FDI IN INDIAN RETAIL SECTOR-WILL MARCH TOWARDS INCLUSIVE GROWTH
M.P.Suganya & Dr.R.Shanthi
Department of Commerce
University of Madras
FDI IN INDIAN RETAIL SECTOR:
WILL MARCH TOWARDS INCLUSIVE
“If we cannot make globalization work for all,
in the end it will work for none”
- Kofi Annan
FDI IN INDIAN RETAIL SECTOR:
WILL MARCH TOWARDS INCLUSIVE
What is Inclusive Growth?
ensures the access
provided for all
segment of society
for all, which
includes the poorest
and the rest.
What Is FDI?
Foreign Direct investment (FDI) in developing
countries contributes development by way of
transfer of financial resources, spreading of
technology, improving managerial skill for
accelerating growth in the economy.
Retail involves the sale of goods directly to the consumer in
small quantities for his end use.
Retail sector includes all the shops that sell goods to the
ultimate customer, who buys them for personal and not
business use. It encompasses all kinds of shops, from kiosks
and small groceries to supermarket chains and large department
According to AT Kearney, Global Retail Development Index,
India is the fifth largest retail destination in the eyes of global
investors. The Retail market is in the hand of unorganised
players compared to the organised players.
At present, India has opened the
doors for FDI in retail i.e. 100%
permitted in single brand
retailing and 51% permitted in
multi brand retailing. FDI
policy promises of creating
million of jobs for the
youngsters, providing better
opportunities for the
community, lower prices of
commodities and inflation
would be curbed.
As of the promises, it shows FDI in retail will marches toward
inclusive growth in India.
1. To study the current scenario of Retail
2. To assess the effects of FDI on various
stakeholders based on literature review
Objective of the Study
Current Scenario of Retail Sector
The retail industry plays a unique role in connecting product
manufacturers, consumers, employees, and communities. From this
vantage point, retail companies have insight into evolving
manufacturing practices, consumer preferences, and community
demands. Across the Globe, Retailing is divided into organised and
Retail sector is the most decentralized economic activity in India after
The unorganised retail segment has been growing at an average rate of
over 8% in the last few years.
The present Indian retail model is an efficient delivery mechanism for
rural India where the corporate mechanism too cannot reach except
through the traditional model.
EFFECTS OF RETAIL FDI ON VARIOUS
STAKEHOLDERS - BASED ON LITERATURE
Impact on Farmer
Impact on Small Retailers
Impact on Employment
Impact on Consumer
Other Effects : Economy, Manufacturer,
Impact on Farmer
Myth: “Farmers will be benefited in form of high prices
for their produce”
Humphrey studied the evolution of Organised Retail Stores
and its impact in the economy. In the study, he said that the
organised retail outlet creates great risk to the small farmers
as a new supply-demand chain may be formed. The Big
stores would move towards preferred suppliers, and set
private grades and standards which may be very difficult
for the local and small farmers to achieve
IMPACT ON SMALL RETAILERS
Myth: “FDI in retail would have no
impact on small retailers”
In U.S., the big industrial giants kill
three jobs to create every two jobs, this
proportionate will change in India.
Similar trend may be followed by the
Indian supermarkets, consequently,
destroying small traders. Various
supermarkets in India like Reliance-
Fresh & Spencer's have already had this
impact on the livelihood of traders.
Atlantic City, the web cousin of Foreign
Affairs magazine, carried headline news
that 'Radiating death - Wal-Mart spells
doom for small business. „They have
said that the closure rate of small shops
near Wal-Mart is 35-60 per cent. For
every mile from the Wal-Mart super
markets, the closure rate is 15-20 per
cent. It radiates this closure.
IMPACT ON EMPLOYMENT
Myth: “Growth of organized retail will create millions of good quality new
The government says creation of 10 million jobs in the next 3 years in retail sector will
gain employment opportunities in agro-processing, sorting, marketing, logistics
management and front-end retail. India has the highest shopping density in the world
with 11 shops per 1,000 people.120 lakh big and small shops in the country, employing
3.5 crore people directly. Apart from this, there are about 1.5 crore people engaged in
wholesale, transportation and other related services for retailing. This is important to
mention that 95 percent of small shops are being run by self-employed people.
According to Atlantic city, Wal-Mart entered the Austin neighbourhood of Chicago in
2006. And, by 2008, out of the 306 small shops in business before its entry, 82 had closed
down. The Economic Development Quarterly study found the closure rate around an
average Wal-Mart location at 35-60 per cent. Wal-Mart radiated closure of 20 per cent of
drug stores every mile from its stores; and 15 per cent in home furnishing, 18 per cent in
hardware and 25 per cent of toy stores. FDI in retail will not hurt small shops, this leads
to create unemployment. On job creation, a latest report (Jan 2010) titled “Wal-Mart‟s
Economic Footprint “prepared for the New York City Public Advocate says that Wal-
Mart kills three local jobs for every two it creates.
IMPACT ON CONSUMER
Myth: “Consumers will be
benefited, as they will get
goods at cheaper price and
thereby inflation can be
Multinational retailers open their
stores with much fun and fare,
announce lower prices for
products sold in their stores,
and will continue to sell these
products at those prices till
competition from small retailers
is totally finished. It is an open
secret that multinational
retailers sell their products at
„predatory prices‟ to wipe-off
Joseph Stiglitz stated that “Foreign companies are able to procure many goods at
lower prices than others because of the huge buying power they have and will use
that power to bring Chinese goods to India to displace Indian production." “India
was an economy with high savings rate. The entry of foreign companies in retail
sector would lead to a situation where India would also become a country with a
high spending rate. Such a system had proved disastrous in foreign countries”.
Example: In U.S., 20 crore population had a total of 120 crore credit cards with the
families alone having a debt of $ 120 lakh crore. This had led to the U.S. becoming
the highest indebted nation in the world.
Comparison about FDI in retail sector, between India and China is not possible. The
giant economy of China is predominantly a manufacturing in nature. It's one of the
biggest suppliers to international organized retailers like. But Indian economy
cannot do same things. So, Indians may lose the manufacturing and services sector
Wholesalers feared that FDI retailers would bypass them for procurements.
Producers are not aware of the FDI in retail regulation and believe that the
Government would control the FDI in retail developments
By analyzing the effects of FDI on various stakeholders, there is
a mixed opinion has seen among the stakeholders, that shows
there are positive as well as negative impacts are prevailing in
this issue. But Joseph Stiglitz said “India doesn't need FDI in
retail to grow”.
The researcher concluded that FDI is required for infrastructure
development and technological upgradation in retail sector, and
to protect local players, stringent policies has to be regulated.
Mostly the organised sector will ignored certain segment that
includes lower income group people, rural markets, low
population density areas, certain vendor communities such as
vendor communities such as small farmers and street vendors.
This fails to create inclusive growth in the economy. Retail in
India is a double edged sword – which has to be handled very