FDI IN INDIAN RETAIL SECTOR-WILL MARCH TOWARDS INCLUSIVE GROWTH

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This is one of my paper, which is presented in National conference on Inclusive Growth.

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FDI IN INDIAN RETAIL SECTOR-WILL MARCH TOWARDS INCLUSIVE GROWTH

  1. 1. M.P.Suganya & Dr.R.Shanthi Department of Commerce University of Madras FDI IN INDIAN RETAIL SECTOR: WILL MARCH TOWARDS INCLUSIVE GROWTH?
  2. 2. “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 GROWTH?
  3. 3. What is Inclusive Growth? Inclusive growth ensures the access of opportunities provided for all segment of society that ensures meaningful and sustainable shapes for all, which includes the poorest and the rest.
  4. 4. 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.
  5. 5. Retail Sector  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 stores. 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.
  6. 6. So what?  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.
  7. 7. 1. To study the current scenario of Retail Sector 2. To assess the effects of FDI on various stakeholders based on literature review Objective of the Study
  8. 8. 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 unorganised retailing.  Retail sector is the most decentralized economic activity in India after agriculture.  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.
  9. 9. EFFECTS OF RETAIL FDI ON VARIOUS STAKEHOLDERS - BASED ON LITERATURE REVIEW  Impact on Farmer  Impact on Small Retailers  Impact on Employment  Impact on Consumer  Other Effects : Economy, Manufacturer, Intermediaries
  10. 10. 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
  11. 11. 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.
  12. 12. IMPACT ON EMPLOYMENT Myth: “Growth of organized retail will create millions of good quality new jobs”  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.
  13. 13. IMPACT ON CONSUMER Myth: “Consumers will be benefited, as they will get goods at cheaper price and thereby inflation can be curbed” 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 competitors.
  14. 14. Other Impacts ECONOMY 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. MANUFACTURER 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 employment. INTERMEDIARIES 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
  15. 15. Conclusion  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 cautiously.
  16. 16. Thank you

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