FDI in retail in INDIA


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FDI in retail in INDIA

  1. 1. FDI in Retail By ISBE-1 : Joshua Deepak ISBE-16: Saravanan. P ISBE-21: Balaji Murugan. U IIPM-8: Lillima James
  2. 2. Division of  Retail Industry <ul><li>The retail industry is mainly divided into:- </li></ul><ul><li>1) Organised ,and </li></ul><ul><li>2) Unorganised Retailing </li></ul>
  3. 3. Organised Retailing <ul><li>Organised retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. </li></ul><ul><li>These include, </li></ul><ul><li>- the corporate-backed hypermarkets and retail chains, </li></ul><ul><li>- and also the privately owned large retail businesses. </li></ul>
  4. 4. Unorganised Retailing <ul><li>Unorganised retailing, refers to the traditional formats of low-cost retailing. </li></ul><ul><li>For example : </li></ul><ul><li>- the local kirana shops, </li></ul><ul><li>- owner manned general stores, </li></ul><ul><li>- paan/beedi shops, </li></ul><ul><li>- convenience stores, </li></ul><ul><li>- hand cart and pavement vendors, etc. </li></ul>
  5. 5. Retailing In India <ul><li>The Indian retail sector is highly fragmented with 93 per cent of its business being run by the unorganized retailers. </li></ul><ul><li>With over 12 million retail outlets of various sizes and formats. </li></ul><ul><li>The organized retail however is at a very nascent stage. </li></ul><ul><li>The unorganised retailers are the largest source of employment after agriculture, and has deep penetration into rural India generating more than 10 per cent of India’s GDP and 8% of employment </li></ul>
  6. 6. Challenges <ul><li>To become a truly flourishing industry, retailing in India needs to cross the following hurdles: </li></ul><ul><li>[32]Automatic approval is not allowed for foreign investment in retail. </li></ul><ul><li>Regulations restricting real estate purchases, and cumbersome local laws. </li></ul><ul><li>Taxation, which favours small retail businesses. </li></ul>
  7. 7. Challenges <ul><li>Absence of developed supply chain and integrated IT management. </li></ul><ul><li>Lack of trained work force. </li></ul><ul><li>Low skill level for retailing management. </li></ul>
  8. 8. A Brief History
  9. 9. Beginning of FDI in Retail in India <ul><li>In PV Narasimha Rao’s govt,the finance minister Manmohan Singh allowed limited FDI in retail as a result of which Dairy Farm, a multinational corporation made an entry in India. </li></ul><ul><li>In 5years, P Chidambaram, Commerce Minister of the same government who initiated trade reforms and changed Import & Export Policy, changed laws to go back to square one because by then he was finance minister of a communist-supported government. </li></ul>
  10. 10. BJP’s ego in politics <ul><li>In 2002 FDI was shelved by the Vajpayee (BJP) govt. </li></ul><ul><li>Dr. Manmohan Singh had argued against FDI </li></ul><ul><li>In 2004 election manifesto, BJP assured of opening the retail sector. </li></ul><ul><li>Now backing from the stance. </li></ul>
  11. 11. FDI rejected.. <ul><li>On December 21, 2002, The finance minister gave an assurance that the government had no proposal to invite FDI in retail trade. </li></ul>
  12. 12. Entry of FDI <ul><li>In 1997, FDI in cash and carry (wholesale) with 100 percent ownership was allowed under the Government approval route. </li></ul><ul><li>In 2006, 51 percent investment in a single brand retail outlet was also permitted in 2006. </li></ul><ul><li>FDI in Multi-Brand retailing is prohibited in India. </li></ul>
  13. 13. Current issues
  14. 14. Reforms Proposed <ul><li>51% FDI in Multi-brand outlets </li></ul><ul><li>100% FDI in single branded stores </li></ul><ul><li>Source third of their procurement through Indian SMEs. </li></ul><ul><li>Minimum investment of US$ 100 million in back end infrastructure </li></ul>
  15. 15. Suspending of FDI in Retail <ul><li>7 th december,2011 the government has decided to hold back its decision to allow 51 per cent FDI in multi-brand retail. </li></ul>
  16. 16. Politics behind Opposing <ul><li>Political parties are opposing these reforms, purely to pick up votes from select constituents by making inflammatory statements </li></ul><ul><li>Some opposition parties are opposing FDI reforms, merely to embarrass and corner the ruling Congress leadership </li></ul>
  17. 17. Arguments against FDI <ul><li>Small retailers will get affected </li></ul><ul><li>Fear of monopoly/ oligopoly resulting in complete control to foreign investors </li></ul><ul><li>Consolidation creates consumers captive </li></ul><ul><li>Govt can build storage facility. FDI is not needed for this. </li></ul><ul><li>Comparison between India and China are misplaced. </li></ul>
  18. 18. Discussion points for FDI <ul><li>Success stories – China, Thailand, Indonesia, etc. </li></ul><ul><li>In China, traditional retailers have grown 30% more with the modern retailers after opening up from 1996 to 2001. </li></ul>
  19. 19. 100% FDI in cold storage, a dream <ul><li>Wastage as per 2010, 25-30% in fruits and vegetables and 5-7% in food grains </li></ul><ul><li>Because there is absence of assured demand from unorganized retailers </li></ul><ul><li>FDI in Multi-brand retail will yield fruitful results in both the area of investment destinations </li></ul>
  20. 20. Support from the stakeholders <ul><li>Congress led Govt </li></ul><ul><li>Consumers </li></ul><ul><li>Farmers </li></ul><ul><li>Federations </li></ul><ul><li>Large Retailers </li></ul>
  21. 21. Strength of Big Retailers <ul><li>Mobilization of surplus capital </li></ul><ul><li>Trained employees for customer satisfaction </li></ul><ul><li>Superior process of delivery </li></ul>
  22. 22. Farmer’s status <ul><li>In 2006, Rs.60000 crore loan waiver was given </li></ul><ul><li>Because of low income as around 7% in the price of a product is going to the farmer, rest to the intermediaries. </li></ul><ul><li>Direct procurement will prevent this waivers as these were loss to the exchequer. </li></ul>
  23. 23. Analysis
  24. 24. <ul><li>Employment – 4 </li></ul><ul><li>Benefits to farmers – 4 </li></ul><ul><li>Benefits to customer – 4 </li></ul><ul><li>Supply chain efficiency-3 </li></ul><ul><li>Check on inflation - 3 </li></ul><ul><li>Multiplier effect – 3 </li></ul><ul><li>Wastage control – 4 </li></ul><ul><li>Total = 25 </li></ul><ul><li>Monopoly – 3 </li></ul><ul><li>Consumers get captivated – 2 </li></ul><ul><li>Unorganized sector is at stake- 5 </li></ul><ul><li>Profit to foreigners- 2 </li></ul><ul><li>Middlemen affected – 4 </li></ul><ul><li>Dumping Poor quality – 3 </li></ul><ul><li>Total = 19 </li></ul>Allow FDI Conclusion: Allow FDI
  25. 25. Solution <ul><li>Allow FDI TO THE EXTENT OF 51% </li></ul><ul><li>Strong legal framework in the form of competition commission to deal with anti-competitive practices </li></ul>
  26. 26. Prognosis
  27. 27. Positive results if implemented <ul><li>Gainful employment opportunities </li></ul><ul><li>Farmers secure better prices. Farmers suicide can be prevented. </li></ul><ul><li>Supply chain efficiencies, improvement in back end infrastructure. </li></ul><ul><li>Will check the double digit food inflation. </li></ul><ul><li>Multiplier effect </li></ul>
  28. 28. Hampered progress if not implemented- better to implement <ul><li>Segmentation of customers would suggest that local retailers have their own set of customers. </li></ul><ul><li>Intermediaries can’t be removed from the system wholly. They will be a part of the system. </li></ul><ul><li>Backward integration of retailers will fuel the competition in the products market also. </li></ul>
  29. 29. Conclusion Thank you