Session 11 leb simple final

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  • The fast growth of the organized retail sector experienced in India over the last few years has been based upon the consumption demand of the rich and upper middle classes, whose disposable incomes have risen considerably. Technological upgradation has also accompanied this growth in organized retail. Growth occurring in both the organized as well as the unorganized retail sectors simultaneously is a chimera. The former grows necessarily at the cost of the latter therefore making job loss inevitable. At a time when organized retail in India is growing at a fast pace anyway and there is no dearth of indigenous capital, the entry of foreign capital which would accelerate the concentration of business in organized retail causing job loss at a massive scale is unwarranted.
  • Varied window display : now a days retailers know that if your product is dosplayed properly acc. to the culture of the state you are operating in , will definaltey help you
  • Session 11 leb simple final

    1. 1. F.D.I. in Retail Sector SESSION 10LEGAL ENVIRONMENT OF BUSINESS 1
    2. 2. AgendaRetailing : An overviewIndian retailFDI in Indian retailingWhy FDI? 2
    3. 3. Retailing : An overview 3
    4. 4. Retailing: An overview Retailing World’s largest private industry US$ 6.6 trillion sales annually Indian retailing Largest employer after agriculture - 8% of population Highest outlet density in world Around 12 mn outlets Still evolving as an industry Long way to go 4
    5. 5. Retailing: An overview Wal-Mart Topmost global Fortune 500 company(3 Consecutive Years) Annual Sales of over US$ 250 bn Fortune 100 9 Retailers Carrefour, Ahold, Home Depot, Kroger, Metro, Kmart-Sears, Target, Albertsons’ 5
    6. 6. Evolution of Indian retail Historic/Rural Traditional/Perva Government Modern Formats/ International Reach sive Reach Supported Exclusive Brand Outlets Hyper/Super Markets Department Stores Shopping Malls PDS Outlets Khadi Stores Cooperatives Convenience Stores Mom and Pop/KiranasWeekly MarketsVillage FairsMelas Source of Neighborhood Availability/ Low Shopping Entertainment Stores/Convenienc Costs / Experience/Efficien e Distribution cy 6
    7. 7. Evolution of Indian retail Informal retailing Sector  Typically small retailers.  Evasion of taxes  Difficulty in enforcing tax collection mechanisms  No monitoring of labour laws Formal Retailing Sector  Typically large retailers  Greater enforcement of taxation mechanisms  High level of labour usage monitoring 7
    8. 8. 8 8
    9. 9. Size : $ 400 billionGrowth Rate : 13%GDP contribution : 12%Major sector : Food and GroceryEmployment : 2nd largest industry (35.06 million)Types: Organized ( 5%) Unorganized ( 95%) 9
    10. 10.  Corporates are increasingly coming into this sector Demand of branded goods on a large scale Demand of new and varied products High quality product is preferred Varied window display E-tailers increase the presence 10
    11. 11. US Taiwan Malays ia Thailand O rg anis ed Indones ia C hina Unorg anis e d India 0 20 40 60 80 100 US Taiwan Malaysia Thailand Indonesia China IndiaUnorganised 15% 19% 45% 60% 70% 80% 95%Organised 85% 81% 55% 40% 30% 20% 5% 11
    12. 12. CATEGORIES OF INDIAN RETAIL 12
    13. 13. Categories of Indian retail Corporate Houses  Tatas: Tata Trent  RPG group: Food World, Health & Glow, etc  ITC: Wills Life Style  Rahejas(Shoppers Stop), Hiranandani (Haiko), DLF(DT cinemas), etc. Dedicated brand outlets  Nike, Reebok, Zodiac, etc Multi-brand outlets  Vijay Sales, Viveks, Ritu Wear, Sehgal Bro, etc. Manufacturers/ Exporters  Bata, Weekender, Lilliput 13
    14. 14. Classifying Indian retail Modern Format retailers  Supermarkets (Foodworld)  Hypermarkets (Big Bazaar)  Department Stores (S Stop)  Specialty Chains (Ikea)  Company Owned Company Operated Traditional Format Retailers  Kiranas: Traditional Mom and Pop Stores  Kiosks  Street Markets  Exclusive /Multiple Brand Outlets 14
    15. 15. Large Indian retailers Hypermarket  Big Bazaar , Giants , Shoprite, Star Department store  Lifestyle, Pantaloon, Piramyd, Shoppers Stop, Trent Entertainment  Fame Adlabs, Fun Republic, INOX, PVR 15
    16. 16. Organised retail formats in IndiaFORMAT AVERAGE SIZEConvenience Stores 800 sq. feetDiscount Stores 1000 sq. feetCategory Killers 8000 sq. feetSpecialty Stores Single-categoryShop-in-Shop Within Large mallsSupermarket Large in Size, Typical in layoutDepartment Stores 10,000 – 60,000 sq. feetCash and Carry 75,000 Sq. feetHypermarkets 50,000 – 1,00,000 sq. feet 16
    17. 17. Major Indian Retailers - CategoriesFormat Description RetailersHypermarkets Offering basket of product Spencers, Big bazaarCash and Carry Bulk-buying requirement Bharti - WalmartDepartmental Large layout, Wide merchandise mix Lifestyle , GlobusstoresSupermarkets Household product as well as food as Apna Bazaar , Food integral part of the service BazaarShop-in-shop Shops located in shopping malls Navras ( Big Bazaar)Specialty stores Focus on individual product type Brand FactoryCategory killers Particular segment The LOFTDiscount stores Branded product at discounted px. Levi’s OutletConvenience Small Retail stores In and Outstores 17
    18. 18. SegmentationRetail Segment Percentage Major Retailers holding in sectorFood and Grocery 63% Reliance Fresh, Café Brio, Food BazaarClothing, Textile 9% Westside, Shoppers Stop, Globusand FashionJewellery 5% TanishqCatering services 5% IRCTCConsumer durable 4% Viveks, Vijay Sales, CromaPharmaceuticals 4% Piramal GroupEntertainment 3% Bowling Co.Furnishing, 3% Hometown, Tangent Conceptutensils 18Mobile handsets 2% The Mobile Store,
    19. 19. 19
    20. 20. 20
    21. 21. F.D.I. 21
    22. 22. The commitment of money orcapital to purchase financialinstruments or assets in order togain profitable returns. 22
    23. 23. Foreign InvestmentInvestment done by citizens and throughgovernment of one country (homecountry) invest in industries ofanother country (host country). Foreign Foreign Direct Institutional Investments Investors 23
    24. 24. WHAT IS FDI?Movement of capitalacross national frontiers ina manner that grants theinvestor control over theacquired asset. 24
    25. 25. WHAT IS FDI? As per Dictionary of Economics FDI means investment in a foreign country through the acquisition of a local company or the establishment there of an operation on a new (Greenfield) site. Simply put, FDI refers to capital inflows from abroad that is invested in or to enhance the production capacity of the economy. 25
    26. 26. Automatic Route GovernmentNo permission required Approval /License required. 26
    27. 27. What was the Criteria for FDI? 1991-92 : Dr. Manmohan Singh, Finance Minister referred to certain criteria for allowing Foreign Direct Investment. These were :1. Establishment of basic industries requiring huge capital and advanced sophisticated technology2. Infrastructure projects like electricity generation, road, building, etc.3. Projects which would generate employment 27
    28. 28. FDI Policy Initiatives 1991- FDI allowed selectively up to 51% in priority sectors. 1997-FDI allowed up to 100% in sectors like mining, manufacturing, Cash and carry/wholesale (under Govt. approval route). It was brought under the automatic route in 2006. 28
    29. 29. FDI Policy Initiatives 2000-06 FDI allowed up to 100% in specified sectors.  FDI limits increased.  Procedures further simplified The top 3 Indian Regions attracting the highest FDI.  Mumbai, Delhi and Karnataka.  Account for nearly 62% of the total FDI. 29
    30. 30. FDI Policy Initiatives April 2006 - May 2010 : 94 proposals were received 57 proposals approved= inflow of USD196 mn under single brand retailing 30
    31. 31.  As per Press Note 4 of 2006 issued by DIPP and consolidated FDI Policy issued in October 2010 which provide the sector specific guidelines for FDI with regard to the conduct of trading activities. A) FDI up to 100% for cash and carry wholesale trading and export trading allowed under the automatic route. B) FDI up to 51 % with prior Government approval (i.e. FIPB) for retail trade of ‘Single Brand’ products, subject to Press Note 3 (2006 Series) C) FDI is NOT permitted in Multi Brand Retailing in India. 31
    32. 32. 32
    33. 33.  Complications in issuance of licenses like a hypermarket in Mumbai must apply for 29 unique licenses & then when it has to come up with second store it has to apply for same 29 licenses all over again 33
    34. 34. 34
    35. 35. FDI in Indian retailingCurrent FDI is not permitted in retail tradesector, except in: Private labels  Hi-Tech items/items requiring specialized after sales service  Medical and diagnostic items  Items sourced from the Indian small sector (manufactured with foreign technology) For 2 year test marketing (simultaneous commencement of investment in production facility required) 35
    36. 36. Entry Options for Foreign Players prior to FDI PolicyAlthough prior to Jan 24, 2006, FDI was notauthorised in retailing, most general players hadbeen operating in the country. Some of entranceroutes used by them are: 1. Franchise Agreements 2. Cash And Carry Wholesale Trading 3. Strategic Licensing Agreements 4. Manufacturing & Wholly Owned Subsidiaries 5. Distribution 36
    37. 37. 1. Franchise Agreements Foreign company gives name and technology to local partner. Gets royalty in return.Easiest track to enter Indian marketIn franchising and commission agents’ services, FDI is allowed with the approval RBI under FEMAE.g. Nike, Pizza Hut, Tommy Hilfiger, Marks and Spencer, Mango 37
    38. 38. 2. Cash & Carry Wholesale Trading 100% FDI is allowed in wholesale trading which involves building of a large distribution infrastructure to assist local manufacturers. E.g. Metro Cash & CarryEntities established prior to 1997  Allowed to continue with their existing foreign equity components.  No FDI restrictions in the retail sector pre-1997  Foodworld  51:49 JV between RPG and Dairy Farm I’nal (it’s leading food retailer in India now) Mc Donalds 38
    39. 39. 3. Strategic Licensing Agreementsforeign brands give exclusive licences and distribution rights to Indian companiesIndian companies sell it through their own stores, or enter into shop-in-shop arrangements or distribute the brands to franchiseesE.g. Mango with Piramyd, SPAR with Radhakrishna Foodlands Pvt. Ltd. 39
    40. 40. 4. Manufacturing & Wholly Owned Subsidiaries  Bata, Nike, Reebok, Adidas, etc. have wholly- owned subsidiaries in manufacturing which are treated as Indian companies and are, therefore, allowed to do retail They sell products to Indian consumers by franchising, internal distributors, existent Indian retailers, own outlets, etc. E.g. Nike entered through an exclusive licensing agreement with Sierra Enterprises but now has a wholly owned subsidiary, Nike India Private Limited 40
    41. 41. 5.Distribution International company sets up local distribution office Supply products to Indian retailers to sell Also set up franchised outlets for brand  E.g. Swarovski, Hugo Boss 41
    42. 42. On the last count……In July 2010, Department of Industrial Policy andPromotion (DIPP), Ministry of Commerce circulated adiscussion paper on allowing FDI in multi-brand retail. Thepaper doesn’t suggest any upper limit on FDI in multi-brand retail. If implemented, it would open the doors forglobal retail giants (Wal-Mart, Carrefour and Tesco) toenter and establish their footprints on the retaillandscape of India. 42
    43. 43. Let the liberalisation be insteps rather than being a leap. 43
    44. 44. PRESENT CONDITION OF TRADERS Fringe Benefit Tax VAT INEFFICIENT LICENCES & PERMITS INDUSTRIAL DISPUTE ACT LABOUR SHOP & ESTABLISHMENT ACT PREVENTION OF BLOCK MARKETING ACT COSUMER PROTECTION ACT ANTI-HOARDING & PROFEELING ACT WEIGHT & MEASUREMENT ACT MONEY LENDING ACT PACKAGING ACT PROVIDENT FUND ACT PREVENTION OF FOOD ADULTRATION ACT MINIMUM WAGES ACT ESI ACT GRATUITY ACT BONUS ACT ENTRY TAX SERVICE TAX FDI in Retail Trade Anti Socal Elements OCTROI WATER TAX CENTRAL EXCISE Political Interference PURCHASE TAX SALES TAX INCOME TAX POOR MARKET CONDITION POWER PROBLEM Cash Transaction TaxInspector Raj STAMP DUTY & Quarterly ‘C’ Form WEALTH TAX HIGH BANK CHARGES PROFESSIONAL TAX New Naka Complex ESSENTIAL COMMODITIES ACT 44
    45. 45. Aviation Information Telecom Technology Infrastructure Retail Traders BankingInsurancePharma Mining Steel Professional Education 45
    46. 46. M.N.C. REGIME CONTRACT FARMING COLLECTION OF TO OWN FACTORY AGRICALTURE PRODUCTSTO CUSTOMER TO OWN DEPT. STORE 46

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