This document discusses FDI in the Indian retail sector. It provides background on the phased opening of the retail sector to FDI over time, from wholesale to single brand retail to multi-brand retail. It analyzes the impact of FDI on the retail sector, including benefits like new opportunities, technological improvements, and support for farmers, as well as risks like potential job losses for small retailers. Overall, it argues that if managed properly, FDI could benefit the retail sector and Indian economy through modernization and upgrading, while existing retailers need to adapt to competition through cooperation and innovation.

1. FDI IN INDIAN RETAIL SECTOR: A CRITICAL ANALYSIS
Nithin Venugopal
Email id: venugopal.nithin@gmail.com
FDI IN INDIAN RETAIL SECTOR: A CRITICAL ANALYSIS
Abstract
Foreign Direct Investment (FDI) acts as a major catalyst in the development of a country
through up -gradation of technology, managerial skills and capabilities in various sectors.
India being a signatory to World Trade Organization's General Agreement on Trade-in
Services, which includes wholesale and retailing services, had to open up the retail trade
sector to foreign investment. There were initial reservations towards this issue arising from
fear of job losses, procurement from international market, competition and loss of
entrepreneurial opportunities to locals. However, the government in a series of moves
opened up the retail sector slowly to FDI. In 1997, FDI in cash and carry (wholesale) with
100 per cent ownership was allowed under the government approval route. Subsequently it
was brought under the automatic route in 2006 and in the same year 51 per cent investment
in single brand retail was permitted. In year 2011 100 per cent investment in single brand
retail was permitted and 51 per cent in Multi brand retail in 2012. This paper briefly
discusses FDI in Indian Retail Sector with statistics. The study discloses that the retail sector
in India is expanding and modernising rapidly in line with India’s economic growth. With
such rapid growth, we are at a point where consumption growth will witness not just
increased penetration in existing categories but also the launch of a number of new products
and categories in India.
Keywords: FDI, Retail, Single Brand Retail, Multi Brand Retail, Indian Retail Sector
I. INTRODUCTION
Foreign Direct Investment (FDI) is a direct investment into production or business
in a country by an individual or company in another country, either by buying a company in
the target country or by expanding operations of an existing business in that country. FDI in

2. simple term means investment in foreign country through the acquisition of a local company
or the establishment there of an operation on a new site.
FDI in India is governed by FDI Policy announced by Government of India from
time to time in consultation with Reserve Bank and according to the provisions of Foreign
Exchange Management Act (FEMA), 1999. FDI Policy is notified through press notes by the
Secretariat for Industrial Assistance (SIA) and Department for Industrial Policy & Promotion
(DIPP).
After two decades since economic liberalisation of 1991, unlike other major
emerging economies; India has been slow to open its retail sector to foreign investment. In
2006 the government eased the retail policy for the first time, allowing up to 51 per cent FDI
through single brand retail route. Since then there has been a steady increase in FDI in the
retail sector. As per a report of DIPP cumulative FDI in single brand retail stood at $195
million by mid 2010. Recently the sectoral cap for single brand has been increased to 100 per
cent. In the year 2012 government has opened up the market further by introducing foreign
investment in Multi brand retailing with 51 per cent cap permitted under Government
approval route. To make this FDI in multi brand retailing work in tandem with government
objectives, the government has already set some pre-conditions like:
A. 50 per cent of the foreign investment to be invested in back end infrastructure.
B. Minimum sourcing of 30 per cent from the SME’s
C. E-Commerce in any form being disallowed.
Such implications will ensure benefits to all stakeholders.
II. RESEARCH METHODOLOGY
The study is based on secondary data sources such as books, journals, newspapers,
and online databases. Analytical, descriptive and comparative methodology has been adopted
for the study.
III. INDIAN RETAIL SECTOR: AN OVERVIEW
Retailing was evolved in India as a source of entertainment in rural areas in the
forms of melas, village fairs, etc. The next stage in the evolution is the kirana stores which
are of traditional variety neighbourhood shops. Then came the government supported PDS

3. outlets, co-operatives, etc. Finally shopping malls, supermarkets and hypermarkets came into
existence (Figure 1).
Retail sector in India is generally classified into two major segments – organised
retailing and unorganised retailing.
A. Organised Retailing – refers to trading activities undertaken by licensed retailers,
that is, those who are registered for sales tax, income tax, etc. These include the
corporate backed hypermarkets and retail chains.
B. Unorganised Retailing – refers to the traditional formats of low cost retailing, for
example, the local kirana shops, owner manned general stores, paan/beedi shops,
pavement vendors, etc.
As per a report published by ASSOCHAM along with YES Bank in October 2012,
Indian retail sector is dominated by unorganised retailers or traditional retailers. The value
sales of these traditional stores accounted for more than 90 per cent of the sales in the year
2011.The unorganised sector, as per their report, is expected to grow due to its proximity,
goodwill, credit sales, bargaining, convenient timings and home delivery.
IV. FDI IN RETAIL INDUSTRY.
FDI in retail industry means that foreign companies in certain categories can sell
their products through their own retail shop in the country. India’s retail industry is estimated

4. to be worth approximately US$ 411.28 billion and is still growing, expected to reach US$
804.06 billion in 2015. The organised retail business still comprises a small proportion of the
total size of the INR 9,00,000 Crore retail sector.
A. The chronology of FDI in Indian retail sector is given below.
1995: World Trade Organization’s General Agreement on Trade in Services, which include
both wholesale and retailing services came into effect.
1997: FDI in cash and carry (Wholesale) with 100 per cent rights allowed under the
government approval route.
2006: FDI in cash and carry (Wholesale) brought under the automatic route. Up to 51 per
cent investment in single brand was permitted.
2011: 100 per cent FDI in single brand retail permitted.
2012: FDI in multi brand retail trading was allowed with a sectoral cap of 51 per cent.
V. GAUGING FDI IN INDIA IN RETAIL SECTOR.
The retail sector in India is often being hailed as the sunrise sectors of the economy.
The sector has viewed a tremendous and fast paced transformation in the past decade from
small unorganised family owned retail formats to organised retailing. Many international
brands have entered the market. Retail sector in India is rapidly growing despite of the
slowdown in economic growth and depreciation in value of the home currency. The major
factors driving retail growth in India includes growing urbanisation, a greater variety of new
stores coming into the picture as well as the international brands entering Indian market.
A.T Kearney, a global management consultancy firm, rates India as one of the most
attractive nation for retail investment. It identifies the BRIC countries (Brazil, Russia, India
and China) as magnificent monsters for global retailers.
The study presented in the Global Retail Development Index (GRDI) of 2013 by
A.T Kearney, is carried out annually for 30 emerging markets. The GRDI ranks India this
year at 14th position by slipping 9 spots from its 2012 ranking of 5th (Figure 2). However, the
long term fundamentals remain strong, in particular, a large, young, increasingly brand and
fashion conscious population. Retailing in India is expected to grow 14 to 15 per cent through
2015.
Several single brand retailers entered Indian market in many sectors: apparel and
beauty (Brook Brothers, Kenneth Cole, Armani Junior, etc.), and food (Starbucks and
Dunkin’ Donuts). Large retailers such as IKEA are finalising their entry to Indian economy.
Grocery remains India’s largest source of retail sales. Hypermarkets and supermarkets

5. continue to dominate, but cash and carry is growing fast, with significa
from Bharti-Walmart, Metro Group and Carrefour.
per cent year over year for the next five years.
Mango are actively scouting locations to open more st
VI. FOREIGN DIRECT INVESTMENT
significant nt expansion planned
Apparel sector is expected to grow 9 to 10
Players such as Zara, Marks & Spencer and
stores across the country.
- IMPACT AND ANALYSIS
There has been a huge opposition from the left parties in opening up the retail
market to foreign entities even as the government has allowed foreign investment in a number
of sectors including banking, telecom and insurance.
Mr. M.L.Sharma that had challenged government’s decision to allow 51 per cent FDI in multi
brand retail, The Honourable Bench comprising of Justices R.M Lodha, Madan
and Kurien Joseph said that “while there are enough examples of countries where small
unorganised retailers have continued to co
after implementation of FDI, the risk is lower in India where the
on 13.3 per cent of population”. The Bench further pointed out that “The middlemen are a
curse to the country. They work like Shylock and suckers. If they are sought to be thrown out
of the system, what is wrong with the policy”.
The Indian retail sector suffer
In a public interest litigation filed by
co-exist with organised multinational retailers even
policy would be tried only
suffered a lot from limited access to capital, labour and
suitable infrastructure and real estate options, largely due to its fragmented structure. China
which had allowed 49 per cent FDI in the retail sector since
1992 had been blessed with fresh
ores ANALYSIS.
Madan.B. Loukar

6. capital, newer technologies brought in by foreign players and growing export market for
domestic products.
According to a policy paper prepared by Department of Industrial Policy and
Promotion, FDI in retail must result in back
and spur domestic retailing as well as exports.
backward linkages of production and manufacturing
A World Bank report suggests that, opening the retail sector to FDI would be to the
advantage of India in terms of price and availability of products. Experience
shown that organised retailing tends to have a major controlling effect on inflation because
large organised retailers are able to buy directly from producers at most competitive prices.
The retail sector in India is expanding and modernisin
modernising rapidly in line with India’s
economic growth. With such rapid growth, we are at a point where consumption growth will
witness not just increased penetration in existing categories but also the launch of a number
of new products and categories in India.
suggests that the overall retail market (organised and unorganised) is expected to grow at a
compounded rate of 15 per cent over the next 5 years
47 trillion in 2016-17 (Figure 3.
A study paper by ASSOCHAM and YES Bank
from INR 23 trillion in 2011
3.)
ward everywhere has
g 2011-12 to INR

7. VII. ADVANTAGES OF FDI IN RETAIL SECTOR
A. New Opportunities.
A large majority of the population in Indian economy feels that there exists a
difference in quality of the products sold to foreign market by domestic companies and those
which are sold in Indian market. Taking note of the spending power of Indian consumers,
there is an increasing tendency to pay for quality and ease of access to a one stop shop which
will have wide range of different products. If the market is open pricing could also change
and the monopoly of certain domestic companies will be challenged there by benefitting the
end consumer in the form of standard products at lowered prices due to tough and enhanced
competition in the market.
B. Technological and logistical improvements.
Technical know-how can be improved in the fields of processing, grading, handling
and packaging of goods. Latest technological advancements can be achieved in areas like
electronic weighing, billing, barcode scanning etc. could be a direct result of the foreign
entrants on to the market. Improvement in transportation facilities will help in reducing
wastages, especially in the case of perishable goods and will enable distraction free
distribution of goods.
C. Benefit to farmers.
India is the second largest producer of fruits and vegetables but the country has a
limited integrated cold chain infrastructure. Lack of adequate storage facilities causes heavy
losses to farmers, in terms of wastage in quality and quantity of their produce in general.
Extensive backward integration coupled with technical and operational expertise, can help
farmers reduce such losses. Farmers will be further protected from exploiting intermediaries
and there by getting better prices for their produce.
D. Infrastructural and real estate development.
Retail business will require substantial spaces for setting up business. Real estate in
India has gone through a revamp due to demand for high-end shopping malls and people’s
change in perception towards an enjoyable shopping experience. The real estate business is
expected to get a new boom as the government has allowed FDI in multi brand retailing.
VIII. DISADVANTAGES OF FDI IN RETAIL SECTOR.
Those who oppose the FDI feel that liberalisation would jeopardise the unorganised
retail sector and would adversely affect the small retailers, farmers and consumers and give
rise to monopolies of large corporate houses which can affect the availability and pricing of
products. Another major reason that those opposing FDI points out is that the entry of large

8. global retailers is that the current independent stores will be compelled to close and this will
lead to massive job loss as most of the operations in big stores like Wal-mart are highly
automated requiring less work force. The big players can further lower the prices initially to
create a monopoly and then raise prices later.
According to a report, in UK there were 56,000 retail shops before the entry of Wal-mart
which were reduced to 22,000 retail shops after the entry of Wal-mart to the economy.
This shows that there has been a negative impact of entry of large global retailers to the
economy in closure of small retailers. In a study conducted in Norway the entry of Wal-mart
has resulted 27 per cent jobs were loosen due to the entry of Wal-mart.
IX. CONCLUSION.
On the backdrop of permission to multi brand retailing the scenario of Indian
retailing is going to change drastically. It is likely to impact both organised and unorganised
domestic retailing environment.
In meeting the tough competition from large global retailers, the small and
unorganised retailers should form a consortium and make bulk purchases so as to take the
price advantage in buying large quantities of material. They should try to change the
appearance, attitude and whole affairs of the current business. New methods of doing
business should be adopted like providing home delivery, storing branded products etc.
Domestic retailers can strengthen their market positions and face the challenges posed by
large global retailers by modernising their working.
From government’s part stringent action should be taken against collusion and
predatory pricing and code of conduct to be drafted for the organised retail sector for dealing
with the suppliers.
India needs to take success lessons from China where organised and unorganised
retail seem to co-exist and grow together. Further, India’s local enterprises will potentially
receive an up gradation with the import of advanced technological and logistics management
expertise from the foreign entities.
Apprehensions were raised on many occasions in the past on virtually every
measures of liberalisation of Indian economy but most of them were proved wrong while
many others come true. If the entire process of Foreign Direct Investment is carried out in a
right manner over the time it can prove to be a boon rather than a curse.

9. X. References.
1. Chari, Anusha & Madhav Raghavan (2011). Foreign Direct Investment in India’s
Retail Bazaar: Opportunities and Challenges.
2. Deloitte Touche Tohmatsu Limited (2013). Global Powers of Retailing 2013.
[ONLINE] Available at: http://www.deloitte.com/assets/Dcom-
Australia/Local%20Assets/Documents/Industries/Consumer%20business/Deloitte_G
lobal_Powers_of_Retail_2013.pdf. [Last Accessed 08 November 2013].
3. Dr. Gaurav Bisaria, (2012). Foreign Direct Investment in Retail in
India. International Journal of Engineering and Management Research. 2 (1),
pp.31-36
4. Food & Agribusiness Strategic Advisory and Research (FASAR) Team - YES
BANK. (2012, October 1). FDI in Retail Advantage Farmers. www.assocham.org.
Retrieved from http://www.assocham.org/arb/general/Background-FDI-Retail.pdf
5. Foreign direct investment. (2013, November 14). Wikipedia. Retrieved November
14, 2013, from http://en.wikipedia.org/wiki/Foreign_direct_investment
6. Government of India-Ministry of Commerce & Industry--Department Of Industrial
Policy & Promotion. (n.d.).Government Of India-Ministry Of Commerce & Industry-
-Department Of Industrial Policy & Promotion. Retrieved November 14, 2013, from
http://dipp.nic.in/English/default.aspx
7. Rajib Bhattacharrya, (2012). The Opportunities and Challenges of FDI in Retail in
India. IOSR Journal Of Humanities And Social Science (JHSS). 5 (5), pp.99-109
8. Saha, N., & Shinde, M. (2013). FDI in Indian Retail Sector: A Critical
Analysis.Tactful Management Research Journal, 1(5), 2-8.