Bollywood’s fastest 100 crore grosser of all times
FDI in Multi-Brand Retail Trading
1. FOREIGN DIRECT INVESTMENT
IN RETAIL INDUSTRY:
INDIA
ABHIRAJ PATEL (IM-2K8-001) AVIJIT SINGH THAKUR
(IM-2K8-14)
ANKUR PANDEY (IM-2K8-007)
2. About the Presentation
This presentation deals with the Current Issue
of allowing 51% Foreign Direct Investment in
Multi-Brand Retail Trading (MBRT) in India.
It includes all the possible aspects relating with
the Business Environment, that will certainly
effect the entire business of Retail Industry in
India, once it gets implemented.
3. What is MBRT
Allowing giant retailers like Wal-Mart, Carrefour
(France ), Metro (Germany), Tesco (United
Kingdom), Lidl Stiftung & Co (Germany) etc. to
set up operations in the country. (Wal-Mart
Annual Revenue: US$ 446.950 billion; employing
about 2.2 million (2012).
In contrast, the Indian Retail Sector is accounting
for about 12% of GDP – Rs. 10,38,000 crores,
employing about 5 crores.
In due course of time while the relationship with
the producers will be that of “Oligopsony” and
with the consumers, it is likely to be one of
“Oligopoly”.
4. What is MBRT
Giant retailers like Wal-Mart can source 70%
of the products/goods from anywhere in the
world resulting in the decimation of the not so
competitive manufacturing sector and loss of
job to millions of workers; and even the
agricultural sector would be crippled.
The decimation of „Forced Employment‟
Sector (Retail) may have an unbearable
human cost for sizeable population of the
country.
The poor and the
unemployed/underemployed may become
poorer and strive for their survival.
5. Before Launching MBRT
The Govt. should make the Manufacturing Sector
competitive – In China, the manufacturing sector‟s
contribution is around 60% of GDP (In India, it is
only about 20%)
Strengthen the agricultural sector – Micro Credit
system, etc.
Strengthen the quasi-judicial machinery and
ensure their proper functioning – This to a great
extent can act as a major disincentive for those
who sell defective goods and is likely to enhance
the competitiveness of goods made by Indian
manufacturers.
6. Before Launching MBRT
Enhance investment to strengthen the
infrastructure, including refrigerated storage
facilities, which could ensure better price for the
farmers and fresh produce for the consumers.
Strengthen the PDS so as to protect the „aam
admi’ from inflation and to ensure adequate off-
take from the villages.
Strengthen the CCI so that the monopolistic
tendencies of the Companies can be monitored
and curbed.
Introduce a Regulatory mechanism for prescribing
support price.
7. Rationale of Liberalization
Lack of adequate shortage facilities cause
heavy loses to farmers in terms of wastage in
quality in general, and of fruits and vegetables
in particular.
Post harvest losses of farm produce,
especially of Fruits, vegetables and other
perishables, have been estimated to be over
Rs. 1 Trillion per annum, 57% of which is due
to avoidable wastage and the rest due to
avoidable cost of storage and commission.
Leveraging Foreign Investment in supply chain
Infrastructure.
8. Rationale of Liberalization
Indian farmer realizes only 1/3 of the total price
paid by the final consumer as against 2/3rd
with higher degree of retail.
A World Bank study of 2007 demonstrates that
the average price a Farmer receives for
Horticulture produce is barely 12 to 15% of
what is paid at he retail outlet.
Lack of investment in the logistics of retail
chain creating inefficiencies in the food supply
chain.
9. Rationale of Liberalization
Tough India is the second largest producer of
Fruits and Vegetables (about 200 Million MT),
it has very limited integrated cold-chain
infrastructure, with only 5386 stand-alone Cold
Storage, Having a total capacity of 23.6 million
MT, 80% of this is used only for Potatoes.
10. Rationale of Liberalization
As per some Industry estimates, 35-40% of fruits and
vegetables and nearly 10% of food grains in India are
wasted.
Tough FDI is permitted in cold chain to the extent of
100%, through the automatic route. In the absence of
FDI in front end retail, investment flows in to this
sector is insignificant.
An 11th plan working group has estimated a total
investment of Rs.64,312 crores in Agricultural
infrastructure.
A storage capacity of 35 Million tones has been
assessed, requiring an estimated investment of
Rs.7687 crores during the 11th plan.
12. Employment Opportunities
Indirect employment generated on the supply
chain to feed this retail business will add
millions of jobs.
Huge investments In the retail sector will see
the gainful employment opportunities In agro-
processing, sorting, marketing, logistic
management and the front end retail business.
Industry estimates suggests employment of
one person per 350-400 sq. feet of retail
space, about 1.5 Million jobs will be created in
the front end alone in the next five years.
13. Employment Opportunities
Assuming that 10% extra people are required,
for the back-end, the direct employment
generated by the organized retail sector in
India over the coming 5 years will be close to
1.7 million jobs.
14. Impact on Food Inflation
The opening of Multi Brand Retail will also
have salutary Impact on food inflation as it
would contribute to savings to the food which
perishes on account of inadequate
infrastructure.
15. Supply Chain Efficiencies
Foreign Retail Majors have Gained decades of
experience, Technologies and Management
practices which will ensure supply chain
efficiencies.
16. Prices for the Farmers
In the present dispensation, there is a complex
chain of procurement involving several
middlemen.
FDI in retail will create the enabling
environment that will ensure direct
procurement, at least of horticultural produce
from farmers to enable them secure
remunerative price.
17. Rationale for enhancing FDI ceiling
to 100% in single brand retail
trading
The current cap of 51% confers a right to pass all
ordinary resolutions, while enhancing cap to 100%
will confer full ownership and control.
In the last 5 years, under the current regime of
51% in Single Brand Retail, FDI of only 44.45
Million USD have been received, constituting
barely 0.03% of total FDI Inflows.
Globally, SBR follow a business model of 100%
ownership and global majors have been reluctant
to establish their presence in a restrictive policy
enviornment.
18. Condition of 30% sourcing from
small scale sector.
It will ensure that SME sector including
craftsman, artisans, handicrafts and cottage
industry benefits specially in industries like
textiles, gems and jewellery and leather and
jute.
19. Conditions
FDI in single brand retail may be permitted up
to 100% with govt. approval.
Products should be sold under the same brand
internationally i.e. Products should be sold
under the same brand in one or more
countries other than India.
20. Conditions
„Single Brand‟ Product-Retailing would cover
only products which are branded during
manufacturing.
In respect of proposals involving FDI beyond
51%, 30% sourcing would mandatorily have to
be done from SMEs/Villages, Cottage
Industries, Craftsmen and Artesians.
21. Existing policy
FDI in Multi Brand Retail Trading (MBRT) is
prohibited.
FDI, up to 51%, in the Single Brand Retail
Trading (SBRT) sector, is permitted, under the
government/FIPB route.
22. FDI policy in other Countries
All these Countries have allowed 100% FDI:
China
Russia
Thailand
Indonesia
24. FDI policy in other Countries
While Malaysia permits FDI to a certain extent;
These allow 100% FDI in retail sector:
Brazil
Argentina
Chile
Singapore
26. Some more facts…
At least 30% of procurement of manufactured/
processed products shall be sourced from
„small Industries‟
Retail sales outlets may be set-up in those
states which have agreed or agree in future to
allow FDI in retail under this policy.
The establishment of the retail sales outlets
will be in compliance of applicable state laws/
regulations, such as the shops and
establishments act, etc.
27. Some more facts…
A high level group under the minister of
consumer affairs may be constituted to
examine various issues concerning internal
trade and make recommendations for internal
trade reforms.
Fresh Agricultural produce, including fruits,
Vegetables, Flowers, Grains, Pulses, Fresh
Poultry, Fishery and Meat products, May be
unbranded.
28. Some more facts…
Govt. will have the first right to procurement of
Agricultural Products.
Retail sales location may be set up only in
cities with a population of 10 lakh.
As per 2011 census only 53 cities qualify for
FDI in multi brand retail out of nearly 8000
towns and cities.
At least 50% of total FDI bought in shall be
invested in „Backend infrastructure‟
29. Some more facts…
Minimum amount to be brought in as FDI, by
the foreign investor would be US $100 Million.
The foreign investor should be the owner of
the brand.
The FDI in MBR is being opened in 53 cities
only with population 1 million and for the rest
of the country, current policy regime will apply.
30. Some more facts…
The CM of Delhi, Assam, Maharashtra, Andhra
Pradesh, Rajasthan, Uttarakhand, Haryana,
Manipur, Jammu & Kashmir and Madhya
Pradesh;
The Union Territory of Daman and Diu and
Dadra And Nagar Haveli have expressed
support for the policy.
31. Some more facts…
Retail locations will be restricted to conforming
areas as per the master/ zonal plans of the
concerned cities and provision will be made for
requisite facilities such as transport facilities
and parking.
FDI in Multi brand retail Trade (MBRT) may be
permitted up to 51%, with govt. approval.
