Vasundhara - Term Paper

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Term paper submitted in partial fulfillment of the requirements
of the Undergraduate Degree in
Bachelor of Business Administration (Honours)
J. D. Birla Institute
at the
Jadavpur University
at
Kolkata
Name – Vasundhara Jalan
Roll no – 33
Semester – 5th
Supervisor – Mr Shantanu P.Chakraborty
Industry – ForeignDirect Investment
Title – Challenges and Opportunities in the Multi-Brand
Retail Trade Sector of Foreign Direct Investment

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DECLARATION
I declare the following:
The word count of the dissertation is 28,823 words (approx)
The material contained in this dissertation is the end result of my own work. Due
acknowledgement has been given in the bibliography and references to all
sources be they printed, electronic or personal.
I am aware that my dissertation may be submitted to a plagiarism detection
service where it will be stored in a database and compared against work
submitted from this institute or from any other institutions.
In the event that there is a high degree of similarity in content detected, further
investigations may lead to disciplinary actions including the cancellation of my
degree according to Jadavpur University rules and regulations.
I declare that ethical issues have been considered, evaluated and appropriately
addressed in this research.
I agree to an entire electronic copy or sections of the dissertation to being placed
on the e-learning portal, if deemed appropriate, to allow future students the
opportunity to see examples of past dissertations and be able to print and
download copies if they so desire.
Signed:
Date:
Name: Vasundhara Jalan
Roll no - 33
Supervisor: Mr. Shantanu P.Chakraborty

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ACKNOWLEDGEMENT
Firstly,Iwholeheartedlythankourcollege directorDr.Asit Dutta, because if it hadn’t been his vision to
allot us the task of preparing a paper, I wouldn’t have ever got so much knowledge about this topic.
Secondly, in a very special way, I would like to thank my faculty guide and mentor Mr. Shantanu
P.Chakraborty for his valuable inputs and continuous motivation and guidance at every stage of the
project.
I would also like to thank all the other faculty members at JDBI, the constant inspiration and support
that they have provided me.
I wouldalsolike tothankour facultyin-charge of LearningandResearchCentre (LRC).Itwasindeed very
kind of them to provide me with the necessary books and journals on time so as not to delay the
completion of my paper.
Last but not the least, I would like to thank my family members and friends, who have encouraged,
supported and helped me to tide over with so many demands.

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ABSTRACT:
The present study aims to analyze Indian retail consumers’ awareness towards the FDI. India’s
rising retail boom is a success story. With strong fundamentals developing in the Indian market
in the liberalized surroundings with changes in earnings levels, lifestyles, taste & behavior of
consumers with preference for better quality and branded products, vast household market
with a very competitive manufacturing base, India has also observed a major retail boom in
recent years. Being encouraged by India’s growing retail boom many multinational companies
also started making beeline to enter India’s retail market. Investment from overseas has also
been hailed by Indian industry, by and large, as the same has been considered to be very vital
for adding to domestic investment, addition to capacity, higher growth in manufacturing, trade,
business, service, demand, consumption and income with multiplier effects. The present study
shows that the demographics of retail consumers have an association with level of awareness
towards the FDI, with consideration of Indian retail industry.

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SERIAL
NUMBER
CONTENTS PAGE
NUMBER
1 Introduction
1.1 Overview
1.2 Scope
1.3 Objectives
7-8
2 Literature Review
2.1 Meaning of Retail
2.2 Evolution of Indian Retail Industry
2.3 Distinction of Indian Retail
2.4 Division of Indian Retail Industry
2.5 Types of Retailing
2.6 Determinants of FDI Policies in India
2.7 Research Studies Related to Changing Dynamics of Consumer
Behavior and Factors Affecting Retail Store Choice
2.8 Policy Framework of Retail FDI in India
2.9 History and Current Affairs of FDI in Retail Sector
2.10 Rationale behind allowing FDI in Retail Sector
2.11 Challenges and Attractions for Global Retailers
2.12 SWOT Analysis of FDI in Retail Sector
9-31
3 Research and Methodology
3.1 Introduction and Definition to Research Methodology
3.2 Qualitative and Quantitative Research and Data Gathering
3.3 Data Sources
32-34

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4 Problem Case
4.1 Why China
4.2 Comparative Analysis
4.3 Effect of Opening up of the Sector
4.4 What made China achieve this
4.5 India’s current position in Retailing
4.6 Similarities in FDI in Retail that exists between India and China
4.7 India’s advantage over China
4.8 Proposed FDI Policy for MRBT in India
4.9 FDI Policy for MRBT in China
4.10 Four major dimensions of the policy on FDI in MBRT
4.11 FDI in Multi-Brand Retail in India
4.12 International Retail Development Rankings
35-50
5 Data Analysis 51-70
6 Results:
6.1 Suggestions
6.2 Recommendations
71-76
7 Conclusion
7.1 Limitations
7.2 Future Scope
77-79
Executive Summary 80
Annexure 81-91
Bibliography 92-94

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FOREIGN DIRECT INVESTMENT IN RETAIL SECTOR OF INDIA
1. INTRODUCTION
1.1 OVERVIEW
Retailing in India is one of the pillars of its economy and accounts for 14 to 15% of its GDP. The
Indian retail market is estimated to be US$ 450 billion and one of the top five retail markets in
the world by economic value. India is one of the fastest growing retail markets in the world,
with 1.2 billion people. India's retailing industry is essentially owner manned small shops.
In 2010, larger format convenience stores and supermarkets accounted for about 4% of the
industry, and these were present only in large urban centers. India's retail and logistics industry
employs about 40 million Indians (3.3% of Indian population). Until 2011, Indian central
government denied foreign direct investment (FDI) in Multi-Brand Retail, forbidding foreign
groups from any ownership in supermarkets, convenience stores or any retail outlets. Even
single-brand retail was limited to 51% ownership and a bureaucratic process.
In November 2011, India's central government announced retail reforms for both multi-brand
stores and single-brand stores. These market reforms paved the way for retail innovation and
competition with multi-brand retailers such as Walmart, Carrefour and Tesco, as well single
brand majors such as IKEA, Nike, and Apple. The announcement sparked intense activism, both
in opposition and in support of the reforms. In December 2011, under pressure from the
opposition, Indian government placed the retail reforms on hold till it reaches a consensus. In
January 2012, India approved reforms for single-brand stores welcoming anyone in the world to
innovate in Indian retail market with 100% ownership, but imposed the requirement that the
single brand retailer source 30% of its goods from India. Indian government continues the hold
on retail reforms for multi-brand stores. IKEA announced in January that it is putting on hold its
plan to open stores in India because of the 30% requirement.[8] Fitch believes that the 30%
requirement is likely to significantly delay if not prevent most single brand majors from Europe,
USA and Japan from opening stores and creating associated jobs in India.
1.2 SCOPE of FDI in Retail in India
India has been placed at first position in the category of countries with the best opportunity for
investment in retail sector. The increasing disposable incomes among the Indian middle class
and increasing young population have been cited as the main reasons for such attractive
optimism. Retailing in India is one of the pillars of its economy and accounts for 14 to 15
percent of its GDP. The Indian retail market is estimated to be US $450 billion and one of the
top five retail markets in the world by economic value. India is one of the fastest growing retail
markets in the world, with 1.2 billion people.

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After months of discussion with various hurdles on 14 September, 2012 the cabinet approved
the foreign direct investment in retail in India allowed 100% FDI in Single Brand and 51% FDI in
Multiple brand with many preconditions. The minimum FDI limit has been set at $100 million.
Half of any investment has to make in infrastructure like cold-storage chains and warehouses.
With at least 30% of the goods to be sold will have to source from local producers.
On December 5, 2012 in Lok Shaba after long discussion also given approval to FDI in retail as
per the cabinet approval with some amendments likes FDI in retail in cities with a population
over one million as well as the states of India have the prerogative to accept it and implement it
or they can decide to implement it if they so choose. Actual implementation of policy will be
within the parameter of state law and regulations.
This Term Paper makes a modest attempt of developing an insight as to what are the trends in
the Indian Retail Industry and to the benefits and drawbacks of FDI in this sector. It has also
focused on whether this policy will be beneficial for the Indian Economy as a whole or not.
Retailing in India is one of the pillars of its economy and accounts for 14 to 15 percent of its
GDP. The Indian retail market is estimated to be US$450 billion and one of the top five retail
markets in the world by economic value. India is one of the fastest growing retail market in the
world, with 1.2 billion people.
Until 2011, Indian central government denied foreign direct investment (FDI) in multi-brand
retail, forbidding foreign groups from any ownership in supermarkets, convenience stores or
any retail outlets. Even single-brand retail was limited to 51% ownership and a bureaucratic
process.
On 14 September 2012, the government of India announced the opening of FDI in multi-brand
retail, subject to approvals by individual states. This decision however has caused protests and
an upheaval in India's central government's political coalition structure. On 20 September 2012,
the Government of India formally notified the FDI reforms for single and multi brand retail,
thereby making it effective under Indian law.
On 7 December 2012, the Federal Government of India allowed 51% FDI in multi-brand retail in
India. The Feds managed to get the approval of multi-brand retail in the parliament despite
heavy uproar from the opposition. Some states will allow foreign supermarkets like Walmart,
Tesco and Carrefour to open while other states will not.
1.3Objectives
The study comprises of the following objectives:-
i. To study the impact of FDI on the Retail Sector Indian economy.
ii. Developinganinsightasto whatare the trendsinthe Indian Retail Industryandthe
opportunities andchallengesof FDIinthissector.
iii. To ascertain the impact of FDI in MRBT on India by comparative analysis of the impact
on China’s Economy.

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2. LITERATURE REVIEW:
2.1 Meaning of retail (Source - Index -1)
It is defined as all activities involved in selling goods or services directly to the final
consumer for their personal, non-business use via shops, market, door-to-door selling, and
mail-order or over the internet where the buyer intends to consume the product. In 2004, The
High Court of Delhi defined the term “retail” as a sale for final consumption in contrast to a sale
for further sale or processing. Retailing involves a direct interface with the customer and the
coordination of business activities from end to end- right from the concept or design stage of a
product or offering, to its delivery and post-delivery service to the customer.
2.2 Evolution of Indian Retail Industry (Source – Index - 2)
It is interesting to focus on the evolution of the retail sector in India. Historically they
evolved as a source of entertainment (in the form of village fairs, melas etc.) which was within
the rural reach. Later on these were transformed Mom and Pop/ Kirana stores which are of
traditional variety neighbourhood shops. Then came the government supported PDS outlets,
khadi stores, cooperatives etc. Finally shopping malls, supermarkets, departmental stores etc
has brought a great revolution to the Indian retail market (figure-1)
Figure- (1)
Source: Technopak Research
The Indian Retail Industry is the 5th largest retail destination and the second most attractive
market for investment in the globe after Vietnam as reported by AT Kearney‘s seventh annual
Globe Retail Development Index (GRDI), in 2008.The growing popularity of Indian Retail sector
has resulted in growing awareness of quality products and brands. As a whole Indian retail has
made life convenient, easy, quick and affordable. Indian retail sector specially organized retail is
growing rapidly, with customer spending growing in unprecedented manner. It is undergoing
metamorphosis. Till 1980 retail continued in the form of kiranas that is unorganized retailing.
Later in 1990s branded retail outlet like Food World, Nilgiris and local retail outlets like Apna

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Bazaar came into existence. Now big players like Reliance, Tata‘s, Bharti, ITC and other reputed
companies have entered into organized retail business.
The multinationals with 51% opening of FDI in single brand retail has led to direct entrance of
companies like Nike, Reebok, Metro etc. or through joint ventures like Wal-mart with Bharti,
Tata with Tesco etc.
Evolution of retail sector can be seen in the share of organized sector in 2007 was 7.5% of the
total retail market. Organized retail business in India is very small but has tremendous scope.
The total in 2005 stood at $225 billion, accounting for about 11% of GDP. In this total market,
the organized retail accounts for only $8 billion of total revenue. According to A T Kearney, the
organized retailing is expected to be more than $23 billion revenue by 2010.
The retail industry in India is currently growing at a great pace and is expected to go up to US$
833 billion by the year 2013. It is further expected to reach US$ 1.3 trillion by the year2018 at a
CAGR of 10%. As the country has got a high growth rate, the consumer spending has also gone
up and is also expected to go up further in the future. In the last four years, the consumer
spending in India climbed up to 75%. As a result, the Indian retail industry is expected to grow
further in the future days. By the year 2013, the organized sector is also expected to grow at a
CAGR of 40%. The key factors that drive growth in retail industry are young demographic
profile, increasing consumer aspirations, growing middle class incomes and improving demand
from rural markets. Also, rising incomes and improvements in infrastructure are enlarging
consumer markets and accelerating the convergence of consumer tastes. Liberalization of the
Indian economy, increase in spending per capita income and the advent of dual income families
also help in the growth of retail sector. Moreover, consumer preference for shopping in new
environs, availability of quality real estate and mall management practices and a shift in
consumer demand to foreign brands like McDonalds, Sony, Panasonic, etc. also contributes to
the spiral of growth in this sector. Furthermore, the Internet revolution is making the Indian
consumer more accessible to the growing influences of domestic and foreign retail chains.
One report estimates the 2011 Indian retail market as generating sales of about $470 billion a
year, of which a miniscule $27 billion comes from organized retail such as supermarkets, chain
stores with centralized operations and shops in malls. The opening of retail industry to free
market competition, some claim will enable rapid growth in retail sector of Indian economy.
Others believe the growth of Indian retail industry will take time, with organized retail possibly
needing a decade to grow to a 25% share. A 25% market share, given the expected growth of
Indian retail industry through 2021, is estimated to be over $250 billion a year: a revenue equal
to the 2009 revenue share from Japan for the world's 250 largest retailers. The Economist
forecasts that Indian retail will nearly double in economic value, expanding by about $400
billion by 2020. The projected increase alone is equivalent to the current retail market size of
France.
In 2011, food accounted for 70% of Indian retail, but was under-represented by organized
retail. A.T. Kearney estimates India's organized retail had a 31% share in clothing and apparel,
while the home supplies retail was growing between 20% to 30% per year. These data
correspond to retail prospects prior to November announcement of the retail reform.

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2.3 Distinction of Indian Retail (Source -Index -3)
The Indian trading sector, as it has developed over centuries, is very different from
that of the developed countries. In the developed countries, products and services normally
reach consumers from the manufacturer/producers through two different channels:
(a) via independent retailers (“vertical separation”) and
(b) directly from the producer (“vertical integration”).
In India, however, the above two modes of operation are not very common. Small and
medium enterprises dominate the Indian retail scene. The trading sector is highly fragmented,
with a large number of intermediaries. So also, wholesale trade in India is marked by the
presence of thousands of small commission agents, stockiest and distributors who operate at a
strictly local level. Retail giants like US-based Wal-Mart and French Carrefour are very keen to
enter in the segment. Bharti Enterprises and Wal-Mart Stores entered into a joint venture in
August 2007 and started cash-and-carry stores named 'Best Price Modern Wholesale' in 2009.
2.4 Division of Indian Retail Industry (Source – Index - 4)
The retail industry is mainly divided into: -
1) Organised and
2) Unorganised Retailing
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, and also the privately owned large retail businesses.
Unorganised retailing, on the other hand, refers to the traditional formats of low-cost retailing,
for example, the local kirana shops, owner manned general stores, paan/beedi shops,
convenience stores, hand cart and pavement vendors, etc. The Indian retail sector is highly
fragmented with 97 per cent of its business being run by the unorganized retailers. The
organized retail however is at a very nascent stage. The sector is the largest source of
employment after agriculture, and has deep penetration into rural India generating more than
10 per cent of India‘s GDP.
ADVANTAGES OF CONVENTIONAL AND MODERN ORGANISED RETAIL REFORMS
SNo. Conventional Modern Organized
1 Large Bargaining Power Low operating cost and overheads
2 Proximity to consumers Range and variety of goods
3
Long operating hours, strong customer relations,
convenience and hygiene.
Long operating hours, quality assurance
(brand related and durability).

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2.5 Types of Retailing in India
(a) Single Brand- Single brand implies that foreign companies would be allowed to sell goods
sold internationally under a „single brand‟, viz., Reebok, Nokia and Adidas. FDI in „Single brand‟
retail implies that a retail store with foreign investment can only sell one brand. For example, if
Adidas were to obtain permission to retail its flagship brand in India, those retail outlets could
only sell products under the Adidas brand and not the Reebok brand, for which separate
permission is required. If granted permission, Adidas could sell products under the Reebok
brand in separate outlets.
(b)Multi Brand- FDI in Multi Brand retail implies that a retail store with a foreign investment
can sell multiple brands under one roof. Opening up FDI in multi-brand retail will mean that
global retailers including Wal-Mart, Carrefour and Tesco can open stores offering a range of
household items and grocery directly to consumers in the same way as the ubiquitous ‟kirana‟
store.
The approval for single and multi brand includes a set of riders for the foreign investors, aimed
at ensuring that the foreign investment makes a genuine contribution to the development of
Indian infrastructure and logistics, at the same time facilitating integration of small retailers
into the upgraded value chain.
While the minimum capital requirement of US$ 100 million is unlikely to be an issue for the
large foreign players vying to enter India in the supermarket/ hypermarket segment, it could
make it difficult for foreign investors planning to enter specialty formats such as music, mobile,
electronics goods, among others, as these formats require relatively lower investments.
Further, the approval requirements from State Governments could limit the cities that FDI
backed retailers can operate in. The current opposition raised by a number of political parties,
if persists, may pose a major roadblock in the entry of the foreign retailers in India. Besides
restricting the number of cities these retailers can operate in, it could also lead to problems in
creating supply chain efficiency.
Table- 2: A Comparison of Norms under Single-brand and Multi-brand Retail in India
Parameters Multi-brand Single-brand
Ownership/
Investment
Minimum investment of US$
100million by
The foreign investor should be
an
Requirement the foreign investor owner of the brand
No condition
Investment
At least 50% of the investment by the
foreign
towards
back-
company to be in back-end
infrastructure1
End
Infrastructur
e
No Condition
Location of
Stores to be restricted to cities with a
population of
stores
one million or more (53 cities as per
2011 Census);

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given constraints around real estate,
retailers are
allowed to set up stores within 10 km of
such cities
Sourcing
At least 30% of manufactured items
procured
In respect of proposals
involving FDI
should be through domestic small and
medium
beyond 51%, 30% sourcing
would
enterprises (SMEs)
mandatorily have to be done
from
domestic SMEs and cottage
industries
artisans and craftsmen
Sales No Condition
Products to be sold should be
of a
„single brand‟ (only those
brands
which are branded during
manufacturing) only; sold
under the
same brand name
internationally
Approval of
While the proposals on FDI will be
sanctioned
While the proposals on FDI will
be
State by the Centre, approvals from each State
sanctioned by the Centre,
approvals
Government
s
Government would be required
from each State Government
would be
required Required
Source: Press Information Bureau, ICRA
[Note: 1 Back-end infrastructure will include capital expenditure on all activities, excluding that
on front-end units; i.e. it will include investment made towards processing, manufacturing,
distribution, design improvement, quality control, packaging, logistics, storage, warehouse,
agriculture market produce infrastructure, etc. Expenditure on land cost and rentals, if any, will
not be counted for purposes of back-end infrastructure]
2.6 Determinants of FDI Policies in India
There are many studies which have identified technology, labour skills and infrastructure as the
major determinants of foreign investment. These factors are very important to explain the
patterns and trends in the geographical structure of FDI at the world capita income, in relation
to outbound as well as inbound FDI ( Hummels and Stern, 1994).The incentives announced by
the exchequer is also very important in formulating and analysing the corporate strategies of
international location, also institutional, historical and cultural factors should be embedded in
overall analysing and framing of policies ,as these factors should not be ignored as they
influence the investor’s location related decisions (Martin and Velazquez, 1997).Whether tariff
rate, exchange rate and tax rate are significant for FDI was tested in a study by Aqeel and

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Nishat (2004).In the study it was revealed that these policy variables were responsible for
drawing FDI and it determined the growth in Pakistan and also showed the positive impact of
reforms in Pakistan. On many variables affecting FDI have been examined, a set of descriptive
variables were examined by several studies like (Chakraborty, 2001) and were found to be
significant. Some studies have also analysed the variables like market size and differences in
factor costs and were also found to be significant in determining the FDI location as these are
very important in determining the market economies and they cannot be achieved and
exploited till the time market achieves a certain size. (Markusen and Maskus, 1999).The most
important measures used in many studies are GDP, GDP per capita and growth in GDP.
2.7 Research Studies Related to Changing Dynamics of Consumer Behaviour and Factors
Affecting Retail Store Choice -
There are many studies on Indian consumers, which reveal the shopping behaviour of Indian
consumers. Various parameters are included in their studies like level of income, education,
and international exposure (Ramachander 1988), gender and age (Sinha, et al. 2002) and
distance from the store (Sinha 2003). As far as shopping behaviour of Indian consumers across
different retail outlets, traditional outlets are preferred mainly because we have a large chunk
of middle class consumers who are very good bargainers while modern outlets are preferred
because they link entertainment with shopping and now-a-days it’s a customer delight to go
out for shopping and entertainment together (Sinha 2003).There are number of studies which
are done taking many parameters which affect the choice of retail store these are product
quality, goodwill ,lower prices, better shopping experience, availability of product, play area
,parking facility, whereas on the other hand proximity to residence, easy availability of credit,
,convenient timings, possibility of bargain, etc are a few paybacks of traditional outlets as
mentioned by a study done by Joseph and Soundararajan 2009. It is a complete myth that big
retail outlets are high-priced; there is empirical evidence to this fact and they the level of
savings depends on the type of retail format – it is more for discounters and supermarkets, and
less for hypermarkets. The main advantage of this transition of modernisation of retail stores is
the consumer as they get the best and wide choice, discounted prices and they are the focus
point of strategies formulated by the strategist as regard their retention plans. All the policies
are formulated keeping many factors into considerations like their likes and dislikes dynamics,
their buying behaviour psychology, what factor motivate them to buy. Domestic players are
selectively growing in India postponing aggressive expansion plans, adding stores judiciously
and shifting gears to tier 2 and 3 cities. Aditya Birla Group plans to open about 100
supermarkets and 10 hypermarkets by mid- 2011. Spencer's is expected to add up to 25
hypermarkets through 2012. Reliance Retail, India's organized retail leader, plans to open 150
Reliance Trends apparel and accessories stores in the next year.
Large Indian players like Reliance, Ambanis, K Rahejas, Bharti AirTel, ITC and many others are
making significant investments in this sector leading to emergence of big retailers who can
bargain with suppliers to reap economies of scale. Rise in retail modernize India and facilitate
rapid economic growth. This would help in efficient delivery of goods and value-added services

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to the consumer making a higher contribution to the GDP.
The Indian Retail growth can be attributed to the several factors including -
 Demography Dynamics: Approximately 60 per cent of Indian population below 30
years of age.
 Double Incomes: Increasing instances of Double Incomes in most families coupled
with the rise in spending power.
 Plastic Revolution: Increasing use of credit cards for categories relating to Apparel,
Consumer Durable Goods, Food and Grocery etc.
 Urbanisation: increased urbanisation has led to higher customer density areas
thus enabling retailers to use lesser number of stores to target the same number
of customers. Aggregation of demand that occurs due to urbanization helps a
retailer in reaping the economies of scale.
 Covering distances has become easier: with increased automobile penetration and
an overall improvement in the transportation infrastructure, covering distances has
become easier than before. Now a customer can travel miles to reach a particular
shop, if he or she sees value in shopping from a particular location.
Kaur and Singh (2007) revealed an interesting fact that was revealed that children are
becoming key decision -makers in household purchases. There is a gap in these studies as they
haven’t corroborated on the implication of the existing policy on consumers.
2.8 Policy Framework of Retail FDI in India
India had to open retail sector being a signatory to World Trade Organisation’s General
Agreement on Trade in Services, which include wholesale and retailing services. There were
many apprehensions towards opening of this sector .Various reasons were there for this like
fear of job losses, procurement from international market, competition and loss of
entrepreneurial opportunities. However, the government in a series of moves has opened up
the retail sector slowly to foreign sector. In 1997, FDI in cash and carry (wholesale) with 100
percent ownership was allowed under the Government approval route. It was brought under
the automatic route in 2006. 51 percent investment in a single brand retail outlet was also
permitted in 2006. FDI in Multi-Brand retailing is prohibited in India. The Government of India
has reviewed the extant policy on FDI and decided that FDI, up to 100%, under the government
approval route, would be permitted in Single- Brand Product. Accordingly, the following
amendment is made in 'Circular 1 of 2012- Consolidated FDI Policy', dated 10.04.2012, issued
by the Department of Industrial Policy & Promotion (DIPP).
2.8.1 Single Brand product retail trading
(1) Foreign Investment in Single Brand product retail trading is aimed at attracting investments
in production and marketing, improving the availability of such goods for the consumer,
encouraging increased sourcing of goods from India, and enhancing competitiveness of Indian

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enterprises through access to global designs, technologies and management practices.
(2) FDI in Single Brand product retail trading would be subject to the following conditions:
(a)Products to be sold should be of a 'Single Brand' only.
(b)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.
(c)'Single Brand' product-retail trading would cover only products which are branded during
manufacturing.
(d)The foreign investor should be the owner of the brand.
(e)In respect of proposals involving FDI beyond 51%, mandatory sourcing of at least 30% of the
value of products sold would have to be done from Indian 'small industries/ village and cottage
industries, artisans and craftsmen'. 'Small industries' would be defined as Retail Trading, subject
to specified conditions, as industries which have a total investment in plant & machinery not
exceeding US $ 1.00 million. This valuation refers to the value at the time of installation,
without providing for depreciation. Further, if at any point in time, this valuation is exceeded,
the industry shall not qualify as a 'small industry' for this purpose. The compliance of this
condition will be ensured through self-certification by the company, to be subsequently
checked, by statutory auditors, from the duly certified accounts, which the company will be
required to maintain.
(3)Application seeking permission of the Government for FDI in retail trade of 'Single Brand'
products would be made to the Secretariat for Industrial Assistance (SIA) in the Department of
Industrial Policy & Promotion. The application would specifically indicate the product/ product
categories which are proposed to be sold under a 'Single Brand'. Any addition to the product/
product categories to be sold under 'Single Brand' would require a fresh approval of the
Government.
(4)Applications would be processed in the Department of Industrial Policy & Promotion, to
determine whether the products proposed to be sold satisfy the notified guidelines, before
being considered by the Foreign Investment Promotion Board (FIPB) for Government approval.
Retailers in India
Retailer Stores
Pantaloon Retail Big bazaar, Food bazaar , Hometown, furniture bazaar,
collection-I,e-zone,
shoefactory,Depot,Futurbazaar.com,Bowling co.
K Raheja Group Shopper's Stop, Crossword,Homes stop, Mothercare.
Tata Group Westside,Star India Bazaar,Croma,Titan, Tanishq.
RPG Group Foodworld, Spencer's, Music World

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Landmark Lifestyle, Home Centre, Landmark International,Max Retail,
Funcity.
Piramal Group TruMart, Priamyd Megastore
Reliance RelianceHyper-mart
Aditya Birla Group Louis Phillipe, Van Heusen, Allen Solly, Peter England,
Trouser town
2.8.2 Present entrance routes for the Foreign Investors
In view of the restrictive entrance policies for the foreign investors in the retail sector, they
followed one or more of the following routes to expand their business in India:
A. Franchise B. Cash and Carry C. Strategic Licensing D. Manufacturing and
Agreement Wholesale Agreement Agreement Wholly-owned
Subsidiary
It is an easiesttrack to 100% FDI is allowed in The foreign brands such
Come in the Indian wholesale trading which as Nike, Reebok,
market
. In franchising involves Building of a
Some foreign brands give
Adidas, etc. that have
and commission agents’ large distribution wholly-owned
exclusive licences andservices, FDI (unless infrastructure to assist subsidiaries in
distribution Rights tootherwise
prohibited) is local
manufacturers
. The
manufacturin
g are
Indian companies.Allowed with the wholesaler deals only with treated as Indian
Through these rights,
approval of the Reserve Smaller retailers and not companies and are,
Indian companies can
Bank of India (RBI) Consumers. Metro AG of Therefore, allowed to doeither sell itthrough their
Under the Foreign Germany was the first retail.These companiesown Stores, or enter into
Exchange Management significantglobal player to have been authorised to
shop-in-shop arrangements
Act. This is a most usual enter India through this sell products to Indian
or distributethe brands to
Mode for entrance of
route
. consumersfranchisees
. Mango, the
Quick food bondage By franchising,internal
Spanish apparel brand has
Opposit
e a world. Apart distributors, existent
entere
d India through this
from quick food bondage Indian retailers, own
route with an agreement
identical to Pizza Hut, outlets, etc. For instance,
with Piramyd, Mumbai,
Players such as Lacoste, Nike entered through an
SPAR
entere
d into a
Mango, Nike as good as exclusive licensing
similar agreement with
Marks as good as agreement with Sierra
Radhakrishna Foodlands
Spencer, have entered Enterprises but now has
Pvt. LtdIndian marketplace by a wholly owned
this route. subsidiary, Nike India
PrivateLimited.
2.8.3 Present Position of FDI in India
The table 1 in annexure shows total amount of FDI inflows from April 2000 to January 2012 to
204.07 crores/44.45 US Dollars, with a % of 0.03with respect to total FDI inflows. The Indian

18 | P a g e
government is very much aware that people of India are becoming brand-conscious, there is a
large market, growing consumerism, and increasing disposable income .All these factors can
give a big push to this sector and can help in achieving sustainable high economic growth. It
also wants to develop India as an outsourcing hub for foreign retailers. Supporters of FDI in
retail have argued that it will lead to better supply chain management and reduce inflation in
the economy
2.9 HISTORY AND CURRENT AFFAIRS OF FDI IN RETAIL SECTOR :
 The international business literature has traditionally drawn upon internalization
theory (Buckley & Mark Casson, 1976) and transaction costs economics (TCE) (Williamson &
Oliver E., 1985; Yiu & Shige Makino, 2002) as primary explanations of foreign direct investment
(FDI) levels. Several authors (Hoskisson, Robert E., Lorraine Eden, Chung Ming
Lau, & Mike Wright, 2000) have argued that international business research should involve
multiple theoretical perspectives and emphasized the value of considering the influence of
institutions on FDI. Direct investment in a foreign market is a primary example of a business
activity influenced by institutional factors of home countries as well as those of host
countries.
 According to the IMF (International Monetary Fund) and OECD (Organization for
Economic Co-operation and Development) definitions, direct investment reflects the aim of
obtaining a lasting interest by a resident entity of one economy (direct investor) in an
enterprise that is resident in another economy (the direct investment enterprise).
 The policy of reforms followed by Government of India in the post 1991 period
recognizes the important role of foreign capital in the industrial and economic development of
the country. Foreign capital inflow is encouraged not only as source of financial capital but also
as a tool of knowledge and technology transfer.
 The Central Government took several initiatives and measures during this period to
encourage foreign investment inflows, particularly the flow of Foreign Direct Investment
(FDI) into our country. Major thrust areas include infrastructure development, particularly
energy, power, telecom and township development. FDI in most of the sectors/activities
including manufacturing sectors are under the automatic route and require only notifying the
Reserve Bank of India. Initiatives have also been taken to make procedures related to
transfer of shares and repatriation more simple. The policy and procedures for induction of
foreign technology have also been progressively simplified. To create a more conductive
investment climate, the procedures governing approvals/clearance are continuously

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reviewed.
 It is to be noted that there is prevalent widespread opposition, especially by the left
parties towards FDI in retail trade. May be in the early 1990s employing safeguards to protect
domestic retailers was the need of the day. Almost more than one and a half decades down the
line there is a need for Foreign Direct Investment in retail trade. It is a flawed argument that the
Wal-Marts, Tescos and Asdas will lead to the winding up of the small scale domestic retailers.
Instead it is going to provide a stiff competition to the Pantaloons and the Westsides.
 For Indian government retailing first began in 1980’s, with textile sector companies
like Bombay Dyeing, Raymond’s, Grasim, etc. being followed by companies like Titan, Food
World, Planet M, Crossword and Fountainhead, Shopper’s Stop, Westside, Giant and Big Bazaar,
Tanishq, etc. India’s retail industry is approximately worth US$ 411.28 billion whose further
growth is expected to reach US$ 804.06 billion in 2015.Since 1995 India took active
participation in retailing by adopting the norms and guidelines of WTO General Agreements on
Trade in Services.
 "In the next few years, we'll see whether the states that adopted FDI are doing good
or bad. If we see these states are doing well, the hesitant states will open up and if doing bad
then it would be a lesson for everyone," As of now only ten states in the country have endorsed
the Centre's decision to allow FDI in multi-brand retail (Basu, 2012).
 The retail industry in India is of late often being hailed as one of the sunrise sectors
in the economy. AT Kearney, the well-known international management consultancy made
India the cause of a good deal of excitement and the cynosure of many foreign eyes. With a
contribution of 14% to the national GDP and employing 7% of the total workforce (only
agriculture employs more) in the country, the retail industry is definitely one of the pillars of
the Indian economy.
 The retail industry is divided into organized and unorganized sectors. Organized
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, and also the privately owned large retail businesses. Unorganized retailing, on the
other hand, refers to the traditional formats of low-cost retailing, for example, the local kirana
shops, owner manned general stores, paan/beedi shops, convenience stores, hand cart and
pavement vendors, etc.
 Given this backdrop, the recent clamor about opening up the retail sector to Foreign

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Direct Investment (FDI) becomes a very insightful issue, with influence to support both sides of
the debate. It is widely acknowledged that FDI can have some positive results on the economy,
triggering a series of reactions that in the long run can lead to greater competence and
development of living values, apart from greater integration into the global economy.
Supporters of FDI in retail trade talk of how ultimately the consumer is benefited by both price
reductions and improved selection, brought about by the technology and know-how of foreign
players in the market. This in turn can lead to greater output and domestic consumption.
 However, the most important factor against FDI driven “modern retailing” is that it is
labor displacing to the extent that it can only expand by destroying the traditional retail sector.
Until such time we are in a position to create jobs on a large scale in manufacturing, it would
make distinguished sense that any policy that results in the elimination of jobs in the
unorganized retail sector should be kept on hold.
 Majority of the Indian consumers are of the view that the opening of the FDI in retail
will result in substantial growth of sales of their products. Majority of Indian consumers are of
the view that the decision of opening of the FDI in retail would affect positively in the form of
new orders/contracts generated. Large numbers of Indian retail consumers’ think that the
decision regarding FDI would have a positive impact on their employment whereas some Indian
consumers expect no change in the employment scenario (CII, 2011).
 In December 2011, WTO removed 51% cap on single brand retail and allowed100%
participation of foreign investors. An ASSOCHAM report states that India’s overall retail sector
is expected to rise to US$ 833 billion in 2013 to 1.3 trillion by 2018 with CAGR of 10%. WTO said
that –
o Retail sales outlets may be set up in those states which agreed in future to allow FDI in
MBRT under the policy. The establishment will be in compliance of applicable state laws
and regulations. It may be set up only in cities with a population of more than 10 lakhs
as per 2011 census and may also cover an area of 10 kms around municipal areas an
agglomeration limit of such cities.
o Retail locations will be restricted to conforming areas as per the master/zonal plans of
the concerned cities and provisions will be made for requisite facilities such as transport
connectivity and parking. Instates/union territories not having population of more than
10 lakhs as per 2011 census, retail outlet may be set up in cities of their choice as per
zonal plans.

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 At least 50% of total FDI brought in shall be invested in backend infrastructure within
3 years of the induction of FDI, where backend infrastructure would include investment made
towards processing, manufacturing, distribution, design improvement, quality control, etc.
A high level group under the Ministry of Consumer Affairs may be constituted to examine
various issues concerning internal trade and make recommendations for internal trade reforms.
As soon as the news for multi brand FDI came, global retail giant WAL-MART made all its
preparations to make a grand entry into the highly lustrous Indian market. However, the entry
of WAL-MART has faced a disputed drama in shape of lobbying made for US$ 25 million (about
Rs. 125 cr.) to Indian government since 2008. Also in the aviation sector King Fisher Airlines
(KFA) has allowed 3% capital on foreign investment in their company.
 India tops the AT Kearney's annual Global Retail Development Index (GRDI) for the
third consecutive year, maintaining its position as the most attractive market for retail
investment.
 The Indian retail market, which is the fifth largest retail destination globally,
according to industry estimates is estimated to grow from the US$ 330 billion in 2007 to US$
427 billion by 2010 and US$ 637 billion by 2015.
 Subsequently, organized retail is likely to increase its share in the total retail market
to 22 per cent by 2010.
 India's vast middle class with its expanding purchasing power and its almost
untapped retail industry are key attractions for global retail giants wanting to enter newer
markets.
 With international brands like Tommy Hilfiger, Esprit and Puma (that have entered
the country) growing well over 100 per cent, many others are also planning to foray into the
Indian retail market.
 The Government allows 100 per cent foreign direct investment (FDI) in cash and
carry through the automatic route and 51 per cent in single brand. Besides, the franchise route
is available for big operators.
2.10 Rationale Behind Allowing FDI in Retail Sector
FDI can be a powerful catalyst to spur competition in the retail industry, due to the
current scenario of low competition and poor productivity. Permitting foreign investment in
food-based retailing is likely to ensure adequate flow of capital into the country, & its
productive use in a manner likely to promote the welfare of all sections of society, particularly
farmers and consumers. It would also help bring about improvements in farmers‟ income &
agricultural growth and assist in lowering consumer prices inflation.10 Apart from this, by
allowing FDI in retail trade, India will significantly flourish in terms of quality standards and
consumer expectations, since the inflow of FDI in retail sector is bound to pull up the quality

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standards and cost-competitiveness of Indian producers in all the segments. It is therefore
obvious that we should not only permit but encourage FDI in retail trade.
Indian Council of Research in International Economic Relations (ICRIER) has projected
the worth of Indian retail sector to reach $496 billion by 2011-12 and ICRIER has also come to
the conclusion that investment of „big‟ money (large corporate and FDI) in the retail sector
would in the long run not harm interests of small traditional retailers.
2.11 Challenges and Attractions for Global Retailers
There are linkages and relation between important parameters like between economic
development, rise in per capita income, growing consumerism, proliferation of branded
products, and retail modernisation. With high economic growth, there is rise in per capita
income which in turn changes the consumption pattern. With the persistence of globalisation
and liberalisation various international brands enter the domestic market. There is
amplification of awareness level of Consumers as they lean to experiment with different
international brands. The proliferation of brands leads to increase in retail space. Thus, retail
modernisation is an essential part of the development process. Despite the present FDI
restrictions, a number of studies such as A.T. Kearney (2011), McKinsey & Company (2007) and
A C Nielsen (2008) predict that modern retail will continue to witness double-digit growth in
India. The Indian market is unsaturated and A.T. Kearney 2011 has pointed out that it is the
right time for global retailers to enter the Indian market.
Challenges:
History has witnessed that the concern of allowing unrestrained FDI flows in the retail sector
has never been free from controversies and simultaneously has been an issue for unsuccessful
deliberation ever since the advent of FDI in India. Where on one hand there has been a strong
outcry for the unrestricted flow of FDI in the retail trading by an overwhelming number of both
domestic as well as foreign corporate retail giants; to the contrary, the critics of unrestrained
FDI have always fiercely retorted by highlighting the adverse impact, the FDI in the retail trading
will have on the unorganized retail trade, which is the source of employment to an enormous
amount of the population of India.
The antagonists of FDI in retail sector oppose the same on various grounds, like,
 the entry of large global retailers such as Wal-Mart would kill local shops and millions of
jobs, since the unorganized retail sector employs an enormous percentage of Indian
population after the agriculture sector;
 the global retailers would conspire and exercise monopolistic power to raise prices and
monopolistic (big buying) power to reduce the prices received by the suppliers;
 it would lead to asymmetrical growth in cities, causing discontent and social tension
elsewhere. Hence, both the consumers and the suppliers would lose, while the profit
margins of such retail chains would go up.

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Many trading associations, political parties and industrial associations have argued against FDI
in retailing due to various reasons.
 The existing retailing scenario is characterized by the presence of a large number of
fragmented family owned businesses, who would not be able to survive the
competition from global players.
The examples of south East Asian countries show that after allowing FDI, the
domestic retailers were marginalised and this led to unemployment.
 FDI in retailing can upset the import balance, as large international retailers may prefer
to source majority of their products globally rather than investing in local products.
 The global retailers might resort to predatory pricing. Due to their financial clout, they
often sell below cost in the new markets. Once the domestic players are wiped out of
the market foreign players enjoy a monopoly position which allows them to increase
prices and earn profits.
Indian retailers have argued that since lending rates are much higher in India, Indian retailers,
especially small retailers, are at a disadvantageous position compared to foreign retailers who
have access to International funds at lower interest rates. High cost of borrowing forces the
domestic players to charge higher prices for the products. Another argument against FDI is that
FDI in retail trade would not attr act large inflows of foreign investment since very little
investment is required to conduct retail business. Goods are bought on credit and sales are
made on cash basis. Hence, the working capital requirement is negligible. On the contrary; after
making initial investment on basic infrastructure, the multinational retailers may remit the
higher amount of profits earned in India to their own country.
Attractions:
Retailing is being perceived as a beginner and as an attractive commercial business for
organized business i.e. the pure retailer is starting to emerge now. Indian organized retail
industry is one of the sunrise sectors with huge growth potential. Total retail market in India
stood at USD 350 billion in 2007-08 and is estimated to attain USD 573 billion by 2012-13.
Organised retail industry accounts for only 5.5% of total retail industry and is expected to reach
10% by 2012. AT Kearney, the wellknown international management consultancy, recently
identified India as the second most attractive retail destination‘ globally from among thirty
emergent markets. With a contribution of an overwhelming 14% to the national GDP and
employing 7% of the total workforce (only agriculture employs more) in the country, the retail
industry is definitely one of the pillars of the Indian economy. Foreign companies‘ attraction to
India is the billion-plus population. Also, there are huge employment opportunities in retail
sector in India. India‘s retail industry is the second largest sector, after agriculture, which
provides employment.
According to Associated Chambers of Commerce and Industry of India (ASSOCHAM), the retail
sector will create 50,000 jobs in the next few years. As per the US Census Bureau, the young
population in India is likely to constitute 53 per cent of the total population by 2020 and 46.5

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per cent of the population by 2050 — much higher than countries like the US, the UK, Germany,
China etc. India‘s demographic scenario is likely to change favourably, and therefore, will most
certainly drive retail sales growth, especially in the organised retail segment. Even
though organised retailer shave a far lesser reach in India than in other developed countries,
the first-mover advantage of some retail players will contribute to the sector‘s growth.
India in such a scenario presents some major attractions to foreign retailers.
 There is a huge, industry with no large players. Some Indian large players have entered
just recently like Reliance, Trent. Moreover, India can support significant players
averaging $1 bn. in Grocery and $0.3- 0.5 bn. in apparel within next ten years. The
transition will open multiple opportunities for companies and investors.
 In addition to these, improved living standards and continuing economic growth,
friendly business environment, growing spending power and increasing number of
conscious customers aspiring to own quality and branded products in India are also
attracting to global retailers to enter in Indian market.
 Furthermore, during 2010-12, around 55 million square feet (sq.ft.) of retail space will
be ready in Mumbai, National Capital Region (NCR), Bangalore, Kolkata, Chennai,
Hyderabad and Pune. Besides, Between 2010 and 2012, the organised retail real estate
stock will grow from the existing 41 million sq.ft. to 95 million sq.ft. (Knight Frank India
2010). Thus, there is certainly a lucrative opportunity for foreign players to enter the
Indian terrain.
 Growth rates of the industry both in the past and those expected for the next decade
coupled with the changing consumer trends such as increased use of credit cards, brand
consciousness, and the growth of population under the age of 35 are factors that
encourage a foreign player to establish outlets in India.
India thus continues to be among the most attractive countries for global retailers.
2.12 SWOT Analysis of FDI in Retail
In any strategic planning process, two factors namely internal and external Environmental
factors play an important role. A thorough scan of these factors is important for further
planning. The environmental factors, which are internal to the retail sector, can be classified as
strengths and weakness. The factors, which are external to the sector, can be classified as
opportunities and threats. The strategic analysis of environmental factors is referred as SWOT
analysis. This analysis provides the information that is helpful in understanding the retail sector
resource mobilization and capabilities to the competitive environment in which it operates.
Finally, this will be an instrumental in formulation of strategies for future growth and
development of the sector.
1. Strengths:

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 Major contribution to GDP: the retail sector in India is hovering around 33-35% of GDP
as compared to around 20% in USA.
 High Growth Rate: the retail sector in India enjoys an extremely high growth rate of
approximately 46%.
 High Potential: since the organised portion of retail sector is only 2-3%, thereby creating
lot of potential for future players.
 Boost up competition: Welcoming the FDI in retail industry can prove advantageous for
India as it increase the competition in retail chain at domestic level. The competition
always demands the innovation and differentiation and the out result of these two is
the quality goods. As the competition increases, the competitor is compelled to serve
quality of goods at competitive at reasonable price.
 Benefits to farmers: In most cases, in the retailing business, the intermediaries have
dominated the interface between the manufacturers or producers and the consumers.
Hence the farmers and manufacturers lose their margins as the major share is eaten up
by the middle men. This issue can be resolved by FDI, as farmers might get contract
farming where they will supply to a retailer based upon demand and will get good cash
for that, they need not to search for buyers.
 Benefits to consumers: Consumer will get assortment of products at squat prices
compared to market rates, and will have more options to get international brands at
one place. because of competitive prices, and will improve the standard of living of the
consumers
 Generate Employment opportunities: The retail sector employs 7% of work force in
India, which is right now limited to unorganised sector only. Once the reforms get
implemented this percentage is likely to increase substantially. Bharti Walmart, a joint
venture between Bharti Enterprises and Wal-Mart Stores, will open a training centre at
Jalna in Maharashtra on a public private partnership basis, according to a press note
released on April 27, 2012. Bharti Walmart currently runs three such training centres
under the PPP model in Amritsar, Delhi and Bangalore, and three training centres at its
modern wholesale stores in Zirakpur, Jalandhar and Ludhiana. The domestic retail sector
is growing fast providing growth opportunities. However, the industry lacks the talent
pool with required skill sets to leverage this huge potential. Bharti Walmart training
centres aim to bridge this gap by imparting training in various aspects of retailing to
under-privileged youth making them employable in the retail sector
 Efficient Banking Services: Efficient and customized services of bank’s today, is a result
of effective competition which increases only after the foreign players were welcomed
in arena
 Large scale investments: It has also contributed to large scale investments in the real
estate sector with major national and global players investing in devolving the
infrastructure and construction of the retailing business.
 Increased Purchasing power: Large domestic market with an increasing middle class
and potential customers with purchasing power.
 Ranked second in Global Retail Development Index of 30 developing countries drawn up
by AT Kearney and hence considered as a potential sector.

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 The annual growth of departmental stores is estimated at 24% which will add to
substantial surge in the country’s overall economic development.
2. Weaknesses (limitation):
 Lack of Competitors: As Kearney‘s study on global retailing trends found that India is
least competitive as well as least saturated markets of the world.
 Highly Unorganised: The unorganised portion of retail sector is 97% as compared to US,
which is only 20%.
 Low Productivity: Mckinsey study claims retail productivity in India is very low as
compared to its international peers.
 Shortage of Talented Professionals: the retail trade business in India is not considered
as reputed profession and is mostly carried out by the family members (self-
employment and captive business). Such people are not academically and professionally
qualified.
 No ‘Industry’ status, hence creating financial issues for retailers: the retail sector in
India does not enjoy industry status in India, thereby making difficult for retailers to
raise funds for the expansion projects as it is easier to access the flow of funds with that
status.
 Lack of Infrastructure: Lack of infrastructure in the retailing chain has been one of the
major issues of concern which has led the process to an incompetent market
mechanism. For example, in spite of India being one of the largest producers of
vegetables and fruits, lack of proper count of cold storages has significantly affected the
selling of these perishable items. FDI might help India overcome such issues by
channelizing the resources in the right manner.
 Catering to high end customers: This will mainly cater to high-end consumers placed in
metros and will not deliver mass consumption goods for customers in villages and small
towns.
 Volume of sales is very low: The volume of sales in Indian retailing is low. India has
largest population in the world and a fast growing economy.
 Rising retail real estate rentals: The rapid development of retail sector is the sharp
improvement in the availability of retail space. But the current surge in property prices,
retail real estate rentals have escalated significantly, which may render a few retailing
business houses unavailable. Retail companies have to pay high rentals which are block
the profits.
 Small size outlets: Small size outlets are also one of the major weaknesses in the Indian
retailing. More than 96% of the outlets are lesser than 500 sq.ft and are also smaller
than those in the developed countries.
 Inadequate merchandise mix: Retail chains are not settled down as on date with proper
merchandise mix for the mall outlets. Retailing today is not about selling at the shop,
but also about researching and surveying the market, offering choice, competitive prices
and retailing consumers; hence there is a long road ahead.

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3. Opportunities (benefits):
 There will be more organization in the sector: Organized retail will need more workers.
According to findings of KPMG , in China, the employment in both retail and wholesale
trade increased from 4% in 1992 to about 7% in 2001, post reforms and innovative
competition in retail sector in that country.
 Healthy Competition will be boosted and there will be a check on the prices
(inflation):Retail giants such as Walmart, Carrefour, Tesco, Target and other global retail
companies already have operations in other countries for over 30 years. Until now, they
have not at all become monopolies rather they have managed to keep a check on the
food inflation through their healthy competitive practices.
 Create transparency in the system: the intermediaries operating as per mandi norms do
not have transparency in their pricing. According to some of the reports, an average
Indian farmer realises only one-third of the price, which the final consumer pays.
 Intermediaries and mandi system will be evicted, hence directly benefiting the
farmers and producers: the prices of commodities will automatically be checked. For
example, according to Business Standard, Walmart has introduced ―Direct Farm
Project‖ at Haider Nagar in Punjab, where 110 farmers have been connected with Bharti
Walmart for sourcing fresh vegetables directly
 Quality Control and Control over Leakage and Wastage: due to organisation of the
sector, 40% of the production does not reach the ultimate consumer. According to the
news in Times of India, 42% of the children below the age group of 5 are malnourished
and Prime Minister Dr.Manmohan Singh has termed it as ―national shame‖. Food often
gets rot in farm, in transit and in state-run warehouses. Cost conscious and highly
competitive retailers will try to avoid these wastages and losses and it will be their
endeavour to make quality products available at lowest prices, hence making food
available to weakest and poorest segment of Indian society.
 Heavy flow of capital will help in building up the infrastructure for the growing
population: India is already operating in budgetary deficit. Neither the government of
India nor domestic investors are capable of satisfying the growing needs (school,
hospitals, transport etc.) of the ever growing Indian population. Hence foreign capital
inflow will enable us to create a heavy capital base.
 There will be sustainable development and many other economic issues will be
focussed upon: Many Indian small shop owners employ workers, who are not under any
contract and also under aged workers giving rise to child-labour. It also boosts
corruption and black money.
 Improvement in quality standards: The inflow of FDI in retail sector is bound to pull up
the quality standards and cost-competitiveness of Indian producers in all the segments
and hence India will significantly flourish in terms of Consumer Expectations.
 Improving Distribution and Warehousing Technologies: The technical know-how from
global firms, such as warehousing technologies and distribution systems, will lend itself
to improving the supply chain in India, especially for agricultural produce.

28 | P a g e
 Attractive Market: Global retail giants take India as key market .It is rated fifth most
attractive retail market. Indian retail industry has come forth as one of the most
dynamic and fast paced industry with several players entering the market. The
organised retail sector is expected to grow stronger than GDP growth in the next five
years driven by changing lifestyles, increase in income, purchasing power and
favourable demographic outline. Food and apparel retailing are key drivers of growth.
 There will be more organization in the sector. There are numerous empirical evidences
across globe relating to massive increase in the employment opportunities as the sector
grows after the reforms were initiated in countries like US and China. India is likely to
experience the same situation in this liberalised and open regime of FDI in retail sector
in India. It can become one of the largest industries in terms of numbers of employees
and establishments. Once the concept picks up, due to demonstration effect, there will
be an overall up-gradation of domestic retail trade.
 Rural retailing is still unexploited Indian market and could act as an opportunity for the
giants to venture into the retail market.
 Promotes Healthy competition check on inflation: Retail giants such as Wal-Mart,
Carrefour, Tesco, Target, Metro, Coop and 350 other global retail companies are already
having operations in many countries for over 30 years. Contrary to a view prevailing
across the globe that these MNCs will become a source of monopolies, rather they have
managed to keep a check on the food inflation through their healthy competitive
practices and giving variety and reasonably priced products to the customers.
 More transparency compared to traditional Mandi systems: The intermediaries
operating in the Indian system are not adhering to transparency in the system relating
to their price strategies. According to some of the reports, an average Indian farmer
realise only one-third of the price, which a final consumer pays, but there will be more
rationality and transparency in the pricing policies of theses MNCs.
 Eviction of Intermediaries and directly benefitting the farmers and producers at large:
The prices of the commodities will be automatically checked. For example, according to
the Business Standard, Walmart has introduced "Direct Farm Project" at Haider Nagar
near Malerkotla in Punjab, where 110 farmers have been connected with Bharti
Walmart for sourcing fresh vegetables directly. These strategies will benefit
unswervingly the farmers and producers at large in respect of realisation of true prices
evicting the intermediaries.
 Quality Control and control over leakage and wastage: There are number of issues
relating to malpractices and inefficiencies of the traditional system by which children
are not able to get the proper food (malnourished), there are losses, food gets rotten in
the transit etc. To correct this system and make available cheap product with good
quality is an important step in their (MNC) endeavour, which is possible by open FDI as
Cost-cautious and highly competitive retailers will try to avoid these wastage and looses
and it will be their endeavour to make the products available at lowest prices, hence
making food available to the weakest and poorest segment of Indian society which is
the need of today.

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 Heavy flow of foreign capital will help in building up the infrastructure for the growing
population: India is a capital deficit country with big challenges of growing population,
developmental needs and with its present budgetary deficit cannot satisfy the growing
needs (schools, hospitals, transport, and infrastructure) of the ever growing Indian
Population. Hence foreign capital inflow will bridge this gap and will enable to create a
heavy and good capital base.
 Sustainable development and regulated system: There will be sustainable development
and many other vital economic issues will be focused upon like child labour, overtime,
not taking of their welfare. These issues will not have any room in this transparent open
system as contract between the employer and worker will evict corruption from grass
root level and will control black money.

4. Threats:
 Current Independent Stores will be compelled to close: This will lead to massive job
loss as most of the operations in big stores like Walmart are highly automated requiring
less work force.
 Big players can knock-out competition: they can afford to lower prices in initial stages,
become monopoly and then raise prise later.
 India does not need foreign retailers: As they can satisfy the whole domestic demand.
Remember East India Company it entered India as trader and then took over politically.
The government hasn‘t able to build consensus.
 Massive Job Losses: Indian economy is a developing economy and the level of
development is not as desired. Due to paucity of infrastructure resources in Indian
economy, there is a direct threat from big giants like Wal-Mart, which will compel
current independent stores to close which will directly lead to massive job losses, as
their level is very high, fully automated which need very few people to operate. This will
lead to massive job losses; also since the Sector is unable to employ retail staff on
contract basis, this becomes a biggest threat for the Indian economy.
 Sustaining of loss strategy: Another challenge and threat Indian companies perceive is
the sustaining of the loss by initially lowering the price to penetrate the market and this
is a very usual policy adopted by these big players. They can afford to lower the prices in
initial stages in order to knock-out the competition and become a monopoly and later
on raise the prices like was done by Pepsi and Coke.
 Inequitable Competition: It would lead to very inequitable competition and eventually
result in large-scale exit of domestic retailers, especially the small family managed
outlets, leading to large scale displacement of persons employed in the retail sector.
Further, as the manufacturing sector has not been growing fast enough, the persons
displaced from the retail sector would not be absorbed there.
 Repatriation of profits outside India: India doesn't need foreign retailers, since home
grown companies and traditional markets may be able to do the job. Just like in BPO
industry, work will be done by Indians, profits will go to foreigners hence is not viable

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solution for Indians. We cannot ever forget the example of East India Company. It
entered India as a trader and then took over politically.
 Persistence of Political inconclusiveness of issues: There is still no consensus made by
government .In a politically and culturally diverse country like India, within no time
every economic issues turns out to become a political issue and there is a persistence of
inconclusiveness on the issue.
 Offensive public opinion: There are strong apprehensive comments and action seen by
the proliferation of these stores. A Wall Street Journal article reports that in Uttar
Pradesh, Uma Bharti, a senior leader of the opposition Bharatiya Janata Party (BJP),
threatened to "set fire to the first Wal-Mart store whenever it opens;" with her
colleague Sushma Swaraj busy tweeting up a storm of misinformation about how Wal-
Mart allegedly ruined the U.S. economy. With these offensive comments to develop a
consensus is a most challenging job by government of India.
 Immature, undersize and nascent stage of India retail sector: Another concern of
Government of India is that the Indian retail sector, particularly organized retail, is still
immature, undersized and is in a nascent stage and that, therefore, it is important that
the domestic retail sector is allowed to nurture and strengthen first, before fully
opening this sector to foreign investors.
 Monopolistic tendencies and unnatural price trends: Another concern is that the global
retailers would conspire and exercise monopolistic power to raise prices and
monopolistic (big buying) power to reduce the prices received by the suppliers.
 Asymmetric growth of cities: It would lead to asymmetrical growth in cities, causing
discontent and social tension elsewhere. Hence, both the consumers and the suppliers
would lose, while the profit margins of such retail chains would go up.
 Labour rules and regulation are also not followed in the organized retails.
 Lack of uniform tax system for organized retailing is also one of the obstacles.
 Inadequate infrastructure is likely to be an obstacle in the growth of organized retails.
In view of the above analysis, if we try to balance opportunities and prospects attached to the
given economic reforms, it will definitely cause good to Indian economy and consequently to
public at large, if once implemented. Thus the period for which we delay these reforms will be
loss for government only, since majority of the public is in favour of reforms. All the above
mentioned drawbacks are mostly Politically created. With the implementation of this policy all
stakeholders will benefit whether it is consumer through quality products at low price, farmers
through more transparency in trading or Indian corporates with 49% profit share remaining
with Indian companies only.
The amendments made in ‘Circular 1 of 2012- Consolidated FDI Policy', dated 10.04.2012,
issued by the Department of Industrial Policy & Promotion (DIPP) will have a positive impact on
the retail industry and the country by attracting more foreign investments. With big retail giants
coming to India, it will surely improve our back-end storage and procurement process. Once

31 | P a g e
these multi-chain retailers establish themselves, they will create infrastructure facilities, which
will also propel the existing infrastructure. This has been evident on January 11 & 12, 2012,
when the notification increasing FDI limit in single-brand retail from 51% to 100%, was
announced. FDI in multi-brand retail' should also be given a green signal as soon as possible.
Keeping in view the above benefits (or opportunities mentioned above), it is very reasonable to
say that the period for which we delay these reforms will be a loss for the Government only,
since majority of the public is in favor of this reform. The farmers will benefit from FDI as they
will be able to get better prices for their produce. The elimination of the intermediate channels
in the procurement process will lead to reduction of prices for consumers respectively.
The regulation in the FDI Bill that 30% of the total procurement has to come from small and
medium enterprises will benefit the domestic businesses. Of course a policy is needed to
protect the small and medium market channels from Chinese invasion. The whole economy will
be benefitted including government and people at large with the reform process. Retailers
venturing the Indian market must ensure that they have considered the opportunities and the
challenges to maximize their returns. Retailers will need to bank on the local knowledge
brought in by their partners, employees, service providers to reduce the lead time required by
them to establish operations and get a firm place in the Indian market. There is a need for a
symbiosis approach for the welfare of the public at large.

32 | P a g e
3. RESEARCH METHODOLOGY
3.1 INTRODUCTION TO RESEARCH METHODOLOGY
(Source - webopedia.com) & (businessdictornary.com)
Research is defined as human activity based on intellectual application in the investigation of
matter. The primary aim for applied research is discovering, interpreting, and the development
of methods and systems for the advancement of human knowledge on a wide variety of
scientific matters of our world and the universe. Research can use the scientific method, but
need not do so. The term research is also used to describe an entire collection of information
about a particular subject.
3.2 QUALITATIVE AND QUANTITATIVE RESEARCH AND DATA
GATHERING
The design of any study begins with the selection of a topic and a research methodology.
These initial decisions reflect assumptions about the social world, how science should be
conducted, and what constitutes legitimate problems, solutions, and criteria of "proof."
Different approaches to research encompass both theory and method. Two general approaches
are widely recognized: quantitative research and qualitative research.
Quantitative research is an inquiry into an identified problem, based on testing a theory,
measured with numbers, and analyzed using statistical techniques. The goal of quantitative
methods is to determine whether the predictive generalizations of a theory hold true.
By contrast, a study based upon a Qualitative process of inquiry has the goal of understanding a
social or human problem from multiple perspectives. Qualitative research is conducted in a
natural setting and involves a process of building a complex and holistic picture of the
phenomenon of interest.
To accomplish research objectives both primary and secondary data is collected.

33 | P a g e
3.3 DATA SOURCES
Primary Data
Primary data is the specific information collected by the person who is doing the research.
Primary data is accumulated by the researcher particularly to meet up the research objective of
the subsisting project. Primary data is more accommodating as it shows latest information.
Primary data takes a lot of time and the unit cost of such data is relatively high.
Secondary Data
Secondary data is the data that have been already collected by and readily available from other
sources. Such data are cheaper and more quickly obtainable than the primary data and also
may be available when primary data cannot be obtained at all. Secondary data has been used
because gathering data from websites and books is much easier than collecting it firsthand. This
was also a requirement due to the paucity of time.
The statistical tools used for data crunching are:
 Forecasting
Forecasting is the process of making statements about events whose actual outcomes
(typically) have not yet been observed. A commonplace example might be estimation of the
expected value for some variable of interest at some specified future date. For e.g. forecast of
government income, imports etc.
 Trend Analysis
A technique that relies primarily on historical time series data to predict the future. The analysis
involves searching for a right trend equation that will suitably describe trend of the data series.
For e.g. consumption of LPG, furnace oil etc.
 Factor Analysis Test
Factor analysis is a statistical method used to describe variability among observed variables in
terms of a potentially lower number of unobserved variables called factors. In other words, it is
possible, for example, that variations in three or four observed variables mainly reflect the
variations in a single unobserved variable, or in a reduced number of unobserved variables. The
main applications of factor analytic techniques are: (1) to reduce the number of variables and
(2) to
detect structure in the relationships between variables, that is to classify variables.
 Line Diagram
It is a ladder diagram because the diagram appears as individual lines or "rungs" connected
between two vertical lines.

34 | P a g e
 Pie Chart
A diagram which is used when it is desired to emphasize the proportions of a set of data when
data items are grouped into classes according to the value of some variable.
 Bar Diagram
A diagram for showing the frequencies of a variable that is categorical or discrete. The lengths
of the bars are proportional to the frequencies. The widths of the bars should be equal.

35 | P a g e
4. Problem Case
The Challenges andOpportunities inthe ForeignDirect Investmentin
Multi BrandRetail Trade witha comparative Analysis betweenIndiaand
China.
4.1 Why China? (Source – Index – 14)
Similarities and Differences between India’s and China’s Economic structure- the reason for
the analysis
During the past two to three decades, China and India have attained extraordinary levels of
economic progress by any standard. During 1980-90, China's and India's GDP grew at an
average rate of 10.3 per cent and 5.7 per cent per year, respectively. During 2005-07, the
average growth rates were even higher at 11.7 per cent for China and 9.6 per cent for India
(World Bank, 2009). Although India's GDP growth has been lower than China, it is still
remarkable as compared to its so-called 'Hindu growth rate' of 3.6 per cent per year between
1951-52 and 1980-81. Indeed it has observed, China and India are the only countries in the
world which have been able to sustain their rapid growth over two and a half decades since
1980, regardless of occasional fluctuations.
As indicated earlier, it is widely believed that the spectacular economic performance
of China and India is a result, largely, of their market-oriented reforms that were geared
towards integration into the global economy. Apparently, the integration is characterized by
some common dimensions.
For example, both countries have traversed the path to openness and liberalization quite
slowly, unlike most developing countries. This strategy is aptly described for China in terms of
“crossing the river while feeling the rocks” and in terms of “gradualism” for India. More
importantly, GDP grew sharply in both countries as a result of their transition towards market
economy.
4.2 Comparitive Analysis (Source – Index – 15 )
China took over 12years to liberalise its FDI regime and in stages with reversals as well. It first
allowed FDI in retail in 1992 at 26%. As soon as retail was opened to FDI in the late 1990s global
retailers like Tesco, Wal-Mart, Metro and Carrefour were quick to enter. After 10years the cap
was raised to 49%when local chains had sufficiently entrenched themselves. 100% FDI in retail
was permitted only in 2004, after the infant retailing industry had acquired some muscle. It
even revoked some previously granted approvals, to reduce the foreign retailers’ footprint.

36 | P a g e
Given this timeline, the Chinese retail environment is 20years ahead of us. Looking at their
market today can give us a rough idea of how FDI in MBRT in India might pan out in the medium
term.
Initially, China also allowed foreign retailers to open only in select metropolises, such as Beijing,
Shanghai and Shenzhen, and moreover, only in certain districts in those cities. In Beijing and
Shanghai, foreign retailers like Wal-Mart were only allowed to operate in districts where there
were no local competitors. Through these “invisible barriers”, China succeeded in giving local
retailers protection, while at the same time, they learnt from the “more efficient” business
models of foreign companies.
Two decades ago, China was a different story — very little organized retail, virtually
no malls and a not-too-significant middle-class, with the average Chinese not exposed
to foreign brands. China allowed FDI in the year 1992.When FDI was allowed WTO
played an important role. Today, China's retail industry is worth upwards of $700
billion with more than 14 global mega retailers setting up shop in the last ten years. In
the first phase, China allowed FDI in retailing with some restrictions:
1. It was restricted to six major cities namely (including Beijing, Shanghai and
Guangzhou, Tianjin, Dalian, Qungdao) and Special Economic Zones.
2. Foreign ownership initially restricted to 49% of joint ventures.
3. Foreign retailers that operate large retailers will be limited to 50 units.
4.2.1 CHINA NOW WITH "NO RESTRICTIONS" (Source – Index – 15 )
China opened up its retail sector completely in December 2004. Under the new
regulations, overseas entities are now allowed to set up a Foreign Invested
Commercial Enterprise (FICE), which may act as a commission agent, wholesaler and
retailer or engage in franchising activities on a wholly owned basis in China.
4.3 EFFECT OF OPENING UP OF THE SECTOR (Source – Index – 15 )
1. 40 foreign retailers have secured approval since 1992
2. $22 billion of FDI attracted, 3.6% of total FDI.
3. Employment in retailing has grown at 6% p.a. since 1992 to 53 million
4. Retail sales have grown@13.5% CAGR since FDI was permitted.
5. In 2003, FDI in wholesale and retail was US$ 1.1 Billion(Around 30% of our total FDI
in 2003).
6. Some well-known foreign retail corporations include Nike, Wal-Mart, Carrefour, 7-
Eleven, and Giordano. These retailers, amongst others, account for some of the 10
percent of total merchandise.
7. Since 1992 FDI has improved the quality of experience, choice and prices for the

37 | P a g e
Chinese shoppers.
4.4 WHAT MADE CHINA TO ACHIEVE THIS? (Source – Index – 15 )
The above details show that China saw tremendous growth by opening the retail sectors to FDI.
The factors that contributed to China's success in retailing are -
1. First, it is huge. With a population in excess of 1.3 billion people, even a small share of
middle class consumers is bound to be a lot of people.
2. China has recently joined the WTO and is thus obligated to make changes to the consumer
distribution system that will benefit efficient retailers.
3. A potentially vast domestic market and an environment from which it is easy to export.
4. Import duties were reduced substantially. For example, the tariff on imported automobiles
dropped from the current 80-100% down to 25% by 2007.
5. As the population was huge, the foreign retailers also have enough manpower to employ.
Thus, for the china's success in retailing has come through FDI. And it consists of lot of factors
as seen above.
4.5 INDIA'S CURRENT POSITION IN RETAILING (Source – Index – 16)
The players include -
 HYPERMARKETS: Big Bazaar, Shop rite, Star, Giants
 DEPARTMENTAL STORES: Lifestyle, Pantaloons, Piramyds, Shoppers Stop, Trent
 ENTERTAINMENT: Fame Adlabs, Fun Republic, Inox, PVR
 FOREIGN PLAYERS INCLUDE: The foreign players who came through the route of
franchising are Guess, Esprit, Chanel, Clarks, Mango, Aigner, Bvlgari, Hugo Boss, Mark &
Spencers, Tommy Hilfiger etc.
4.6 SIMILARITIES IN FDI EXIST BETWEEN INDIA AND CHINA (Source – Index – 17)
1. PRICING IS KEY
Differences between urban and rural consumers are significant in both China and India. Most
foreign entrants wrongly assume that anything Western will sell. The initial fascination for
Western brands goes off once the discerning consumer finds local products of the same quality
at affordable prices. Getting the price right is essential. Initial trials, despite high prices are a
common phenomenon. However, the average consumer is extremely value conscious and
seldom accepts dollar-denominated prices, which are often the benchmarks set by global

38 | P a g e
entrants.
For instance, a well-known Scandinavian furniture retailer in China priced a table at RMB 299
and ended up selling a mere 300 pieces a month. But when the product was repriced to RMB
69, the pieces sold jumped to 10,000.
2. MARKETS WITHIN A MARKET
India, with its distinctive regions, diverse religions, languages and cultures, is as diverse as many
sub-markets within a market like China. Retail formats that have worked in South India have
not received the same response in the other regions. It has been no different in China. In China,
the consumer market is growing fastest in cities with population ranging from half to three
million. Companies that focus on the large, high profile coastal cities seem to be missing out,
just as those in India that are focusing on the principal urban centers. Foreign retailers entering
India and China are faced with not single but multiple cultures, resulting in a never-before-kind
of cultural stretch.
3. SIZE, POPULATION AND MIDDLE INCOME PEOPLE
"In terms of sheer size, India and China have huge potential in the retail sector," says N V
Sivakumar, executive director of PricewaterhouseCoopers (PwC), India. Like China, India also
has the population, which crosses 100 crores and more important is that most of the people
belong to middle income group. So as far as they are concerned they are highly price and value
conscious consumers. So the foreign players must consider the above two factors i.e. price and
value of products they offer.
4.7 INDIA'S ADVANTAGE OVER CHINA (Source – Index – 17)
The advantage that India possess when compared to China are as follows:
1. INDIAN MARKET LESS SATURATED
This is one of biggest advantage that India possesses over China. AT Kearney's recently released
GRDI, India has been ranked no. 1 in terms of attractiveness to global players. China's rank has
been dropping continuously. India has gained because there are less global players in India but
in China there are already all the big players of the world. So in China the scope for further
development is less when compared to India.
2. EXISTENCE OF COUNTERFEITS
Though Indian market also contains a good number of counterfeits it is not at par with China.
Chinese market leads in the production and availability of counterfeits. As the counterfeits are
more in China when compared to China it makes Indian market safer. Comparatively this makes
Indian market more trustable. This would act as an added advantage to India.

39 | P a g e
Possible impact on marginal producers and work force – The Experiences of other countries
Proponents of FDI in retail trade claim that it will improve the incomes of small and marginal
producers by doing away with middlemen whose margins constitute such a large percentage of
the final product. Is this true? In fact, an important issue missing in the whole debate is the
relation between FDI retail firms and numerous small and marginal producers, especially in the
agrarian and handicraft/handloom sectors. Let us look at some previous research findings on
this issue.
(i) In April 1999, the Director General of Fair Trading (DGFT) asked the Competition
Commission, UK, to investigate the supply of groceries from multiple stores in Great Britain. The
Competition Commission identified 24 multiple grocery retailers who supplied groceries from
supermarkets with 600 sq. meters or more of grocery sales area, where the space devoted to
the retail sale of food and non-alcoholic drinks exceeded 300 sq meters and which were
controlled by a person who controlled ten or more such stores.
The Commission received many allegations from suppliers about the behaviour of the main
parties in the course of their trading relationships. Most suppliers were unwilling to be named,
or to name the main. As the Commission could anticipate a climate of apprehension among
many suppliers in their relationship with the main parties, the Commission had put a list of 52
alleged practices to the main parties and asked them to tell which of them they had engaged in
during the last five years. It was found that a majority of these practices were carried out by
many of the main parties. They included requiring or requesting from some of their suppliers
various non-cost-related payments or discounts, sometimes retrospectively; imposing charges
and making changes to contractual arrangements without adequate notice; and unreasonably
transferring risks from the main party to the supplier. A request from a main party amounted to
the same thing as a requirement. Ultimately, such practices would exert downward pressure on
the incomes of farmers and workers involved in the supply of goods to such retail chains.
(ii) How large is the share of Third World producers in the developed country retail price of
their goods? A 1981 study by the U.N. provided some data. It showed that the Philippines
suppliers of bananas to TNCs in 1974 received only 17 per cent of their retail price in the
Japanese market. And Thai suppliers of fresh pineapples in 1978 earned only 35 per cent of the
final consumer value of pineapples canned and marketed by US transnational corporation Dole.
Of this 35 per cent, only 10 per cent was the share of the agriculturists, and the remaining 25
per cent was accounted for by processing, packaging, etc., which were predominantly carried
out by subsidiaries of transnational’s.
(iii) In another recent report, it was estimated that in case of bananas sold in European market
by US multinationals, the farmer might get around 10 per cent of the retail price, with workers
getting anything from 9 per cent in the case of Fair trade bananas to as little as 1.5 per cent on
traditional farms. Whereas trading companies such as Del Monte, Chiquita, Dole and Fyffe‘s
could be getting up to a third of the price, retailers took around 40 per cent.
(iv) This pattern does not hold only for agricultural goods. The break-up is similar in the case of
the typical manufactured exports of the developing countries. In the case of data gathered for

40 | P a g e
Bangladesh garment factories which showed that the share of Bangladeshi workers‘ wages in
the final retail price of a shirt in North American markets was 1.7 per cent; the profit of the
Bangladeshi employer was another 1 per cent. Gross commercial profit, rent and other income
of distributors‘ accounted for 71.8 per cent. Small suppliers, unorganized workers and
consumers are the major losers as global retailers and brand owners consolidate their power
through free movement of global capital. Changes in labor laws are brought about in line with
the requirements of supply chain flexibility: easier hiring and firing, more short-term contracts,
fewer benefits, and longer periods of overtime. The Indian Government is trying to bring about
such changes, both directly and indirectly.
4.8 ProposedFDI policy for MBRTin India (Source – Index – 18)
The conditions for 51% FDI in MBRT include a minimum investment of US$100 million by each player,
50% of it in back-end infrastructure, 30% procurement from micro, small and medium enterprises
(MSMEs) and the government’srighttoprocure the farmproduce first.But MBRT playersare allowedto
sell perishables such as fruits and vegetables as “unbranded”. Further, the permission for MBRT has
beengrantedforcitieswitha population of one million or more, which brings in 53 cities (Singh 2011).
In order to address concerns of some states that multi-brand FDI will muscle out local shops, the draft
framework proposes powers to state governments to impose additional conditions on MNC retailers,
such as measurestointegrate kirana orlocal retailersintothe value chain(Sikarwar2011).The Economic
SurveyReport,2010-11 suggeststhatthe Indiangovernmentalso aims to take up this case gradually by
permittingFDIinretail in a phased manner beginning with metros and incentivizing the existing retail
shops to modernise, to help address the concerns of farmers and consumers (Kandarpa S.G. n.d.).
4.9 FDI policy for MBRTinChina (Source – Index – 18)
Fortunately,we are notthe firstcountryto have foreigninvestmentinMBRTand hence, there are good
experiences to understand and learn from so as to build our confidence to move forward (Nedungadi
2011). To get a sense of how things might pan out, we could look at China, which like India has
historicallyhadavast andfragmentedretail sector(SGhosh2011; Sharmaand Mohanty 2005). It will be
betterto followthe Chinese model of cautionandhurryingslowly.Chinatookover 12years to liberalise
its FDI regime and in stages with reversals as well. It first allowed FDI in retail in 1992 at 26% (Dutta
2011). As soonas retail wasopenedtoFDI inthe late 1990s global retailerslike Tesco, Wal-Mart, Metro
and Carrefour were quick to enter (S Ghosh 2011). After 10years the cap was raised to 49%when local
chainshad sufficientlyentrenchedthemselves. 100% FDI in retail was permitted only in 2004, after the
infant retailing industry had acquired some muscle (Guruswamy and Sharma 2006). It even revoked
some previously granted approvals, to reduce the foreign retailers’ footprint (Dutta 2011). Given this
timeline,the Chinese retail environment is 20years ahead of us. Looking at their market today can give
us a rough idea of how FDI in MBRT in India might pan out in the medium term (S Ghosh 2011).
Initially, China also allowed foreign retailers to open only in select metropolises, such as Beijing,
Shanghai andShenzhen,andmoreover,only in certain districts in those cities. In Beijing and Shanghai,
foreign retailers like Wal-Mart were only allowed to operate in districts where there were no local
competitors. Through these “invisible barriers”, China succeeded in giving local retailers protection,

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