FDI in India.. Boon or Bane?
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This will give you a brief into the actual dynamics behind FDI in India.. Have a look!
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FDI in India.. Boon or Bane?
- 3. •FDI in Retail – Policy Perspectives. •Retail Sector – An Overview. •FDI Policy in Retail - Opportunities & Challenges. •What lies ahead ? Issues for Discussion
- 4. The commitment of money or capital to purchase financial instruments or assets in order to gain profitable returns.
- 5. Investment done by citizens and government of one country (home country) invest in industries of another country (host country). Foreign Investment through Foreign Direct Investments Foreign Institutional Investors
- 6. Automatic Route Government No permission required Approval /License required.
- 7. • Mergers and Acquisitions • Horizontal FDI • Vertical FDI. *Backward Vertical FDI *Forward Vertical FDI By Target • Resource-Seeking • Market-Seeking • Efficiency-Seeking • Strategic-Asset-Seeking By Motive
- 8. Barter system Weekly market Village melas Kirana Stores Conveni ence store Government Stores Super markets Hyper markets Malls Brand outlets
- 9. Incentives attract FDI. Market size and potential are sufficient inducers. Tax breaks, import duty exemptions, land and power subsidies, and other enticements.
- 11. GRDI Position : 3rd Size : $ 451 billion Growth Rate : 13% GDP contribution : 14-15% Major sector : Food and Grocery Employment : 2nd largest industry (40 million) Types: Organized ( 5%) Unorganized ( 95%)
- 12. • 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.
- 13. Format Description Retailers Hypermarkets Offering basket of product Spencers, Big bazaar Cash and Carry Bulk-buying requirement Bharti-wal-mart Departmental stores Large layout, Wide merchandise mix Lifestyle , Globus Supermarkets Household product as well as food as integral part of the service Apna bazaar , food bazaar Shop-in-shop Shops located in shopping malls Navras ( big bazaar) Specialty stores Focus on individual product type Brand Factory Category killers Particular segment The LOFT Discount stores Branded product at discounted prices Subhiksha, levi’s outlet Convenience stores Small Retail stores In and out
- 14. Retail Segment Percentage holding in sector Major retailers Food and grocery 63% Reliance fresh, Café brio, food bazaar Clothing, textile and fashion 9% Westside, shoppers stop, globus jewellery 5% Tanishq Catering services 5% IRCTC Consumer durable 4% Viveks, vijay sales, Croma pharmaceuticals 4% Piramal group Entertainment 3% Bowling co., Furnishing, utensils 3% Hometown, Tangent Concept Mobile handsets 2% The mobile store,
- 15. • One of the world's largest industries exceeding US$ 9 trillion. • 47 global fortune companies & 25 of Asia's top 200 companies are retailers. • US, EU & Japan constitute 80% of world retail sales. • Retail trade in Europe employs 15% of the European workforce (3 million firms and 13 million workers).
- 16. US Sales: $374.5 bn Earnings: $12.9 billion Stores: 6,800 worldwide France Sales: $130 bn Earnings: $5.2 billion Stores: 87,422 worldwide UK Sales: $102.6 billion Earnings: $5.5 billion Stores: 3,729 worldwide Germany Sales: $101 billion Earnings: $1.5 billion Stores: 2,221 US Sales: $77.3 bn Earnings: $4.2 billion Stores: 2,258
- 18. PAST FDI POLICY: •FDI upto 100% per cash and carry wholesale trading & export trading allowed under the automatic route. •FDI upto 51% with prior government approval for retail trade of single brand products. •FDI not permitted in multi brand retailing in India
- 19. STRENGTHS High contributor to the GDP High growth rate High potential High employment generation : WEAKNESSES Lack of competition Highly unorganized Low Productivity Lack of Talented Professionals OPPORTUNITIES Scope for organization Introduction of healthy competition Elimination of intermediaries Quality control and control of wastage Better Infrastructure THREATS Emergence of foreign players Unemployment for unskilled Inflation
- 20. CURRENT FDI POLICY •India will allow FDI upto 51%in multi brand sector. •Single brand retailer can own 100% of their Indian stores, up from the previous cap of 51% This Bill has following important drivers: The retailers(single brand and multi-brand) will have to source 30% of their goods on small or medium sized Indian suppliers All retail stores can open up their operations in places having a population of 1million. Out of approximately 7935 cities and town only 55 cities satisfy this criterion. Multi-brand retailers must bring a minimum investment of 100 million dollars. Out of this, half the amount must be invested in back-end infrastructure facilities such as cold chains, refrigeration, transportation, packing, processing etc. The opening of retail competition will be within the parameters of state laws and regulations
- 23. •Two-thirds of India’s population is below 35. •The country’s median age is 24 years ,comparing favourably with China where the median age is 33years. •Rapid Urbanization •Booming Indian economy •Growing Middle Class •Cosmopolitans •Technology •Advertising
- 24. •Easy consumer credit. EMI & loan via credit cards -- easy for Indian consumers to afford expensive products. For instance, Casas Bahia’s- Brazil. Upper class Middle class Lower class
- 25. •Employment generation. Second-largest employer after agriculture. Retail trade employing 35.06 million. Wholesale trade generating an additional employment of 5.48 million. Additional 1.6 mn jobs .
- 26. •Technology Better use of resources and goods. Wastage and Storage problems will be resolved. Efficient logistics, production, and distribution channels. Digital records.
- 28. Let the liberalisation be in steps rather than being a leap.
- 30. SKILLED WORKERS COMPETITION REAL ESTATE PROBLEM MARKET POWER SUPPLY CHAIN MANAGEMENT INFLATION TAXATION POLICIES PROBLEM IN RAISING FUNDS
- 31. • Major challenge faced by Organized retail sector: InRetail, over 70 per cent of the labor force in both sectors combined (organized and unorganized) is either illiterate or educated below the primary level. • Labor Laws The Indian labour market is segmented. It has a labour aristocracy of unionised workers who are highly paid and highly protected, along with an overwhelming mass of unorganised workers, many of whom are unable in practice to exercise even legal rights.
- 32. • A strong competition from mom and pop shops:- Easily accessible & approachable. Provide services like Free home delivery and goods on credit. They change consumer focus.
- 33. INDIAN • Pantaloons • Reliance • Bharti retail • RPG • Lifestyle • K raheja • Subhiksha • Piramyd • Trent • Vishal group GLOBAL • Tesco • Walmart • Metro • Carrefour • B&Q • Target
- 34. Shrinkage Lack of logistic Infra. Corruption Additional Intermediaries Technology Hurdles
- 35. In India every year there is pilferage of US$ 65 billion whereas in USA it is just 1-2%. Due to lack of proper storage infrastructure post-harvest losses of farm produce is Rs. 1 trillion cr. annually.
- 36. In terms of corruption India stands at 85th position. Because of paper work, corruption is present along the entire supply chain. In India, there are additional 2-3 intermediaries as compared to USA. i. They dominate the value chain. ii. They flout mandi norms & their pricing lacks transparency.
- 37. India is still in developing stage in installing and managing an effective IT system especially in rural areas which hampers the overall growth of organized retail sector.
- 38. Banks are reluctant to finance retailers because of falling demand of organized retailers in India as it has witnessed failure of many stores like Spencer's, Subhiksha, etc.
- 40. • Employment. • Unfair competition. • Under-developed organized retail sector.
- 41. FDI can be a powerful catalyst to spur competition in the retail industry. It can bring about: Supply Chain Improvement Investment in Technology Manpower and Skill development Efficient Small and Medium Scale Industries Increase in exports
- 42. • Investment into warehouse and cold storage chain will result in significant efficiency on supply chain. • Farmers benefited through direct marketing and contract farming programme. • Improves farm production through modern techniques. • Increasing availability of low interest credit for farmers.
- 43. • In the last four year, the consumer spending in India climbed up to 75%. • By the year 2013, the organized sector is also expected to grow at a CAGR of 40%. • The total number of shopping malls is expected to expand at a CAGR of over 18.9 per cent by 2015.
- 44. The initial cap on investment could be pegged at 49%. FDI should be leveraged to create back-end infrastructure. FDI will be a powerful driver to curb inflation.
- 45. ????? What additional steps should be taken to protect small retailers? Should an exclusive legal and regulatory framework be established to protect their interests?
- 46. National legal framework cannot be effective. Hamper growth in retail sector. Incentives directly to benefit small retailers.
- 47. Restrict the number of stores that can be operated in a city. Allow access to the small retailers to the stores through special windows.
- 48. Conclusively we can say that FDI in retail will prove to be a boon for the Indian economy. The fears of small i.e. fringe shopkeepers getting displaced are vastly exaggerated. When domestic majors were allowed to invest in retail, both supermarket chains and neighbourhood coexisted. This decision is a right step and will go a long way in capital infusion and is expected to strengthen the farmer’s community. Mega retail chains need to keep price points low and attractive because that’s the USP of their business. This is done by smart procurement, better inventory management& operationalzing using the product company’s money, excellent business practices from which Indian retail sector can also learn.
- 49. CSR magazine http://www.caclubindia.com/articles/fdi-in-indian-retail-sector- highlights-analysis-12546.asp#.UVwVS5PNqkK http://www.youtube.com/watch?v=knUM7T89P2c http://swaniti.in/2012/11/fdi-in-retail-industry-in-india-for- rajiv-and-amit/ http://economictimes.indiatimes.com/topic/FDI-in-retail
- 50. Thank You
Editor's Notes
- Varied window displat : 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
- In 2881, India had the highest shop density in the world, with 11 outlets for every 1,888 people.. The high density restricts their scope of expansion, and thereby of upgrading. This also means that, except in the case of severely segmented markets, this sector stands little chance of competing against large retailing corporations operating with economies of scale.
- It will bring out many positive changes i.e. improvement in supply chain management. It is noticed that 35-40% of the agriculture produce perishes every year due to poor infrastructure in India and there are only 6522 cold storages in India mainly used for potatoes. Investment in technologies and infrastructure by the retail corporations will act as a boon for our economy. These org will come in with technical know how and expertise and will train indian manpower and hone their skills as suitable for the industry. Moreover small players who have already been working with International chains like Wal-Mart/Carrefour in India have benefitted a lot by manufacturing their private label products & also showcasing our products in their stores by reaching end consumer directly at competitive prices which would otherwise launching and building a new brand is a task in itself. It is understood that MNC that invest in retail in india would also source indian goods to their international outlets in a big way, thus provide a boost to indian exports. Indian retail chains would get integrated with global supply chain since Fdi will bring in technology, quality standards and marketing.
- technological know how, soil quality improvement, pesticide and fertilizer usage, grading, sorting, capabilities and increasing availability of low interest credit for farmers.
- After observing the opportunities and challenges, the views of different org. and the benefits that are likely to take place in indian economy..the panel recommends that fdi in multi brand retail should be allowed but a cap of 49% should be imposed to protect the interest of small and medium size retailers and give them a breathing space to adjust themselves to the new environment and also work to bring in their competitive advantage. China opened the fdi 49% in 1992 and has been immensely benefitted due transfer of technical know how and increased exports there are currently appx 40 foreign players contributing to org retail sector. Now, its time for india to open the borders and be benefitted by the retail growth. A major proportion of initial FDI should be invested in developing back end infrastructure. For e.g. the foreign partners need to tell the total amount that they will be investing in next five years. Out of these atleast 80% of the FDI has to be made in initial three years. We talked of large percentage of agriculture produce getting wasted annually. Well investment in technology and supply chain will surely prevent such wastages consequently curb the supply caused inflation which is currently hovering around 15.46%.
- Retail investments and operations are typically executed with local and regional considerations in mind, so a national legal framework cannot truly be effective. State and local licensing requirements are sufficient to protect small retailers, and otherwise regulate the industry. Implementing new regulations will likely hold back growth in this sector, as well as weaken its Attendant benefits on SME suppliers, consumers and supply chain investment. Rather than impose such regualtion, the government may consider policies and incentives that directly benefit small retailers. These incentives can include, for example, access to low-cost capital, training on quality and technical standards, and infrastructure investment in their own businesses.