India Retail Reforms: A saga of uncertainities

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India Retail Reforms: A saga of uncertainities

  1. 1. A saga of uncertainties… INDIA RETAIL REFORMS
  2. 2. Current FDI Policy  India’s current policy does not allow FDI in retail trade except for “Single Brand Retail”
  3. 3. Current FDI Policy  India’s current policy does not allow FDI in retail trade except for “Single Brand Retail”  FDI up to 51% is allowed in Single Brand Retail with prior government approval
  4. 4. Current FDI Policy  India’s current policy does not allow FDI in retail trade except for “Single Brand Retail”  FDI up to 51% is allowed in Single Brand Retail with prior government approval  100% FDI is allowed in wholesale cash-and- carry format
  5. 5. Current FDI Policy  India’s current policy does not allow FDI in retail trade except for “Single Brand Retail”  FDI up to 51% is allowed in Single Brand Retail with prior government approval  100% FDI is allowed in wholesale cash-and- carry format  Franchisee arrangements are allowed in retail format
  6. 6. Current FDI Policy Particulars FDI % Route Conditions Retail Trading (except single Nil brand) Single Brand product 51% FIPB*  Products to be sold of a single brand only retailing  Products should be sold under the same brand internationally  Single brand product retailing to cover only products which are branded during manufacturing Wholesale / cash and carry 100% Automatic trading Trading for exports 100% Automatic Trading of items sourced 100% FIPB Subject to the condition that the test marketing approval from small scale sector will be for a period of two years and investment in setting up manufacturing facilities commences simultaneously with test marketing Test marketing of such 100% FIPB items for which a company has approval for manufacture *FIPB: Foreign Investment Promotion Board
  7. 7. Current FDI Policy  International retailers are fast expanding their business in India to tap the immense consumer base
  8. 8. Current FDI Policy  International retailers are fast expanding their business in India to tap the immense consumer base  Reebok has set up its largest store in the world in Hyderabad
  9. 9. Current FDI Policy  International retailers are fast expanding their business in India to tap the immense consumer base  Reebok has set up its largest store in the world in Hyderabad  Tommy Hilfiger and Levis have over 20,000 square feet of retail space and stand-alone stores across major metros
  10. 10. Current FDI Policy  International retailers are fast expanding their business in India to tap the immense consumer base  Reebok has set up its largest store in the world in Hyderabad  Tommy Hilfiger and Levis have over 20,000 square feet of retail space and stand-alone stores across major metros  Fast-food giants Pizza Hut, McDonalds, Subway etc. are expanding at a fast pace with their expansion into the Tier II and Tier III cities
  11. 11. Retail Entry Options Strategic License Cash & Carry Distribution Agreements Wholesale Retailing • Foreign company • 100 % FDI allowed in • An international enter into a licensing wholesale trading company can set up a agreement with a which involves distribution office in domestic retailer or building a large India and supply partnering with Indian distribution network products to the local promoter owned retailers. Franchise companies outlets can also be set up in this route Franchisee Route Manufacturing Joint Venture • The entry route which • A company can setup • International firms includes the master manufacturing units in can enter into franchisee route is India along with agreements with widely used, with a standalone retailing domestic players and number of outlets set-up base in India. international brands Share of MNCs is to set up presence in restricted to 49% in India this route
  12. 12. Retail Entry Options Strategic License Cash & Carry Distribution Agreements Wholesale Retailing • Foreign company • 100 % FDI allowed in • An international enter into a licensing wholesale trading company can set up a agreement with a which involves distribution office in domestic retailer or building a large India and supply partnering with Indian distribution network products to the local promoter owned retailers. Franchise companies outlets can also be set up in this route Franchisee Route Manufacturing Joint Venture • The entry route which • A company can setup • International firms includes the master manufacturing units in can enter into franchisee route is India along with agreements with widely used, with a standalone retailing domestic players and number of outlets set-up base in India. international brands Share of MNCs is to set up presence in restricted to 49% in India this route
  13. 13. Retail Entry Options Strategic License Cash & Carry Distribution Agreements Wholesale Retailing • Foreign company • 100 % FDI allowed in • An international enter into a licensing wholesale trading company can set up a agreement with a which involves distribution office in domestic retailer or building a large India and supply partnering with Indian distribution network products to the local promoter owned retailers. Franchise companies outlets can also be set up in this route Franchisee Route Manufacturing Joint Venture • The entry route which • A company can setup • International firms includes the master manufacturing units in can enter into franchisee route is India along with agreements with widely used, with a standalone retailing domestic players and number of outlets set-up base in India. international brands Share of MNCs is to set up presence in restricted to 49% in India this route
  14. 14. Retail Entry Options Strategic License Cash & Carry Distribution Agreements Wholesale Retailing • Foreign company • 100 % FDI allowed in • An international enter into a licensing wholesale trading company can set up a agreement with a which involves distribution office in domestic retailer or building a large India and supply partnering with Indian distribution network products to the local promoter owned retailers. Franchise companies outlets can also be set up in this route Franchisee Route Manufacturing Joint Venture • The entry route which • A company can setup • International firms includes the master manufacturing units in can enter into franchisee route is India along with agreements with widely used, with a standalone retailing domestic players and number of outlets set-up base in India. international brands Share of MNCs is to set up presence in restricted to 49% in India this route
  15. 15. Retail Hurdles US$ 590 bn US$ 322 bn 2006-07 2011-2012  Retail Trade Estimated to Grow 13% annually
  16. 16. Retail Hurdles US$ 590 bn US$ 322 bn 2006-07 2011-2012  Retail Trade Estimated to Grow 13% annually  Share of organised retail growing very fast
  17. 17. Retail Hurdles US$ 590 bn US$ 322 bn 2006-07 2011-2012  Retail Trade Estimated to Grow 13% annually  Share of organised retail growing very fast  An attractive destination for global retailers
  18. 18. Retail Hurdles US$ 590 bn US$ 322 bn 2006-07 2011-2012  Retail Trade Estimated to Grow 13% annually  Share of organised retail growing very fast  An attractive destination for global retailers  Democratic country with high growth rate
  19. 19. Retail Hurdles US$ 590 bn US$ 322 bn 2006-07 2011-2012  Retail Trade Estimated to Grow 13% annually  Share of organised retail growing very fast  An attractive destination for global retailers  Democratic country with high growth rate  Youth population with growing disposable income
  20. 20. Retail Hurdles US$ 590 bn US$ 322 bn 2006-07 2011-2012  Retail Trade Estimated to Grow 13% annually  Share of organised retail growing very fast  An attractive destination for global retailers  Democratic country with high growth rate  Youth population with growing disposable income  Existing investment cap an entry hurdle
  21. 21. Retail Reforms: Dilemma  Second coming of UPA government was seen as a positive sign
  22. 22. Retail Reforms: Dilemma  Second coming of UPA government was seen as a positive sign  The Congress party, reasonably stronger, after the elections, to dictate its agenda can push further the retail reforms agenda it had persuaded
  23. 23. Retail Reforms: Dilemma  Second coming of UPA government was seen as a positive sign  The Congress party, reasonably stronger, after the elections, to dictate its agenda can push further the retail reforms agenda it had persuaded  Government’s recent views presents a different picture
  24. 24. Retail Reforms: Dilemma  Second coming of UPA government was seen as a positive sign  The Congress party, reasonably stronger, after the elections, to dictate its agenda can push further the retail reforms agenda it had persuaded  Government’s recent views presents a different picture “The government will continue to deliberate on the proposals for opening of sectors like multi brand retail. These sectors require wider consultation within the Cabinet.” Anand Sharma, Union Commerce Minister
  25. 25. Retail Reforms: Dilemma  June ‘09 - A parliamentary panel asks government to ban foreign firms and big domestic corporates from retailing groceries, fruits and vegetables, and stop issuing licences for wholesale operations* * http://www.livemint.com/2009/06/08185249/Parliamentary-panel-recommends.html
  26. 26. Retail Reforms: Dilemma  June ‘09 - A parliamentary panel asks government to ban foreign firms and big domestic corporates from retailing groceries, fruits and vegetables, and stop issuing licences for wholesale operations*  July ’09 - The Economic Survey 2009-10 released by the Ministry of Finance generated some hopes by proposing opening up of FDI in multi-format retail, starting with food retailing. * http://www.livemint.com/2009/06/08185249/Parliamentary-panel-recommends.html ** http://www.thehindu.com/2009/07/03/stories/2009070358300100.htm
  27. 27. Retail Reforms: Dilemma  July ‘09 - On a written reply to the Lok Sabha (the lower house of parliament) on July 13, 2009 the Minister of State for Commerce announced that the government has no proposal to change the current policy on retail trade * "Government also fully recognises the need to ensure that small retailers are not adversely affected by the growing organised retail and that there is no adverse effect on employment.” Jyotiraditya Scindia, the Minister of State for Commerce and Industry * http://www.livemint.com/2009/07/13161538/No-plans-to-change-retail-FDI.html
  28. 28. Retail Reforms: Dilemma  December ‘09 - government has released a draft document aimed at simplifying overseas investments in India called “FDI Regulatory Framework. The new policy framework clarifies that while FDI is not allowed in retail, FII is permitted ” * "This document keeps retail out of the prohibited sector list of foreign investment while retaining it in the prohibited sector list of FDI.” * http://www.livemint.com/2009/12/24230435/India-to-review-FDI-rules-ever.html
  29. 29. What scares policymakers?  Retail business is the second largest employer after agriculture * http://finance.yahoo.com/news/Is-WalMart-Killing-Your-inc-1332006942.html?x=0&.v=56
  30. 30. What scares policymakers?  Retail business is the second largest employer after agriculture  The government does not want to antagonise the labour-intensive sector * http://finance.yahoo.com/news/Is-WalMart-Killing-Your-inc-1332006942.html?x=0&.v=56
  31. 31. What scares policymakers?  Retail business is the second largest employer after agriculture  The government does not want to antagonise the labour-intensive sector  Numerous studies indicated, entry of a retailing gians like Wal-Mart does significantly impact sales at other local establishments* * http://finance.yahoo.com/news/Is-WalMart-Killing-Your-inc-1332006942.html?x=0&.v=56
  32. 32. What scares policymakers?  Retail business is the second largest employer after agriculture  The government does not want to antagonise the labour-intensive sector  Numerous studies indicated, entry of a retailing gians like Wal-Mart does significantly impact sales at other local establishments*  The government seeks to safeguard small retailers from adverse impact of growing organised retail * http://finance.yahoo.com/news/Is-WalMart-Killing-Your-inc-1332006942.html?x=0&.v=56

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