Retail, FDI of only 44.45 Million USD have been received, constituting barely 0.03% of total FDI Inflows. Globally, SBR follow a business model of 100% ownership and global majors have been reluctant to establish their presence in a restrictive policy enviornment.
  • 18. Condition of 30% sourcing fromsmall scale sector. It will ensure that SME sector including craftsman, artisans, handicrafts and cottage industry benefits specially in industries like textiles, gems and jewellery and leather and jute.
  • 19. Conditions FDI in single brand retail may be permitted up to 100% with govt. approval. 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.
  • 20. Conditions „Single Brand‟ Product-Retailing would cover only products which are branded during manufacturing. In respect of proposals involving FDI beyond 51%, 30% sourcing would mandatorily have to be done from SMEs/Villages, Cottage Industries, Craftsmen and Artesians.
  • 21. 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.
  • 22. FDI policy in other Countries All these Countries have allowed 100% FDI:  China  Russia  Thailand  Indonesia
  • 23. Wall-Mart: Global Presence
  • 24. FDI policy in other CountriesWhile Malaysia permits FDI to a certain extent; These allow 100% FDI in retail sector:  Brazil  Argentina  Chile  Singapore
  • 25. Sectors Involving FDI Globally
  • 26. Some more facts… At least 30% of procurement of manufactured/ processed products shall be sourced from „small Industries‟ Retail sales outlets may be set-up in those states which have agreed or agree in future to allow FDI in retail under this policy. The establishment of the retail sales outlets will be in compliance of applicable state laws/ regulations, such as the shops and establishments act, etc.
  • 27. Some more facts… A high level group under the minister of consumer affairs may be constituted to examine various issues concerning internal trade and make recommendations for internal trade reforms. Fresh Agricultural produce, including fruits, Vegetables, Flowers, Grains, Pulses, Fresh Poultry, Fishery and Meat products, May be unbranded.
  • 28. Some more facts… Govt. will have the first right to procurement of Agricultural Products. Retail sales location may be set up only in cities with a population of 10 lakh. As per 2011 census only 53 cities qualify for FDI in multi brand retail out of nearly 8000 towns and cities. At least 50% of total FDI bought in shall be invested in „Backend infrastructure‟
  • 29. Some more facts… Minimum amount to be brought in as FDI, by the foreign investor would be US $100 Million. The foreign investor should be the owner of the brand. The FDI in MBR is being opened in 53 cities only with population 1 million and for the rest of the country, current policy regime will apply.
  • 30. Some more facts… The CM of Delhi, Assam, Maharashtra, Andhra Pradesh, Rajasthan, Uttarakhand, Haryana, Manipur, Jammu & Kashmir and Madhya Pradesh; The Union Territory of Daman and Diu and Dadra And Nagar Haveli have expressed support for the policy.
  • 31. Some more facts… Retail locations will be restricted to conforming areas as per the master/ zonal plans of the concerned cities and provision will be made for requisite facilities such as transport facilities and parking. FDI in Multi brand retail Trade (MBRT) may be permitted up to 51%, with govt. approval.
  • 32. An Indian Multi-Brand RetailOutlet
  • 33. Submitted to: Ms. Rounak JainInternational Institute of Professional Studies, DAVV.November 2012.