1

A STUDY REPORT ON FDI IN SINGLE BRAND AND MULTI- BRAND

RETAIL SECTOR OF INDIA.

Submitted By:
MAYURI AGRAWAL
MBA (M&S) II

SEMESTER
ENROLLMENT NO: A7002213020
Under guidance of:
Dr. ARUN BHADAURIA
Asst Professor, ABS


SUBMITTED IN THE PARTIAL FULFILLMENT OF MASTER OF BUSINESS
ADMINISTRATION MARKETING AND SALES (2013-15)

AMITY BUSINESS SCHOOL
AMITY UNIVERSITY UTTAR PRADESH LUCKNOW
DECLARATION

2

Certified that this term paper is prepared based on the research project undertaken by me, under the
able guidance of Dr. ARUN BHADAURIA in partial fulfillment of the requirement for award of
degree of MBA (M&S) from Amity University, Uttar Pradesh.

Date.______________

Signature Signature Signature
MAYURI AGRAWAL Dr. ARUN BHADAURIA Prof. V.P. SAHI
Student Faculty Guide Director,
ABS, LUCKNOW ABS, LUCKNOW ABS, LUCKNOW










ACKNOWLEDGEMENT


3

I must express my indebtedness to God for giving me opportunity and strength to
complete this RESEARCH PAPER. I am thankful to all the efforts, guidance and moral support
given by Dr. ARUN BHADAURIA, my faculty guide.




MAYURI AGRAWAL













EXECUTIVE SUMMARY
It has been said that India has one foot grounded in time-honored traditions and the other
fervently striding into the entrepreneurial e-age. India truly does embrace diversity with a
4

passion like very few places in the world. Retailing in India is slightly different than in
developed markets, in that it is divided in to organized and unorganized retail. Organized retail
could be described as when trading is taking place under a license or through people that are
registered for sales tax or income tax. Unorganized retail is Indias more traditional style of low-
cost retailing, for example, the local kirana shops, owner-manned general stores, convenience
stores, hand carts and pavement vendors. This division of the retail sector, which has a very
heavy weighting towards, unorganized, is just one of the issues contributing to the sensitive
debate on FDI in India at the moment.
In 2006 the Government has promoted limited FDI in single-brand retailing and has considered
opening up further in a phased system with emphasis on joint ventures with domestic
players. Studying other countries such as China, where restrictions were initially imposed on the
locations and formats in which foreign retailers could operate is also on the agenda of the Indian
Government. The Indian media regularly discusses the issues of FDI in Retailing.
As part of the economic liberalization process set in place by the Industrial Policy of 1991, the
Indian government has opened the retail sector to FDI slowly through a series of steps:
1995: World Trade Organisations (WTO) General Agreement on Trade in Services, which
includes both wholesale and retailing services, came into effect
1997: FDI in cash and carry (wholesale) with 100% rights allowed under the government
approval route;
2006 : FDI in cash and carry (wholesale) was brought under automatic approval route; Upto
51% investment in single brand retail outlet permitted, subject to Press Note 3 (2006 series)
2011: 100% FDI in Single Brand Retail allowed
2012: On Sept. 13, Government approved the allowance of 51 percent foreign investment in
multi-brand retail, [It also relaxed FDI norms for civil aviation and broadcasting sectors]
INDEX
CHAPTER 1:- INTRODUCTION
5

STATEMENT OF THE PROBLEM
HISTORY OF INDIA
RETAILING
RETAILING IN INDIA
STRUCTURE OF RETAILING IN INDIA
IMPORTANCE OF THE STUDY
LITERATURE REVIEW
CHAPTER 2:- RESEARCH METHODOLOGY
OBJECTIVES OF THE STUDY
RESEARCH METHODOLOGY FDI IN RETAILING
CHAPTER 3:- ANALYSIS
IMPACT OF ORGANISED RETAIL ON UNORGANISED RETAIL IN INDIA
IMPACT ON CONSUMERS
IMPACT ON INTERMEDIARIES
INVESTMENT OPPORTUNITIES
FDI IN INDIAN BUDGET
UNIQUENESS OF INDIAN RETAIL MARKET
CHALLENGES IN RETAILING
PROS AND CONS OF FDI IN RETAIL
CHAPTER 4:- CONCLUSIONS, SUGGESTIONS AND RECOMMENDATIONS
CONCLUSION
SUGGESTIONS AND RECOMMENDATIONS
BIBLIOGRAPHY
ANNEXURE


6




Chapter 1:
INTRODUCTION






STATEMENT OF THE PROBLEM:
Foreign direct investment (FDI) or foreign investment refers to the net inflows of investment to
acquire a lasting management interest (10 percent or more of voting stock) in an enterprise
7

operating in an economy other than that of the investor. It is the sum of equity capital, other
long-term capital, and short-term capital as shown in the balance of payment. It usually involves
participation in management, joint-venture transfer of capital and expertise. There are two types
of FDI: inward foreign direct investment and outward foreign direct investment, resulting in a
net FDI inflow (positive or negative) and "stock of foreign direct investment", which is the
cumulative number for a given period. Direct investment excludes investment through purchase
of shares.

FDI is one example of international factor movement. Foreign direct investment (FDI)
in its classic form is defined as a company from one country making a physical investment into
building a factory in another country. It Include investments made to acquire lasting interest in
enterprises operating outside of the economy of the investor. The FDI relationship consists of a
parent enterprise and a foreign affiliate which together form a multinational corporation (MNC).
FDI can be defined as a cross border investment, where foreign assets are invested into the
organizations of the domestic market excluding the investment in stock. It brings private funds
from overseas into products or services. Eg. An American company taking major stake in a
company in India. Their ROI is based on the performance of the project.
TYPES
A foreign direct investor may be classified in any sector of the economy and could be any one of
the following
an individual;
a group of related individuals;
an incorporated or unincorporated entity
a public company or private company;
a group of related enterprises;
a government body;
An estate (law), trust or other social institution; or any combination of the above
HISTORY OF FDI IN INDIA
8

At the time of independence, the attitude towards foreign capital was one of fear and suspicion.
This was natural on account of the previous exploitative role played by it in draining away
resources from this country. The suspicion and hostility found expression in the Industrial Policy
of 1948 which, though recognizing the role of private foreign investment in the country
emphasized that its regulation was necessary in the national interest. Because of this attitude
expressed in the 1948 resolution, foreign capitalists got dissatisfied and as a result, the flow of
imports of capital goods got obstructed. As a result, the prime minister had to give following
assurances to the foreign capitalists in 1949:
No discrimination between foreign and Indian capital
Full opportunities to earn profits
Guarantee of compensation
The government relaxed its policy concerning majority ownership in several cases and granted
several tax concessions for foreign personnel. Substantial liberalization was announced in the
New Industrial Policy declared by the government on 24th July 1991 and doors of several
industries have been opened up for foreign investment.
In 1997, the Indian retail sector witnessed the first footprints of FDI with 100% FDI being
permitted in cash & carry wholesale trading under the government approval route, subsequently
brought under the automatic route in 2006. As a step ahead, FDI in single brand retail was
permitted to the extent of 51% in 2006, while FDI in multi-brand retail remained prohibited till
recently. In July 2010, the Department of Industrial Policy and Promotion (DIPP) had put up a
discussion paper proposing FDI in multi-brand retail. In July 2011, a Committee of Secretaries
(COS) had cleared the proposal to allow upto 51% FDI in multi-brand retail, which has been
approved by the Union Cabinet in November 2011, albeit with a few riders. The Union Cabinet
has also approved increasing the FDI limit in single brand retail to 100% with government
approval. While no parliamentary approval is needed for the decision, State Governments have
the prerogative to disallow the same in their respective states. Mounting opposition by several
political parties and State Governments has raised hurdles in the effective implementation of the
key reform measure.
RETAILING
9

Retailing is the interface between the producer and the individual consumer buying goods for
personal consumption. A retailer is one who stocks the producers goods and is involved in the
act of selling it to the individual consumer, at a margin of profit. As such, retailing is the last link
that connects the individual consumer with the manufacturing and distribution chain.
After farming, retailing is Indias major occupation. It employs 40 million people. A sizeable
majority of owner/employees are in the business because of lack of other opportunities. The
decade of liberalization has so far been one of jobless growth. It is no wonder that retail has
become the refuge of these millions.
RETAIL IN INDIA
The Indian retail industry is the fifth largest in the world. Comprising of organized and
unorganized sectors, India retail industry is one of the fastest growing industries in India,
especially over the last few years. Though initially, the retail industry in India was mostly
unorganized, however with the change of tastes and preferences of the consumers, the industry is
getting more popular these days and getting organized as well.
STRUCTURE OF RETAILING IN INDIA
In Indian Retailing Industry, there are two types of retailing. They are as follows:
A) ORGANIZED RETAILING: Organized retailing refers to trading activities undertaken by
licensed retailers, that is, those who are registered for sales tax, income tax, etc, these are
corporate- backed hyper markets and retail chains and also the privately owned large retail
businesses.
The Indian retail industry is valued at $270 billion, with organized retail cornering 4.5 %. The
organized pie is expected to see a growth at a CAGR of 37 %.




10

B) UNORGANIZED RETAILING: Unorganized retailing, on the other hand, refers to the
traditional format of low cost retailing. E.g. the local kirana shops, owner manned general store,
paan/beedi shops, convenience stores, hand cart and pavement vendors, etc. Unorganized retail
sector is still predominating over organized sector in India. Small-store (kirana) retailing has
been one of the easiest ways to generate self-employment, as it requires limited investment in
land, capital and labour. It is generally family run business, lack of standardization and
the retailers who are running this store they are lacking of education, experience and exposure.
This is one of the reasons why productivity of this sector is approximately 4% that of the U.S.
retail industry.

FDI IN RETAILING
Retailing is one of the worlds largest private industries. Liberalizations in FDI have caused a
massive restructuring in retail industry. The benefit of FDI in retail industry superimposes its
cost factors. Opening the retail industry to FDI will bring forth benefits in terms of advance
employment, organized retail stores, availability of quality products at a better and cheaper price.
It enables a countrys product or service to enter into the global market.
Cheaper production facilities: FDI will ensure better operations in production cycle and
distribution. Due to economies of operation, production facilities will be available at a cheaper
rate thereby resulting in availability of variety products to the ultimate consumers at a reasonable
and lesser price.
Availability of new technology: FDI enables transfer of skills and technology from overseas and
develops the infrastructure of the domestic country. Greater managerial talent inflow from other
countries is made possible. Domestic consumers will benefit getting great variety and quality
products at all price points.
Long term cash liquidity: FDI will provide necessary capital for setting up organized retail chain
stores. It is a long term investment because unlike equity capital, the physical capital invested in
the domestic company is not easily liquidated.
Lead driver for the countrys economic growth: FDI would create a competition among the
global investors, which would ultimately ensure better and lower prices thus benefiting people in
all sections of the society. There would be an increase in the market growth and expansion. It
11

will increase retail employment and suppress untrained manpower and lack of experience. It will
ensure better managerial techniques and success. Higher wages will be paid by the international
companies. Urban consumers will be exposed to international lifestyles.
FDI opens new doors for Franchising: Restrictions on FDI are considered as trade barriers as
they deny direct market access to foreign firms. Retail giants who are at their wings, seeking
entry into foreign market look for other available alternatives. These restrictions on the global
retailers regarding the inflow of Foreign Direct Investment, leads them towards acquiring the
market entry through franchises. Thus, countries which offer promising market potentialities for
retail growth offers substantial growth in the franchising sector as well.

PRESENT SCENARIO
The FDI scenario in India is currently witnessing a gradual shift with liberalized reforms over
last few years and an attractive investment climate making a positive impact on the inflow. With
a steady increase in volume of FDI, India has attracted more than 90 countries till 2012 (29
countries in 1991) across the globe to invest in India making it upstages US in the list of top
investment destinations in the world.
There are certain factors which have played a pivotal role in taking India to the world.
Demographics, suitable business climate, low man power costs along with availability of talented
pool of resources are some of them.
As per the latest FDI policy steps have been taken to evaluate certain sectors having limited or
no access to foreign investment. Discussion papers on FDI in multi brand retail trading was
released which proposed to increase FDI in Single brand retail to 100% from current 51% and to
allow FDI in Multi Brand retail, which will improve the growth rate in organized retail currently
one of the lowest in the world at 4%. Consolidated FDI policy in now issued every 6 months,
online filing for FIPB application, and methodology for calculation of indirect foreign
investments in Indian companies now clearly defined. Project Offices are now permitted to open
one or more non interest bearing foreign currency accounts for projects to be executed in India,
which will give greater flexibility for Project offices to operate.

12

Entry Options for Foreign Players prior to FDI Policy: FDI was not authorized in retailing,
most general players is operating in the country. Due to FDI restrictions the international players
are looking for alternative avenues to enter the Indian market. However FDI restrictions in
retailing have not deterred prominent international players for setting up shops in India. Some of
entrance routes used by them have been discussed in sum as below:-
1. Franchise Agreement: It is an easiest track to come in the Indian market. In franchising and
commission agents services, FDI (unless otherwise prohibited) is allowed with the approval of
the Reserve Bank of India (RBI) under the Foreign Exchange Management Act. This is a most
usual mode for entrance of quick food bondage opposite a world. Apart from quick food
bondage identical to Pizza Hut, players such as Lacoste, Mango, Nike as good as Marks as good
as Spencer, have entered Indian marketplace by this route.
2. Cash And Carry Wholesale Trading: 100% FDI is allowed in wholesale trading which
involves building of a large distribution infrastructure to assist local manufacturers. The
wholesaler deals only with smaller retailers and not Consumers. Metro AG of Germany was the
first significant global player to enter India through this route.
3. Strategic Licensing Agreements: Some foreign brands give exclusive licenses and distribution
rights to Indian companies. Through these rights, Indian companies can either sell it through
their own stores, or enter into shop-in-shop arrangements or distribute the brands to franchisees.
Mango, the Spanish apparel brand has entered India through this route with an agreement with
Piramid, Mumbai, SPAR entered into a similar agreement with Radhakrishna Food lands Pvt.
Ltd
4. Manufacturing and Wholly Owned Subsidiaries.: The foreign brands such as Nike, Reebok,
Adidas, etc. that have wholly-owned subsidiaries in manufacturing are treated as Indian
companies and are, therefore, allowed to do retail. These companies have been authorized to sell.
products to Indian consumers by franchising, internal distributors, existent Indian retailers, own
outlets, etc. For instance, Nike entered through an exclusive licensing agreement with Sierra
Enterprises but now has a wholly owned subsidiary, Nike India Private Limited.

13

Identification of major beneficiaries of FDI the push and pull factors

Why is the government so keen in inviting FDI in the retail sector? While searching for this
answer, we must remember that already major retailers have entered into the retail market
through franchise and other arrangements. FDI is another such arrangement through which
foreign firms can exercise more control in the management of their Indian operations. There
could be the following possible reasons for inviting FDI in retail trade:
Organized domestic retailers want to collaborate with the world leaders to expand their existing
business.
Proprietary expertise in retail trade exists with few global players only. The latter would not
transfer their expertise to local firms unless they are allowed to operate in the domestic market.
The government needs FDI to meet foreign currency crisis
Only the global retailers can satisfy the rising and varied demands of Indian consumers.
Foreign firms are interested in the growing Indian domestic market.
India is an emerging procurement hub for global retailers especially for handicraft products
(including textiles) and semi-processed local food items.
Share of FDI in the trading service is declining in the developed countries. Capital is looking
for a better pasture. Major players are losing their popularity.
New rules in international trade encourage movement of FDI across nations to maximize return
on investment.









14

FDI in Single Brand Retail
The Government has not categorically defined the meaning of Single Brand anywhere neither
in any of its circulars nor any notifications.
In single-brand retail, FDI up to 51 per cent is allowed, subject to Foreign Investment Promotion
Board (FIPB) approval and subject to the conditions mentioned that (a) only single brand
products would be sold (i.e., retail of goods of multi-brand even if produced by the same
manufacturer would not be allowed), (b) products should be sold under the same brand
internationally, (c) single-brand product retail would only cover products which are branded
during manufacturing and (d) any addition to product categories to be sold under single-brand
would require fresh approval from the government.
While the phrase single brand has not been defined, it implies that foreign companies would be
allowed to sell goods sold internationally under a single brand, viz., Reebok, Nokia, and
Adidas. Retailing of goods of multiple brands, even if such products were produced by the same
manufacturer, would not be allowed.
Indian government has loosened its reins over foreign direct investment. The FDI has been
granted up to 51% in multi brand product and 100% single brand retail business. Though this
deal will bring new job opportunities but will set a major setback to the kirana stores and
individual retailers as till now they used to dominate the organized retail sector.

As the doors have been opened for investors an estimate of USD 550 billion is expected to be
flow in Indian market. The US based coffee giant Starbucks has entered into MOU
(memorandum of understanding) with TATA Group and is ready to jump into Indian market.
Many of the companies like Wal-Mart, Tesco, Care four etc. are also lined up as the new FDI
policies have emerged.



15

Previously FDIs was prohibited except in single brand product retail trading, in which upto 51%
is permitted, subject to the conditions as specified by the government. In the current the
Government of India has revised in its notification dated 10th January, 2012 that the extant
policy on FDI and decided that FDI, up to 100%, under the government approval route, would be
permitted in Single-Brand Product Retail Trading, subject to specified conditions.

The following are the terms on which 100% FDI in single brand product in retail trading has
been allowed:

1. Foreign Investment in single brand product in 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
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 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.

16

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 FIPB for Government approval.
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.










17

FDI in Multi Brand Retail
The government has also not defined the term Multi Brand. FDI in Multi Brand retail implies
that a retail store with a foreign investment can sell multiple brands under one roof.
In July 2010, Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce
circulated a discussion paper on allowing FDI in multi-brand retail. The paper doesnt suggest
any upper limit on FDI in multi-brand retail. If implemented, it would open the doors for global
retail giants to enter and establish their footprints on the retail landscape of India. 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.
They now allow model CASH AND CARRY ARRANGEMENT in multiple brand. Cash and
carry wholesale represents a type of operation within the wholesale sector. Its main features are
summarized best by the following definitions:
Cash and carry is a form of trade in which goods are sold from a wholesale warehouse operated
either on a self-service basis, or on the basis of samples (with the customer selecting from
specimen articles using a manual or computerized ordering system but not serving himself) or a
combination of the two. Customers (retailers, professional users, caterers, institutional buyers,
etc.) settle the invoice on the spot in cash, and carry the goods away themselves.
The Cash & Carry format in India is still in its infancy and will face a lot of changes. They need
to develop new channels, and optimize their supply chains for more profits. Also, it is to be seen
on how the Cash & Carry format business will be affected with the government keen to allow
FDI so that the global giants can set their shops in the streets.



18

IMPORTANCE OF THE STUDY
A number of concerns have been raised with regard to opening up of the FDI in Indian retail
sector. Today India already has foreign debt {US$ 79 billion} + trade deficit {US $ 100 billion}
+ current account deficit + FDI {US$ 40 billion} + FII {US$ 100 billion} = approx 350 US$
billion and more. This means almost all resources and transactions in India are owned or
financed by Foreign Nations especially Indian Economy is completely weakened to Foreign
Currency influence that kills Indian Rupee. Depreciating Rupee leads to Rising Commodity
Prices, Rising Fuel Prices and Rising Debts. FDI in retail may bring in investment which will
have an impact on Indian small and medium manufacturing sector. It is already dented by
Chinese products which will further hurt due to allowance of FDI in retail.
Hence there is a felt need for a study which can examine consumers and retailers attitude and
perception towards FDI in retail sector in India.







19

LITERATURE REVIEW

There is a reasonable amount of literature available on FDI in India, although it is by no means
abundant in the specific area of retail. Current policy is in a state of flux; hence a review
of literature on the latest policy proposals and arguments for and against changing policy will be
the back-bone of this study. It will enable accurate and relevant questions to be formulated for
the proposed survey questionnaire and provide a good background understanding of the likely
causes of any patterns and trends that maybe revealed by the survey. A broad range of opinions
from institutional and corporate material, to academic and business-orientated literature as well
as the newspapers/online media and internet resources will be reviewed and each source was
considered for its reliability, and potential to misconstrue the truth.
There are many studies which have identified technology, labor 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 investors location related decisions (Martin and Velazquez, 1997). 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.

20




Chapter 2:
Research Methodology











21

OBJECTIVES OF THE REPORT
The objectives of report are as follows
1. To know about the concept of FDI.
2. To understand the FDI policies initiated by the Government of India.
3. To know about Indian retailing and what makes it so unique.
4. To understand about single -brand retailing and multi-brand retailing.
5. To learn about opportunities, challenges, pros and cons of FDI.
6. To understand retailing scenario of Lucknow in particular.

RESEARCH METHODOLOGY
In this research I have followed descriptive method of study. The complete research which is
done in the term paper is through the secondary data which includes internet, news papers and
magazines. There is no primary data in my research because as per my topic secondary sources
were good enough to provide me correct, recent and concrete information.
I have made this report with utmost care and have drawn conclusions and provided
recommendations according to my knowledge afterwards.
Sample Size: 20
Sampling Technique: Random
Sampling, Population: Finite, Data Collection
Instrument: Observation, Interview and Questionnaire,
Demographic: 60% were males & 40% were females.
The sample profile was all the sections of society.
Geographic Location: Lucknow, U.P. INDIA.
22

IMPACT OF ORGANISED RETAIL ON UNORGANISED RETAIL IN INDIA

Unorganized retailers in the vicinity of organized retailers experienced a decline in their
volume of business and profit in the initial years after the entry of large organized retailers.
The adverse impact on sales and profit weakens over time.
There was no evidence of a decline in overall employment in the unorganized sector as a result
of the entry of organized retailers.
There is some decline in employment in the North and West regions which, however, also
weakens over time.
The rate of closure of unorganized retail shops in gross terms is found to be 4.2 per cent per
annum which is much lower than the international rate of closure of small businesses.
The rate of closure on account of competition from organized retail is lower still at 1.7 per cent
per annum.
There is competitive response from traditional retailers through improved business practices
and technology upgradation.
A majority of unorganized retailers is keen to stay in the business and compete, while also
wanting the next generation to continue likewise.
Small retailers have been extending more credit to attract and retain customers.
However, only 12 per cent of unorganized retailers have access to institutional credit and 37 per
cent felt the need for better access to commercial bank credit.
Most unorganized retailers are committed to remaining independent and barely 10 per cent
preferred to become franchisees of organized retailers.


23

Impact on Consumers
Consumers have definitely gained from organized retail on multiple counts.
Overall consumer spending has increased with the entry of the organized retail.
While all income groups saved through organized retail purchases, the survey revealed that
lower income consumers saved more. Thus, organized retail is relatively more beneficial to the
less well-off consumers.
Proximity is a major comparative advantage of unorganized outlets.
Unorganized retailers have significant competitive strengths that include consumer goodwill,
credit sales, ability to bargaining, ability to sell loose items, convenient timings, and home
delivery.
Impact on Intermediaries
The study did not find any evidence so far of adverse impact of organized retail on
intermediaries.
There is, however, some adverse impact on turnover and profit of intermediaries dealing in
products such as, fruit, vegetables, and apparel.
Over two-thirds of the intermediaries plan to expand their businesses in response to increased
business opportunities opened by the expansion of retail.
Only 22 per cent do not want the next generation to enter the same business.





24

INVESTMENT OPPORTUNITIES
India is a large emerging market in the world. There is an increase in disposable income of a
family. 70 million Indians are having salary of about $18000. And it has increased to 140
millions in year 2011. The spending power of consumers have been increased by 75% in last 3
years , the per capita income in 2010- 2011 is doubled to more than US$849 as compared to
US$348 in year 2000- 2001.
If there will changes in FDI policy for every sector of India, than there will a time when India
will also be counted amongst the top giant retailer countries in the world.
Consumer class shift: Consumer class will grow from 50 million at present to 583 million
by 2025. With more than 23 million people taking their place among the worlds
wealthiest citizens.
Consumer behavior :
o Wide demographics- average age of 25 years
o Brand consciousness over 60% of the population is below age 30. They are
getting awareness through World Wide Web.
o Changing consumer mind set focus shifting from low price to convenience,
value and superior shopping experience.
Easy credit EMI and loan credit cards make easy for Indian consumers to afford
expensive products.
Employment generation- it may become second largest employer after agriculture.
Through retail trade 35.06 million people are employed. And also wholesale trade is
generating an additional employment of 5.48 million.
Technology better use of resources and goods.
o Wastage and storage problem will be resolved.
o Efficient logistics, production and distribution channels will be there.
o Digital records may also help.
Infrastructure- FDI policy can help us to develop through major challenges.
Rural market
o Strong and healthy consumption
o 70% of the households comes under rural market.
25

o Two-fifth of the countrys total consumption pie.
o Accounts to 45% of the GDP
Fiscal growth FDI in retail sector will resolve problems regarding foreign exchange in
India.
Evergreen needs the life-long basic needs will keep on driving the retail industry.

26

FDI IN INDIAN BUDGET
2011-12
Union Finance Minister, Shri Pranab Mukherjee announced in his Budget Speech that
discussions are underway to further liberalize the Foreign Direct Investment (FDI) policy. All
prior regulations and guidelines have earlier been consolidated into one comprehensive
document in order to make FDI policy more user friendly.
The Security and Exchange Board of India (SEBI) registered mutual funds would be permitted to
accept subscriptions from foreign investors to meet the KYC requirements for equity schemes.
This would liberalize the portfolio investment route and would enable Indian mutual funds to
have direct access to foreign investors. The new policy would widen the class of foreign
investors in Indian equity market, which had hitherto been restricted to only Foreign Institutional
Investors (FIIs), sub-accounts registered with SEBI and NRIs.
2012-13
The Finance Minister Pranab Mukherjee in his Union Budget 2012-13 speech mentioned that
efforts were on to arrive at a political consensus on the issue of allowing 51 per cent Foreign
Direct Investment (FDI) in multi-brand retail.
The retail sector of the economy has been constantly pushing for allowing foreign direct
investment (FDI) in multi-brand retail. The Economic Survey 2011-12 tabled by Pranab
Mukherjee in the Parliament also advocated the case for FDI in multi-brand retail.
The much-talked about FDI in multi-brand retail would come into effect in a "phased" manner,
beginning from metropolitan cities, the Economic Survey 2011-12 said.
It said that allowing foreign direct investment in multi-brand retail is one of the major issues in
the services sector, but the move would address problems relating to food inflation, low prices
realized by farmers and investment gaps in post-harvest infrastructure for agricultural produce.
While the decision on FDI in the multi-brand sector has been suspended, the government has
gone ahead with increasing foreign investment level in single-brand retail to 100 per cent from
the earlier 51 per cent.

27

Uniqueness of Indian retail market

The Indian trading sector, which enjoys a few thousand years of history, has some unique
features. These features identified as under, should be considered before allowing FDI into retail
trade.

1. Products and services normally reach the end consumers from the manufacturer / producers
through two different channels: (a) Producers sell via independent retailers (vertical separation),
(b) directly from producer to consumer (vertical integration) .In the later case, producers
establish their own chain of retail outlets; develop franchise (Lafontan and Slad, 1997).

2. In India however, the above two modes of operations are not very common. At present, less
than 3% of the retail transactions in India are done in the organized sector (vertical separation),
which is likely to be increased to 15%- 20% by 2010 (Fitch Ratings, 2003). Till date, it is
restricted to metro cities only. The second type (vertical integration) is common to few national
and subsidiaries of global firms. Moreover, Indian wholesale trade is not properly organized.
Apart from few government initiatives like formation of Tea, Coffee, Spices Boards; State
Trading Corporations- most of which have become defunct by now, private initiatives have
mostly remained localized. The two notable exceptions could be the recently launched e-
procurement network e-chopal, developed by ITC Ltd- a diversified cigarette company in
which the global tobacco giant the British American Tobacco (BAT) has substantial stake.
Through e-chopal, ITC wants to procure agricultural products directly from the farmers for their
food division. The other initiative has been made by Hindustan Lever Ltd. (HLL) the Indian
subsidiary of global FMCG giant Unilever. HLL had opened a separate food division few years
ago. Though this division has not contributed much in terms of revenue, HLL has put in huge
resources.





28

CHALLENGES IN RETAILING
Government restriction on the FDI, are leading to an absence of foreign players resulting
into limited exposure to best practices.
Non- availability of Government land and zonal restrictions has made it difficult to find a
good real estate in terms of location and size. And lack of clear ownership titles and high
stamp duty has resulted in disorganized nature of transactions.
The retail sector does not have industry status yet making it difficult for retailers to
raise finance from banks to fund their expansion plans.
Stringent labour laws govern the number of hours worked and minimum wages to be paid
leading to limited flexibility of operations and employment of part-time employees.
Further , multiple clearances are required by the same company for opening new outlets
adding to the costs incurred and time taken to expand presence in the country.
The industry is facing a severe shortage of talented professionals, especially at the middle
- management level.
Most Indian retail players are under serious pressure to make their supply chains more
efficient in order to deliver the levels of quality and services that consumers are
demanding. Long intermediation chains would increase the costs by 15 percent.
Lack of adequate infrastructure with respect to roads, electricity, cold chains, and ports
has further led to the impediment of a pan India network of suppliers, due to these
constraints, retail chains have to resort to multiple vendors for their requirements,
thereby, raising cost and prices.
The available talent pool does not back retail sector as the sector has only recently
emerged from its nascent phase. Further retailing is yet to become a preferred career
option for most of Indias educated class that has chosen sectors like IT, BPO and
financial services.
Even though the government is attempting to implement a uniform value- added tax
across state, the system is currently plagued with differential tax rates for various states
leading to increased costs and complexities in establishing an effective distribution
network .
There is lack of trained workforce.
29

Absence of developed supply chain and integrated IT management.
Regulations restricting real estate purchases and cumbersome local laws.




















30

THE PROS AND CONS OF FDI IN RETAIL

Governments poor political management of the proposal for foreign direct investment in retail is
compelling its suspension. This was to be the first of the big ticket reform of policy paralysis
for two years. It was to bring in five billion dollars of FDI and create 10 million new jobs. Here
are some examined pros and cons of FDI in retail:-

The expected flood of investment by foreign retail chains would introduce modern supply
chain management, particularly in farm produce, investments in cold stores, cold
transport, cold warehouses in cities to sort and grade produce, careful grading and
sorting, pre-packed retail supplies all because of the foreign retailers who would bring
in their proven expertise. In practice, the Indian retail chains have not, in the last few
years, made any significant difference to the agricultural supply chain. Further, the
expected five billion dollars of FDI in retail will flow over a few years, making little
difference to our deteriorating current account balance of foreign exchange reserves.

Fruits and vegetables may account, at best, for around 20 per cent of the turnover of
organized retail chains. The rest will be made up of provisions (cereals, pulses, sugar and
so on); breads and meats; the bulk is likely to be packaged consumer goods.

The advent of national chain stores, supermarket chains, self-service instead of personal
service, merchandising and display as sales aids versus personal selling required
matching responses by the company. The large chains were able to negotiate special
prices and credit terms with the company, a facility not available to the old mom-and-pop
stores. This has started happening in India as well with the Indian chain stores able to
drive hard bargains with supplier companies for lower prices and credit terms that are not
available to kirana stores, making them less competitive. Foreign chains will accelerate
this process.


31

Even the claim that 40 per cent of fruits and vegetables is rotting because of lack of cold
storage has been challenged in a recent article in the Economic and Political Weekly that
lowers the figure to 10 per cent.

While wanting technological advancement in retail trade we must not dismiss the
contribution of the 15 million or so retail merchants to society, with the services they
provide to rich and poor customers, of credit, delivery, range of products and so on. They
earn little, and over time many of them must find more remunerative employment in
organized retail or elsewhere. But they are not parasites of the system

.One course open to the kirana stores is to organize themselves into cooperatives with
centralized buying so that they can use the clout of their combined purchases. They will,
however, remain disadvantaged in relation to the chain stores. A similar situation will
develop with perishables like breads and meats. The large chains can enter into more
profitable purchase contracts than the small retailers. To the extent that there are bakeries
and meat markets, these can compete by becoming cooperatives and engaging in joint
purchasing.

Indian retail and wholesale trade has evolved over centuries and has reached products to
remote corners of the country, as has the Burrabazar in Calcutta, or the wholesale market
in Cuttack or Naya Bans in Delhi, like so many wholesale markets in India supplying vast
hinterlands, offering credit and even delivery.

That commission agents swallow much of the margin between consumer prices and
farmer realizations for fruits and vegetables is certainly true. But it must be noted that
they offer services that no one else does. The farmer gets credit for seeds, fertilizer and
other inputs, ready cash for his produce, a price for good and bad produce, and there are
commission agents who specialize in different produce. The present agricultural
marketing committees are government-sponsored bureaucratic creations.

32

An inter-ministerial task force on agricultural marketing reforms was recommended in
2002 (accepted by all states) to promote competitive agricultural markets in private and
cooperative sectors, direct marketing and contract farming programmes, progressively
dismantle controls and regulations under the Essential Commodities Act, 1955 to remove
all restrictions on production, supply, storage, movement of and trade and commerce in
all agricultural commodities, substantially step up the inflow of institutional credit to
farmers for marketing of crops (pledge financing) to enhance their holding capacity and
their obtaining of remunerative prices, expand availability of warehousing services in
rural areas by introducing a negotiable warehousing receipt system for agricultural
commodities, and allow futures trading in all agricultural commodities to improve price
risk management and facilitate price discovery by amending the Forward Contracts
(Regulation) Act, 1952. Most of the steps are pending and need government action, not
FDI.

Government investment in agriculture has been lagging since 1991. Rural roads, storage
and cold storage, transportation including cold transport, more market-oriented
agricultural marketing, dams, irrigation canals, check dams, improved access to credit for
the poor small farmer, guaranteed quality of seeds, pesticides, fertilizers and other inputs
have been known to be urgent needs of farmers. They have happened selectively and
spasmodically. Foreign investment in retail can only touch small pockets of the country.
Government investment and reform are essential precursors and cannot be replaced by
FDI in retail.

However, agricultural investment in gross domestic product and as a share of total
investment has been falling since the 1980s, despite a spurt in aggregate national
investment since 1999. But subsidies (which do not build any assets) for agriculture,
favoured by all political parties, have risen sharply. Indian agricultural policy is neither
efficient nor equitable. The World Bank said in 2008: Current agricultural practices are
neither economically nor environmentally sustainable and Indias yields for many
agricultural commodities are low. Poorly maintained irrigation systems and almost
universal lack of good extension services are among the factors responsible. Farmers
33

access to markets is hampered by poor roads, rudimentary market infrastructure, and
excessive regulation. These are for the government to correct and cannot be done by
foreign investors.

Foreign direct investment in retail is not a panacea for policy paralysis or for Indias
agricultural development. Over time, it will certainly hurt the small kirana stores whose
owners will have to find other employment. In the immediate future, FDI in retail will
marginally benefit the consumer and farmers in some locations. It is not a transformatory
reform but one among many elements in reform, and not the fundamental one. Reforms
will not be brought in by external agents.


Government policies, investments and their effective implementation lie at the heart of
our development agenda. It is high time that the government acted on this realization.












34




Chapter 4:
Conclusion, Suggestions and
Recommendations




35

CONCLUSIONS
The report study of FDI in Indian retailing made me realize that unlike in other sectors, FDI
in retail will have a much wider impact on the economy. Essentially, organized global retail
chains will break the traditional symbiotic relationship that exists between small producers and
small retailers. Also, in the new retailing format, due to unequal terms of trade in a monopoly
like situation, small producers and suppliers are likely to suffer most.
The retail sector in India is severely constrained by limited availability of bank finance. We
cannot approve of a situation where there are vast imports from the network of thousands of
manufacturing sweatshops in China for five years while the Indian suppliers are being developed
for later supplies and set off. If FDI in Retail is to be permitted, it should be made foreign
exchange neutral for each year, at least for the first ten years.















36

RECOMMENDATION
FDI will be a powerful driver to curb inflation.
Because large organized retailers through FDI will bring in cheaper and better production
facilities, it will provide consumers with variety products at a lesser price and thus
helping in reducing the inflation rate. It is so because of economies of operation. At the
same time it will motivate consumers to purchase from them rather than local retailers.

Government should restrict the number of stores that can be operated in the city.
This is because the small kirana stores originated over the time are the direct target of
these policies and they will suffer badly if FDI will be allowed completely. So to protect
their interest number of shops in a city should be restricted. This will ensure that local
kirana stores are not uprooted completely. Otherwise it will not be possible for those
local stores owners to find other employment opportunities for them.

It should allow access to the small retailers to the stores through special windows.


There should be a legal and regulatory framework to be established to protect the interest
of small retailers. Entry of foreign players now will most definitely disrupt the current
balance of the economy; will render millions of small retailers jobless by closing the
small slit of opportunity available to them. So government should facilitate some policies
or provide some framework which will be in favor of small Indian retailers.

To develop our rural retail sector, we should stipulate at least 35-45% of the job in the
retail outlets that should be reserved for the rural youth. Retail sector is second largest
employment generator after agriculture. If FDI enters the market with its newness then it
should give chance to our rural retail sector so that when FDI begins to dominate the
Indian market rural retail sector is not hit badly.


37

BIBLIOGRAPHY
BOOKS
Foreign Trade of India- Vibha Mathur
Retailing- George H. Lucas, Jr., Robert P. Bush, Larry G. Gresham
WEBSITES
en.wikipedia.org/wiki/Retailing_in_India
www.legalindia.in/foreign-direct-investment-in-indian-retail-sector
REPORTS, RESEARCH PAPERS & NEWSPAPERS
A.T. Kearneys Report on Indian Retail, 2008
The Economics Times
Foreign Direct Investment in Indian Retail Sector An Analysis by Pulkit Agrawal &
Esha Tyagi












38




ANNEXURE











39

QUESTIONNAIRE FOR CUSTOMERS
I would be grateful if you spend 10 minutes to fill out this questionnaire. Your answers will be
part of a research project on Customer satisfaction. All answers will be handled with
confidentiality.


Personal Information
How old are you?
15-25 26-35
36-50 >50
Whats your gender?
Female Male

1.Do you prefer local kirana store or a departmental store for your groceries?
Local kirana A Departmental store
2. Do you know the difference between organised and unorganised retailing?
Yes No
3.Do you see any difference in retailing scenario of Lucknow from last 5 years?
Yes No
3. How often do you shop at a supermarket?
Almost daily 1-2 times/ week
3-4 times / week Monthly
4. How important is the brand name of the store for your choice to shop there?
Unimportant Neither important nor unimportant Important



40



5. To what extent, on a scale of 1 to 5 (1 means Not satisfied at all and 5 means Extremely
satisfied) are the following factors determine how satisfied you are with the shop?

o Location of the retail outlet
[1 2 3 4 5 ]
o Additional services (which includes the below elements)
membership card
[1 2 3 4 5 ]
parking lot
[1 2 3 4 5 ]
baby areas
[1 2 3 4 5 ]
delivery goods
[1 2 3 4 5 ]

o Product quality (which includes the below elements)

Freshness of products ( meat, vegetables, fruits )
[1 2 3 4 5 ]
Durability
[1 2 3 4 5 ]
Product variety
[1 2 3 4 5 ]

o Facilities (which includes the below elements)
Clean& spacious atmosphere
[1 2 3 4 5 ]
Display/ decoration
[1 2 3 4 5 ]
41

Music, interior
[1 2 3 4 5 ]
o Reliability (which includes the below elements)
Accuracy of bill / Bill clarity
[1 2 3 4 5 ]
Correct information of price signs & discount
[1 2 3 4 5 ]
o Process(which includes the below elements)
Number of check-out counters/ express check-outs [ 1 2 3 4 5 ]
Opening hour [ 1 2 3 4 5 ]
Queues -waiting time at counters [ 1 2 3 4 5 ]

o Value for money (which includes the below elements)
Competitive price [1 2 3 4 5 ]
Frequency of promotions/ discounts- REA [1 2 3 4 5 ]

o Staff (which includes the below elements)
Friendliness, helpful [1 2 3 4 5 ]
Knowledgeable, quick performance [1 2 3 4 5 ]

o Personnel service (availability of staffs to offer help, individual attention to loyal
customers)
[1 2 3 4 5 ]

I highly appreciate your time and contribution to this research.
Thank you very much and Best wishes.


42

QUESTIONNAIRE FOR RETAILERS
I would be grateful if you spend 10 minutes to fill out this questionnaire. Your answers will be
part of a research project on Customer satisfaction. All answers will be handled with
confidentiality.


Personal Information
How old are you?
15-25 26-35
36-50 >50
Whats your gender?
Female Male

A. Store name:


B. Location of the Store:

(i) Mall (ii) General (iii) Densely populated area

How much investment did you make in your business?

What are your future plans?



43

. Which kind of customers generally visit at your store?

(i) High grade income level

(ii) Medium grade income level

(iii) Average grade income level

Flow of customer per day in your store:

(i) Below 500 (ii) 500 to 1000 (iii) 1000 to 1500

1. Do you have any idea about FDI?
Yes No Roughly
2. If yes, are you happy with government decision?
Yes No May be
3. Is your business affected by this decision of government of allowing FDI in retail?
Yes No Somewhat


4. Do you see any change in retail scenario of Lucknow since last 5 years?

5. Do you think foreign big retails will reduce the purchase from local stores?
Yes No Cant say

44

6. In your opinion, what will be impact on consumers over FDI in retail?
Will benefit Will not benefit Cant say


7. In your opinion, what will be impact on un-organized retail sector over FDI in retail?
Will benefit Will not benefit Cant say


I highly appreciate your time and contribution to this research.
Thank you very much and Best wishes.














45

QUESTIONNAIRE FOR EXPERTS
I would be grateful if you spend 10 minutes to fill out this questionnaire. Your answers will be
part of a research project on Customer satisfaction. All answers will be handled with
confidentiality.

Your name-
Your Designation-
Your area of study-

1. Do you know about FDI?
Yes No Roughly
2. If yes, are you happy with government decision?
Yes No May be
3. Do you think Governments decision to allow 51 percent foreign investment in multi-
brand retail is a good decision?
Yes No May be
4. In your opinion, what will be impact on farmers over FDI in retail?
Will benefit Will not benefit Cant say

5. Do you think foreign big retails will reduce the purchase from local stores?
Yes No Cant say

6. In your opinion, what will be impact on consumers over FDI in retail?
Will benefit Will not benefit Cant say


46

7. In your opinion, what will be impact on other Indian industries over FDI in retail?
Will benefit Will not benefit Cant say

8. In your opinion, what will be impact on un-organized retail sector over FDI in retail?
Will benefit Will not benefit Cant say

9. In your opinion, what will be impact on other Indian industries over FDI in retail?
Will benefit Will not benefit Cant say


I highly appreciate your time and contribution to this research.
Thank you very much and Best wishes.