INDEX

Declaration i
Certificate Of Approval ii
Executive Summary iii
Acknowledgement iv
Chapter No. Contents Page No.
1 Introduction
1.1 FDI An Insight
1.2 History
1.3 Types of FDI
1.4 Methods of FDI
1.5 FDI in India
1.6 Retail Industry Introduction & Overview
1.7 Retailing Format in India
1.8 Division of Retail Industry Organized &
Unorganized
1.9 Rationale behind allowing FDI in Retail Sector
1.10 FDI Policy with regard to Retail in India
1.11 FDI in multi brand retail in India
1.12 Benefits of FDI
1-26
2
3
5
7
7
9
12
15
16
18
20
25
2 Objectives of the study
2.1 Title of the Study
2.2 Objectives Of the Study
27-28
28
28
3 Review of literature 29-31
4 Research Methodology
4.1 Research Design
4.2 Sources of Data Collection
4.3 Types Of Research
4.4 Research Findings
4.5Limitations of The Study
31-34
33
33
33
34
34
5 Research Findings 35-46
6 Conclusion
6.1 Positive Aspects
47-53
48


6.2 Negative Aspects 49
7 Bibliography 54-56

LIST OF TABLES, GRAPHS & FIGURES
TABLE NO. PARTICULARS PAGE NO.
1.3 Types of FDI 5
1.6 Organized v/s Unorganized sector at global level 11
1.7 Indias number of domestic grocery chains and
early foreign entrants
14
1.8 Organized retail format in India 15
1.9 Indian Retail Sector Contribution in India 18
1.10 Major Indian Retailers & their segmentation 22
5.1 FDI flow in India in last few years 36
5.2 Organized Retail growth An Opportunity 37
5.3 Riders for the multi brand and single brand in
Retail
46
6.2 Wal-Mart v/s Indian Retail 50









Executive Summary

This Project report provides detailed information about the growth of FDI in retailing
industry in India. It examines the growing awareness and brand consciousness among people
across different socio-economic classes in India and how the urban and semi-urban retail
markets are witnessing significant growth. It explores the role of the Government of India in
the industry growth and the need for further reforms in respect of FDI. In India the vast
middle class and its almost untapped retail industry are the key attractive forces for global
retail giants wanting to enter into newer markets, which in turn will help the FDI in India
Retail Industry to grow faster. This paper concludes with the likely impact of the entry of
global players into the Indian retailing industry. It also highlights the challenges faced by the
industry in near future.
This particular study on FDI in India's retail sector will utilize an inductive approach to the
research, which should help to achieve the aim and objectives. The investigation will allow us
to form a reasoned opinion as to what government policy changes are required to make the
opening up of FDI in retail as successful as possible for the domestic market and India's
economy. This study will be based predominantly on qualitative research techniques, using
secondary methods, in order to allow for an in-depth and insightful exploration of current
issues surrounding FDI in India's Retail market, and to assist in gaining an understanding of
the 'sentiment' in India towards foreign retailers and their potential impact on the retail sector
and wider economy. The report hopes to establish if there is a genuine argument for
government policy to change in favor of FDI in retail, to assess and make recommendations
of changes to current policy, and to consider the risks to India's economy, society, and the
unorganized retail sector, with a view to encouraging 'socially responsible investment'.












1.1 FOREIGN DIRECT INVESTMENT AN INSIGHT
Foreign direct investment (FDI) is a direct investment into production or business in a
country by a company in another country, either by buying a company in the target country or
by expanding operations of an existing business in that country. Foreign direct investment is
in contrast to portfolio investment which is a passive investment in the securities of another
country such as stocks and bonds. Basically foreign investment simply means investments
made by Multinational Corporations (MNCs)
FDI stands for Foreign Direct Investment, a component of a country's national financial
accounts. Foreign direct investment is investment of foreign assets into domestic structures,
equipment, and organizations. It does not include foreign investment into the stock markets.
Foreign direct investment is thought to be more useful to a country than investments in the
equity of its companies because equity investments are potentially "hot money" which can
leave at the first sign of trouble, whereas FDI is durable and generally useful whether things
go well or badly.
Foreign direct investment (FDI) is a measure of foreign ownership of productive assets, such
as factories, mines and land. Increasing foreign investment can be used as one measure of
growing economic globalization. Maps below show net inflows of foreign direct investment
as a percentage of gross domestic products (GDP)
FDI is a major source of external finance which means that countries with limited amounts of
capital can receive finance beyond national borders from wealthier countries. FDI and small
business growth are the two critical elements in developing the private sector in lower-
income economies and reducing poverty.
An Indian company may receive Foreign Direct Investment under the two routes as given
under:
i. Automatic Route
FDI is allowed under the automatic route without prior approval either of the Government or
the Reserve Bank of India in all activities/sectors as specified in the consolidated FDI Policy,
issued by the Government of India from time to time.



ii. Government Route
FDI in activities not covered under the automatic route requires prior approval of the
Government which are considered by the Foreign Investment Promotion Board (FIPB),
Department of Economic Affairs, Ministry of Finance. Plain paper applications carrying all
relevant details are also accepted. No fee is payable.
The Indian company having received FDI either under the Automatic route or
the Government route is required to comply with provisions of the FDI policy including
reporting the FDI to the Reserve Bank. as stated in
As a part of the national accounts of a country, and in regard to the national income equation
Y=C+I+G+(X-M), I is investment plus foreign investment. FDI usually involves participation
in management, joint-venture, transfer of technology and expertise. There are two types of
FDI: inward and outward, 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 movements.
1.2 HISTORY
Prior to understanding the economic progress of India, it is vital to first identify the
current economic status of India so that it is easy to retrace the process leading to the current
status. India presently enjoys the status of an attractive emerging market. However, this status
has been the result of numerous economic reforms adopted over the years. India intent to
open its markets to foreign investment can be traced back to the economic reforms adopted
during two prime periods- pre- independence and post independence.
Pre- independence, India was the supplier of foodstuff and raw materials to the
industrialised economies of the world and was the exporter of finished products- the economy
lacked the skill and means to convert raw materials to finished products. Post independence
with the advent of economic planning and reforms in 1951, the traditional role played
changes and there was remarkable economic growth and development. International trade
grew with the establishment of the WTO. India is now a part of the global economy. Every
sector of the Indian economy is now linked with the world outside either through direct
involvement in international trade or through direct linkages with export and import


transactions of other sectors in the economy.
Development pattern during the 1950-1980 period was characterised by strong
centralised planning, government ownership of basic and key industries, excessive regulation
and control of private enterprise, trade protectionism through tariff and non-tariff barriers and
a cautious and selective approach towards foreign capital. It was a quota, permit, licence
regime which was guided and controlled by a bureaucracy trained in colonial style. This
inward thinking, import substitution strategy of economic development and growth was
widely questioned in the 1980s. Indias economic policy makers started realising the
drawbacks of this strategy which inhibited competitiveness and efficiency and produced a
much lower growth rate that was expected.
Consequently economic reforms were introduced initially on a moderate scale and controls
on industries were substantially reduced by 1985 industrial policy. This set the trend for more
innovative economic reforms and they got a boost with the announcement of the landmark
economic reforms in 1991. After nearly five decades of insulation from world markets, state
controls and slow growth, India in 1991 embarked on an accelerated process of liberalization.
The 1991 reforms ensured that the way for India to progress will be through globalization,
privatisation, and liberalisation. In this new regime, the government is now assuming the role
of a promoter, facilitator and catalyst agent instead of the regulator and controller of
economic activities.
China currently ranks first among the top ten countries for foreign direct investment
among developing countries in 2001. Mexico, Singapore, Brazil are also among the top ten.
India although is also an attractive destination for foreign investment, it is not in the front
line. This is a stark reality despite the fact that the Indian economic, political and social
conditions stable.
India is one of the largest economies of the world. Its strategic location in the sub-continent
provides it with continued access to SouthAsian markets and middle-east markets. The
country also enjoys a huge consumer markets. Fast moving consumer goods find a significant
market share in India, providing a market conducive to trade and finance.



Table 1.3 Types of FDI











1.3 Types of Foreign Direct Investment: An Overview
FDIs can be broadly classified into two types:
An outward-bound FDI is backed by the government against all types of associated risks.
This form of FDI is subject to tax incentives as well as disincentives of various forms. Risk
coverage provided to the domestic industries and subsidies granted to the local firms stand in
the way of outward FDIs, which are also known as "direct investments abroad."
Inward FDIs include interest loans, tax breaks, grants, subsidies, and the removal of
restrictions and limitations. Factors detrimental to the growth of FDIs include necessities of
differential performance and limitations related with ownership patterns. Other
categorizations of FDI exist as well.
Vertical Foreign Direct Investment
Vertical Foreign Direct Investment takes place when a multinational corporation owns some
shares of a foreign enterprise, which supplies input for it or uses the output produced by the
MNC.
Horizontal foreign direct investments
Horizontal foreign direct investments happen when a multinational company carries out a
similar business operation in different nations. Foreign Direct Investment is guided by
different motives.
FDIs that are undertaken to strengthen the existing market structure or explore the
opportunities of new markets can be called "market-seeking FDIs."
"Resource-seeking FDIs" are aimed at factors of production which have more
operational efficiency than those available in the home country of the investor. Some
foreign direct investments involve the transfer of strategic assets.
FDI activities may also be carried out to ensure optimization of available
opportunities and economies of scale. In this case, the foreign direct investment is
termed as "efficiency-seeking."



1.4 METHODS OF FOREIGN DIRECT INVESTMENT
The foreign direct investor may acquire voting power of an enterprise in an economy through
any of the following methods:
by incorporating a wholly owned subsidiary or company anywhere
by acquiring shares in an associated enterprise
through a merger or an acquisition of an unrelated enterprise
participating in an equity joint venture with another investor or enterprise
Foreign direct investment incentives may take the following forms:
low corporate tax and individual income tax rates
tax holidays
other types of tax concessions
preferential tariffs
special economic zones
EPZ Export Processing Zones
Bonded Warehouses
investment financial subsidies
soft loan or loan guarantees
free land or land subsidies
relocation & expatriation
infrastructure subsidies
R&D support
derogation from regulations (usually for very large projects)
1.5 Foreign Direct Investment in India
Foreign investment is open in India and there arent cumbersome procedures in force
for approval of inflows of foreign capital. India is also an attractive destination for foreign
investment because of its access to skilled labour at competitive costs. Being the one of the
largest manufacturing sectors of the world, it has a market conducive to trade and production.
Foreign investment in India is permitted through the following modes:
a. Through the route of foreign collaborations
b. Through Joint ventures and technical collaborations


c. Through capital markets via euro issues
d. Through private placement or preferential allotment
The economy of India is the third largest in the world as measured by purchasing power
parity (PPP), with a gross domestic product (GDP) of US $3.611 trillion. When measured in
USD exchange-rate terms, it is the tenth largest in the world, with a GDP of US $800.8
billion (2006). is the second fastest growing major economy in the world, with a GDP growth
rate of 8.9% at the end of the first quarter of 2006-2007.However, India's huge population
results in a per capita income of $3,300 at PPP and $714 at nominal. The economy is diverse
and encompasses agriculture, handicrafts, textile, manufacturing, and a multitude of services.
Although two-thirds of the Indian workforce still earns their livelihood directly or indirectly
through agriculture, services are a growing sector and are playing an increasingly important
role of India's economy. The advent of the digital age, and the large number of young and
educated populace fluent in English, is gradually transforming India as an important 'back
office' destination for global companies for the outsourcing of their customer services and
technical support. India is a major exporter of highly-skilled workers in software and
financial services, and software engineering. India followed a socialist-inspired approach for
most of its independent history, with strict government control over private sector
participation, foreign trade, and foreign direct investment. However, since the early 1990s,
India has gradually opened up its markets through economic reforms by reducing government
controls on foreign trade and investment. The privatization of publicly owned industries and
the opening up of certain sectors to private and foreign interests has proceeded slowly amid
political debate. India faces a burgeoning population and the challenge of reducing economic
and social inequality. Poverty remains a serious problem, although it has declined
significantly since independence, mainly due to the green revolution and economic reforms.
FDI up to 100% is allowed under the automatic route in all activities/sectors except the
following which will require approval of the Government activities/items that require an
Industrial License; Proposals in which the foreign collaborator has a previous/existing
venture/tie up in India.
The FDI statistics and data are evident of the emergence of India as a both potential
investment market and investing country. FDI has helped the Indian economy grow, and the
government continues to encourage more investments of this sort - but with $5.3 billion in
FDI. India gets less than 10% of the FDI of China. Foreign direct investment (FDI) in India
has played an important role in the development of the Indian economy. FDI in India has - in


a lot of ways - enabled India to achieve a certain degree of financial stability, growth and
development. This money has allowed India to focus on the areas that may have needed
economic attention, and address the various problems that continue to challenge the country.
India has continually sought to attract FDI from the worlds major investors. In 1998 and
1999, the Indian national government announced a number of reforms designed to encourage
FDI and present a favorable scenario for investors. FDI investments are permitted through
financial collaborations, through private equity or preferential allotments, by way of capital
markets through Euro issues, and in joint ventures. FDI is not permitted in the arms, nuclear,
railway, coal & lignite or mining industries. A number of projects have been announced in
areas such as electricity generation, distribution and transmission, as well as the development
of roads and highways, with opportunities for foreign investors. The Indian national
government also provided permission to FDIs to provide up to 100% of the financing
required for the construction of bridges and tunnels, but with a limit on foreign equity of INR
1,500 crores, approximately $352.5m. Currently, FDI is allowed in financial services,
including the growing credit card business. These services include the non-banking financial
services sector. Foreign investors can buy up to 40% of the equity in private banks, although
there is condition that stipulates that these banks must be multilateral financial organizations.
Up to 45% of the shares of companies in the global mobile personal communication by
satellite services (GMPCSS) sector can also be purchased. By 2004, India received$5.3
billion in FDI, big growth compared to previous years, but less than 10% of the $60.6 billion
that flowed into China. Why does India, with a stable democracy and a smoother approval
process, lag so far behind China in FDI amounts? Although the Chinese approval process is
complex, it includes both national and regional approval in the same process. Federal
democracy is perversely an impediment for India. Local authorities are not part of the
approvals process and have their own rights, and this often leads to projects getting bogged
down in red tape and bureaucracy. India actually receives less than half the FDI that the
federal government approves.
1.6 Retail Industry An Introduction & Overview
Retail involves the sale of goods from a single point (malls, markets, department stores etc)
directly to the consumer in small quantities for his end use. In a laymans language, retailing
is nothing but transaction of goods between the seller and the end user as a single unit (piece)
or in small quantities to satisfy the needs of the individual and for his direct consumption.


The retailers purchase goods in bulk quantities (huge numbers) to be sold to the end-users
either directly from the manufacturers or through a wholesaler.
Manufacturers ........................ Retailers ................ End User
(Consumer)
Wholesalers
Manufacturers - Manufacturers are the ones who are involved in production of
goods with the help of machines, labor and raw materials.
Wholesaler - The wholesaler is the one who purchases the goods from the
manufacturers and sells to the retailers in large numbers but at a lower price. A
wholesaler never sells goods directly to the end users.
Retailer - A retailer comes at the end of the supply chain who sells the products in
small quantities to the end users as per their requirement and need.
The end user goes to the retailer to buy the goods (products) in small quantities to
satisfy his needs and demands. The complete process is also called as Shopping.
Shopping - The process of purchasing products by the consumer is called as
shopping. However there are certain cases where shopping does not always end in
buying of products. Sometimes individuals do go for shopping but return home
empty handed. Such a shopping is merely for fun and is called window shopping.













Table 1.6 Organised v/s Unorganised Retail at Global Level









1.7 RETAILING FORMAT IN INDIA

Malls:
The largest form of organized retailing today. Located mainly in metro cities, in proximity to
urban outskirts. Ranges from 60,000 sq ft to 7, 00,000 sq ft and above. They lend an ideal
shopping experience with an amalgamation of product, service and entertainment, all under a
common roof. Examples include Shoppers Stop, Pyramid, and Pantaloon.

Specialty Stores:
Chains such as the Bangalore based Kids Kemp, the Mumbai books retailer Crossword,
RPG's Music World and the Times Group's music chain Planet M, are focusing on specific
market segments and have established themselves strongly in their sectors.

Discount Stores:
As the name suggests, discount stores or factory outlets, offer discounts on the MRP through
selling in bulk reaching economies of scale or excess stock left over at the season. The
product category can range from a variety of perishable/ non-perishable goods.

Department Stores:
Large stores ranging from 20000-50000 sq. ft, catering to a variety of consumer needs.
Further classified into localized departments such as clothing, toys, home, groceries, etc.
Departmental Stores are expected to take over the apparel business from exclusive brand
showrooms. Among these, the biggest success is K Raheja's Shoppers Stop, which started
in Mumbai and now has more than seven large stores (over 30,000 sq. ft) across India and
even has its own in store brand for clothes called Stop.

Hyper marts/Supermarkets:
Large self-service outlets, catering to varied shopper needs are termed as Supermarkets.
These are located in or near residential high streets. These stores today contribute to 30%
of all food & grocery organized retail sales. Super Markets can further be classified in to
mini supermarkets typically 1,000 sq ft to 2,000 sq ft and large supermarkets ranging from
of 3,500 sq ft to 5,000 sq ft. having a strong focus on food & grocery and personal sales.



Convenience Stores:
These are relatively small stores 400-2,000 sq. feet located near residential areas. They
stock a limited range of high-turnover convenience products and are usually open for
extended periods during the day, seven days a week. Prices are slightly higher due to the
convenience premium

MBO:
Multi Brand outlets, also known as Category Killers, offer several brands across a single
product category. These usually do well in busy market places and Metros.




















Table 1.7 Indias number of domestic grocery chains and early foreign entrants






1.8 Division of Retail Industry Organized and Unorganized Retailing
The retail industry is mainly divided into
1) Organized and
2) Unorganized Retailing
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.
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 Indias GDP.
Table 1.8 Organized Retail Format In India

1.9 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.


The policy of single-brand retail was adopted to allow Indian consumers access to foreign
brands. Since Indians spend a lot of money shopping abroad, this policy enables them to
spend the same money on the same goods in India. FDI in single-brand retailing was
permitted in 2006, up to 51 per cent of ownership. Between then and May 2010, a total of 94
proposals have been received. Of these, 57 proposals have been approved. An FDI inflow of
US$196.46 million under the category of single brand retailing was received between April
2006 and September 2010, comprising 0.16 per cent of the total FDI inflows during the
period. Retail stocks rose by as much as 5%. Shares of Pantaloon Retail (India) Ltd ended
4.84% up at Rs 441 on the Bombay Stock Exchange. Shares of Shoppers Stop Ltd rose
2.02% and Trent Ltd, 3.19%. The exchanges key index rose 173.04 points, or 0.99%, to
17,614.48. But this is very less as compared to what it would have been had FDI up to 100%
been allowed in India for single brand. The policy of allowing 100% FDI in single brand
retail can benefit both the foreign retailer and the Indian partner foreign players get local
market knowledge, while Indian companies can access global best management practices,
designs and technological knowhow. By partially opening this sector, the government was
able to reduce the pressure from its trading partners in bilateral/ multilateral negotiations and
could demonstrate Indias intentions in liberalizing this sector in a phased manner.
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 farmer income & agricultural growth and assist in lowering consumer prices
inflation.
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 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.
Lastly, it is to be noted that the Indian Council of Research in International Economic
Relations (ICRIER), a premier economic think tank of the country, which was appointed to
look into the impact of BIG capital in the retail sector, has projected the worth of Indian retail
sector to reach $496 billion by 2011-12 and ICRIER has also come to 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. In light of the above, it can be safely
concluded that allowing healthy FDI in the retail sector would not only lead to a substantial
surge in the countrys GDP and overall economic development, but would inter alia also help
in integrating the Indian retail market with that of the global retail market in addition to
providing not just employment but a better paying employment, which the unorganized sector
(kirana and other small time retailing shops) have undoubtedly failed to provide to the masses
employed in them.
Industrial organizations such as CII, FICCI, US-India Business Council (USIBC), the
American Chamber of Commerce in India, The Retail Association of India (RAI) and
Shopping Centers Association of India (a 44 member association of Indian multi-brand
retailers and shopping malls) favors a phased approach toward liberalizing FDI in multi-
brand retailing, and most of them agree with considering a cap of 49-51 per cent to start with.
The international retail players such as Wal-Mart, Carrefour, Metro, IKEA, and TESCO share
the same view and insist on a clear path towards 100 per cent opening up in near future.
Large multinational retailers such as US-based Wal-Mart, Germanys Metro AG and
Woolworths Ltd, the largest Australian retailer that operates in wholesale cash-and-carry
ventures in India, have been demanding liberalization of FDI rules on multi-brand retail for
some time.
Thus, as a matter of fact FDI in the buzzing Indian retail sector should not just be freely
allowed but per contra should be significantly encouraged. Allowing FDI in multi brand retail
can bring about Supply Chain Improvement, Investment in Technology, Manpower and Skill
development, Tourism Development, Greater Sourcing From India, Up gradation in
Agriculture, Efficient small and Medium Scale Industries, Growth in market size and
Benefits to movement through greater GDP, tax income and employment generation.






Table 1.9 Indian Retail Sector Contribution to India

1.10 FDI Policy with Regard to Retailing in India
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 in Press Note 3
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,
Adidas. Retailing of goods of multiple brands, even if such products were produced by the
same manufacturer, would not be allowed.


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.
Brands could be classified as products and multiple products, or could be manufacturer
brands and own-label brands. Assume that a company owns two leading international brands
in the footwear industry say A and R. If the corporate were to obtain permission to retail
its brand in India with a local partner, it would need to specify which of the brands it would
sell. A reading of the government release indicates that A and R would need separate
approvals, separate legal entities, and may be even separate stores in which to operate in
India. However, it should be noted that the retailers would be able to sell multiple products
under the same brand, e.g., a product range under brand A Further, it appears that the same
joint venture partners could operate various brands, but under separate legal entities.
Now, taking an example of a large departmental grocery chain, prima facie it appears that it
would not be able to enter India. These chains would, typically, source products and,
thereafter, brand it under their private labels. Since the regulations require the products to be
branded at the manufacturing stage, this model may not work. The regulations appear to
discourage own-label products and appear to be tilted heavily towards the foreign
manufacturer brands.
There is ambiguity in the interpretation of the term single brand. The existing policy does
not clearly codify whether retailing of goods with sub-brands bunched under a major parent
brand can be considered as single-brand retailing and, accordingly, eligible for 51 per cent
FDI. Additionally, the question on whether co-branded goods (specifically branded as such
at the time of manufacturing) would qualify as single brand retail trading remains
unanswered.





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.
Back-end logistics must for FDI in multi-brand retail
The government has added an element of social benefit to its latest plan for calibrated
opening of the multi-brand retail sector to foreign direct investment (FDI). Only those foreign
retailers who first invest in the back-end supply chain and infrastructure would be allowed to
set up multi brand retail outlets in the country. The idea is that the firms must have already
created jobs for rural India before they venture into multi-brand retailing.
It can be said that the advantages of allowing unrestrained FDI in the retail sector evidently
outweigh the disadvantages attached to it and the same can be deduced from the examples of
successful experiments in countries like Thailand and China; where too the issue of allowing
FDI in the retail sector was first met with incessant protests, but later turned out to be one of
the most promising political and economical decisions of their governments and led not only
to the commendable rise in the level of employment but also led to the enormous
development of their countrys GDP.
Moreover, in the fierce battle between the advocators and antagonist of unrestrained FDI
flows in the Indian retail sector, the interests of the consumers have been blatantly and utterly
disregarded. Therefore, one of the arguments which inevitably need to be considered and
addressed while deliberating upon the captioned issue is the interests of consumers at large in
relation to the interests of retailers.


It is also pertinent to note here that it can be safely contended that with the possible advent of
unrestrained FDI flows in retail market, the interests of the retailers constituting the
unorganized retail sector will not be gravely undermined, since nobody can force a consumer
to visit a mega shopping complex or a small retailer/sabji mandi. Consumers will shop in
accordance with their utmost convenience, where ever they get the lowest price, max variety,
and a good consumer experience.
The Industrial policy 1991 had crafted a trajectory of change whereby every sectors of Indian
economy at one point of time or the other would be embraced by liberalization, privatization
and globalization.FDI in multi-brand retailing and lifting the current cap of 51% on single
brand retail is in that sense a steady progression of that trajectory. But the government has by
far cushioned the adverse impact of the change that has ensued in the wake of the
implementation of Industrial Policy 1991 through safety nets and social safeguards. But the
change that the movement of retailing sector into the FDI regime would bring about will
require more involved and informed support from the government. One hopes that the
government would stand up to its responsibility, because what is at stake is the stability of the
vital pillars of the economy- retailing, agriculture, and manufacturing. In short, the socio
economic equilibrium of the entire country.












Table 1.10 Major Indian Retailers & their Segmentation








1.11 FDI in multi-brand retail in India Rules & Changes

With the recent announcement by the government to allow FDI into multi-brand retail in
India, let us understand what all changes can be expected into the business environment.
Prior to this announcement the following were the rules of FDI in the Indian Industry
1. FDI of 51% was allowed in Single brand retailing. This basically means that players
like Nike could set up shop in India under their own brand without getting into
Franchisee kind of agreements which they were doing earlier.
2. FDI of 100% was allowed in Cash and Carry business. Players like Walmart, Carrefour
have already used this rule to set up their Cash and Carry business in India to cater to
business customers.
3. FDI in multi-brand retail was not allowed in India

What has changed?
Of the above 3 scenarios, the third scenario has changed and the following are the terms and
conditions attached for multi brand retailers to start their business in India
1. 51% FDI is allowed into Multi brand retailing in India which basically means the
foreign retailers can set up shop in India with an Indian partner and have majority stake
in the management of the business.
2. The retailer has to invest at least 100 Mn USD (appox 550 Cr INR) into the business.
50% of this investment should be invested to improve the back end infrastructure to
benefit the producers like the farmers etc. The investment could be in cold chains,
supply chain etc.
3. The retailers have to source 30% of their goods in value terms from small and medium
enterprises.
4. The store can open in towns with population more than 1 million. 55 towns would
qualify for this criteria in India
5. The retailer has to comply with the local state rules and regulations and has to take
relevant licenses for the same.




What are the challenges in the rules?
1. Investment of 100 Mn USD by a foreign player may not be a big issue as for most
retailers it is not a big amount. The second condition of 50% investment into back end
infrastructure would need more clarity from the government as many players may
come into India by buying stakes into current retailers and how to justify this 50% may
be difficult to do.
2. 30% sourcing from SMEs could also be a challenge. As IKEA suggested, once they
start sourcing from a SME, the SME would automatically become bigger and hence not
qualify as SME. The government, while may have meant good for the SME, may have
to redefine this clause to make it more practical.
3. Opening retail shops only in 55 towns could be a dampner for many players. Not
necessary that the players who come in, would be Hyper markets etc, many may have
business models which may be suited towards medium sized towns which today are
growing quite substantially and have significant buying powers.
4. Many states have resistance to Multi brand retail which could be a constraint for
expansion as of the 55 towns which are permitted only a handful may be available for
the retailers to start business. This will also put a lot of pressure on competition and
resources.
The above changes in the rules of retailing in India will have far reaching consequences in the
retail space in future. This future may not be 1-2 years. I expect this cycle to take 4-5 years in
which time many foreign players would understand the needs of the Indian market and
customers and set up their retail business.









1.12 Benefits of FDI in multi-brand retail

Soaring inflation is one of the driving motives behind this move towards multi-brand retail.
Allowing international retailers such as Wal-Mart and Carrefour, which have already set up
wholesale operations in the country, to set up multi-brand retails stores will assist in keeping
food and commodity prices under control. Moreover, industry experts feel allowing FDI will
cut waste, as big players will build backend infrastructure. FDI in multi-brand retail would
also help narrow the current account deficit.
Additional benefits include moving away from an industry focus on intermediaries and job
creation.
Moving away from intermediary-only benefits

There is broad agreement on the need to improve efficiencies in the household trade of
consumer goods. Competent management practices and economies of scale, joined with the
acceptance of global best practices and modern technology, could immensely recover
systemic competence.
Like their foreign counterparts, Indian customers are entitled to receive quality products,
produced, processed and handled under a hygienic environment through professionally-
managed outlets. Speculative apprehensions that small retailers will be adversely affected are
not reason enough to deny millions of consumers access to products that meet global
standards.
Furthermore, todays intermediaries amid producers and customers add no value to the
products, adding hugely to final costs instead. By the time products filter through various
intermediaries and into the marketplace, they lose freshness and quality, and often go to
waste. However, intermediaries garner huge profits by distributing these losses between
producers and customers by buying products at low prices from producers, but selling at
extremely marked-up prices to consumers. In an unbalanced system that incorporates
multiple intermediaries simply for logistics, only intermediaries benefit.
With organized retail, every intermediate step procurement, processing, transport and
delivery adds value to the product. This happens because it uses international best practices
and modern technology, ensuring maximum efficiency and minimum waste. Organized retail


enables on-site processing, scientific handling and quick transport through cold storage
chains to the final consumer. Once modern retailers introduce an organized model, other
vendors, including small retailers, would mechanically copy this model to improve
efficiencies, boost margins and stay in business. Organized retail would thereby bring more
stability to prices, unlike the present system where hoarding and artificial shortages by
profiteering intermediaries push up product prices.
Job creation
Despite predictions from some analysts that millions of jobs would be lost due to FDI in
retail, it may in fact be the other way around. With the entry of branded retailers, the market
will increase, creating additional employment in retail and other tertiary sectors. Given their
professional approach, organized retailers will allot some quantity of resources towards the
training and development of the resources they employ.
This effect of branded retailing can already be seen with the Bharti-Wal-Mart collaboration,
which has joined forces with state governments to open training and development centers in
Amritsar, Delhi and Bangalore, preparing local youth for jobs in retail. Training is entirely
free and more than 5,600 local youth have already been trained. Retail jobs dont require
higher education or highly specialized abilities.


















2.1 Title of the Study
The study on Foreign Direct Investment in Retail Sector of India

2.2 Objectives Of The Study
i. To study the FDI policy in retail sector in India.
ii. To study the FDI inflow in India in last few years.
iii. To study the retail growth through FDI in organised sector of India.
iv. To conquer whether the FDI policy in retail is a bane or a boon.
v. To study as to how FDI can remove limitations in Indian system.
vi. To determine as to why India is attracting foreign players.
vii. To understand the challenges in Indian retail sector for global retailers.

































Kumar N. (1995), Changing Character of Foreign Direct Investment From Developing
Countries: Case Studies from Asia highlighted another aspect of growing
internationalization of the world economy in the recent period viz., an increasing resort by
developing country enterprises to direct investments abroad as a strategic tool for
strengthening their competitiveness. The threat of losing markets in industrialized countries
because of rising protectionism in the wake of formation of regional trading blocs has been
responded to by making trade supporting and strategic asset seeking investments in major
markets. The trend of shifting labor intensive production by newly industrializing economies
to low wage developing countries helps the developing host countries to expand their
manufactured exports.

Chen C. (1997), The Location Determinants of Foreign Direct Investment in
Developing Countries
The study shows those countries with larger market size, faster economic growth, higher per
capita income, a higher level of FDI stock and more liberalized trade policies represented by
a higher degree of openness attracted relatively more FDI inflows, while higher efficiency
wages and greater remoteness from the rest of the world deterred FDI inflows. The study also
found that China's relative performance in attracting FDI inflow was only at a level
moderately above average both among the developing countries and among the East and
South-East Asian countries.

Ganesh S. (1997), Who Is Afraid of Foreign Firms? Current Trends in FDI in India
examined that paper examines whether foreign direct investment (FDI) is assuming a
dimension which can threaten Indian industry. Data on FDI approvals in the post
liberalization period have been compared with data on capital formation by local industry
during the same period. From an analysis of the current level of dominance by foreign firms,
the likely impact of fresh FDI has been analyzed and assessed at the sect oral level. The
findings are likely to have relevance at least over the next five years.
While the thrust of the paper is on whether there is a basis for the fear that foreign firms will
gradually wipe out indigenous industry, some other issues related to FDI are also examined.
These include trends in technical collaboration approvals (compared with FDI), sect oral
levels of exports and trade balance and dividend outgo (compared with know-how and
royalty payments).




Sharma K. (2000), EXPORT GROWTH IN INDIA: HAS FDI PLAYED A ROLE?
Export supply is positively related to the domestic relative price of exports and higher
domestic demand reduces export supply. Foreign investment appears to have statistically no
significant impact on export performance although the coefficient of FDI has a positive sign.

Pradhan, Prakash J. (2003), Rise of service sector outward foreign direct Investment
from Indian economy: trends, patterns, and determinants reviewed the recent trends and
patterns and tries to identify determinants of such investment. As compared to the eighties,
the character of service sector OFDI flows has gone through several transformations. In the
seventies it is largely a phenomenon led by firms from hotels & restaurants, finance and
marketing segments and is being directed at developing regions in overwhelming cases and is
mostly minority owned. In contrast, during nineties it is predominantly led by the software
segment of the service sector, location ally developed country oriented and is largely
majority-owned ventures.

Pradhan J. P. (2004), The determinants of outward foreign direct investment: a Firm]
level analysis of Indian manufacturing, found that several firm specific characteristics
such as age, size, R&D intensity, skill intensity and export orientation are observed to be
important explanatory factors in the outward foreign direct investment (FDI) activity of
Indian firms. The impact of age and size on FDI has been observed to be non linear. The
product differentiation activities and the productivity of firms are other useful factors in
overseas production expansion in certain industries. The study reveals that the performance
of these firm specific variables is subject to sect oral dynamics. Internationalization of
production activities of Indian firms has been observed to be partly fuelled by policy
liberalization during the 1990s.

Chakraborty C. (2002), Foreign direct investment and growth in India: a co
integration approach VECM model revealed three important features: (a) GDP in India is
not Granger caused by FDI; the causality runs more from GDP to FDI; (b) trade liberalization
policy of the Indian government had some positive short run impact on the FDI flow; and (c)
FDI tends to lower the unit labour cost suggesting that FDI in India is labour displacing.










A research process consists of stages or steps that guide the project from its conception
through the final analysis, recommendations and ultimate actions. The research process
provides a systematic, planned approach to the research project and ensures that all aspects of
the research project are consistent with each other. Research studies evolve through a series
of steps, each representing the answer to a key question.
A successful completion of any project and getting genuine results from that depends upon
the method used by the researcher. The methodology for this study is laid upon the following
basis:
i. Research Design
ii. Sources Of Data Collection
iii. Sampling Plan/Types of Research
4.1 RESEARCH DESIGN
A research design is an arrangement of condition for collection and analysis of data in a
manner that aims to combine relevance to the research purpose with economy in procedures.
It constitutes the blue print for collection, measurements and analysis of data. The research
design for this research is descriptive.
4.2 SOURCES OF DATA COLLECTION
Primary Data: It is derived from structured data. No primary data has been used in the
completion of this project.
Secondary Data: It is obtained from books, magazines, journals and websites. This
project has been throughly prepared from secondary data sources mentioned below.

4.3 TYPE OF RESEARCH
Secondary research were carried out in the form of a literature review, to compare and
contrast material and interpret the issues with a view to drawing conclusions and developing
recommendations.

Secondary Data Sources.
a) Internet- Searching the internet extensively the starting point of this research and
provided some valuable secondary data. Website such as the Government of India's


Ministry of Finance which provides information on current FDI policy through the
Foreign Investment Promotion Board (FIPB), and also provides press releases and
data and statistics have been useful. The report also references some small domestic
industry group's website useful, and other trade lobby sites. One particular notable
internet resource was the Centre For Policy Alternatives which have provided
particularly informative reports on some of the key issues with FDI in Indian Retail.

b) News articles and Industry reports- To obtain up to date information and opinions
on the research topic it was necessary to refer to domestic and international news
articles and gather a variety of industry reports and papers.

4.4 Research Findings
Data processing could be done manually or electronically. It involves editing, categorising,
coding, computerisation and preparation of graphs and diagrams. Under this study, the
information has been fed in electronically.
Thereafter, the research findings are developed based upon the data and information.

4.5 Limitations Of The Study
The major limitations of this study are given below:
This report is strictly based upon the secondary data.
The study suffers from the major limitation of obsolesce of the information.
The study and data dates back to different time periods.
There is a biased opinion based upon the preference of the data provider on the basis
of his/her preview towards FDI in retail sector of India.





















The total amount of FDI in India came to around US$ 42.3 billion in 2001, in 2002 this figure
stood at US$ 54.1 billion, in 2003 this figure came to US$ 75.4 billion, and in 2004 this
figure increased to US$ 113 billion. This shows that the flow of foreign direct investment in
India has grown at a very fast pace over the last few years

Table 5.1 FDI flow in India in last few years




The pace of growth in retail in India is very fast and it is expected that it will grow up to US$
833 billion by the year 2013 and US$ 1.3 trillion by 2018 (at a compounded annual growth
rate 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%.





0
20
40
60
80
100
120
2001 2002 2003 2004
FDI flow in India in last few years
FDI flow in US $ Billion


Table 5.2 Organised Retail Growth An Opportunity



The key factors that drive growth in retail industry are Young demographic profile (Average
age of an Indian homeowner has fallen to 27 from 40 years in the last decade), increasing
consumer aspirations, growing middle class income, improving demand from rural markets,
housing boom (An estimated 2.5 million new homes are required every year), rising incomes
and improvements in infrastructure are accelerating the retail growth. Increase in re-location
of people for professional & other reasons.

1) As per the current regulatory regime, retail trading (except under single-brand product
retailing FDI up to 51 per cent, under the Government route) is prohibited in India.
Simply put, for a company to be able to get foreign funding, products sold by it to the
general public should only be of a single-brand; this condition being in addition to a
few other conditions to be adhered to.

2) The government in a series of moves has opened up the retail sector slowly to Foreign
Direct Investment (FDI). 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.
0
100
200
300
400
500
600
700
2006 2010 2015
Organised Retail Growth -- An Opportunity
US $ Billions



3) 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 Indias GDP

4) Concerns for the Government for only Partially Allowing FDI in Retail Sector
a. It would lead to unfair competition and ultimately 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.
b. Another concern is that the Indian retail sector, particularly organized retail, is
still under-developed and in a nascent stage and that, therefore, it is important
that the domestic retail sector is allowed to grow and consolidate first, before
opening this sector to foreign investors.
c. Antagonists of FDI in retail sector oppose the same on various grounds, like,
that 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.
d. 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
e. 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.

The cabinet of ministers cleared the commerce ministrys proposal for 51% FDI in multi-
brand retail (with several riders) and increased the limit in single brand retail from 51% to
100%. There was an immediate hue and cry from the opposition parties, traders associations
and finally political allies that this would result in the death of the small trader and long term
exploitation by the international giants. Prior to 1997, FDI in multi-brand retail was allowed
on a case to case basis and one of the prominent players which entered was Dairy Farm
International in a tie up with RPG group to start the Food world chain.


Effect of Modern Retail on Small Shopkeepers
A study conducted by ICRIER across 1,598 small retailers (793 in head to head competition
and 805 in safe neighborhoods) was conducted from March to October 2007. Some
significant findings were:
1. Head to head stores sales decreased in 50% of stores, was flat in 33%, increased in
17% of stores. Safe neighborhood stores sales decrease in 29%, flat 31%, increase
40%. 61% of decline in sales was attributed to the opening of modern retail
2. Profitability of head to head stores fell by 16% while in safe neighborhood stores it
went up by 5%.
3. Decrease in employee count was around 2 to 3% in both the stores.
4. The rate of closure of small retail shops was found to be 4.2% which is much lower
than the global average. Only 1.7% closed down due to modern retail.
5. Small retailers were taking both offensive and defensive action to respond to modern
retail. Offensive steps included improving store display, increase range and brands,
improving store looks and launch of self service. Defensive actions were cutting of
expenses, cutting prices, reducing staff.
6. 71% of the shoppers who shopped at modern retail outlets were in favor of opening of
more such stores. 24% were not in favor while 5% had no opinion.
7. The main reasons for preference of modern retail stores were better quality of
products, discounts, higher brand choices, one-stop shopping, fresh or new stock,
wide product range, family shopping experience and better service.
8. 34% of the shoppers who shopped at small neighborhood stores were in favor of
opening up of modern retail outlets in their area with 25% against and 41% with no
opinion.
9. The preference for small retailers were closer to home, goodwill, availability of credit,
bargaining, buying of small/loose quantities, convenient timings and home delivery.
Another report in 2008 revealed the following on supply side:
1. The average realization for the farmers when they sold directly to retailers was 15 to
20% higher against sale through mandis.
2. The turnover and the profits of intermediaries had been affected. Most of them,
however, wanted to expand their businesses due to opportunities in selling to modern
retail
3. Large manufacturers have started feeling the pinch through price and payment
pressures from larger retailers. They have reacted by strengthening brands, increasing


retail presence, adopting small retailers, and setting up dedicated teams to deal with
modern retailers.

The Available data and the research already made on the above subject has given an
understanding that Cedric Durand who had made the study analysis has revealed that the
Foreign direct investment that has been accentuated by the International giants such as
Walmart, Careffour have caused disasters for the local entrepreneurs and this could well
materialize in the Indian context also. Therefore learning from the other peoples experience
is the key to any decision making before a giant leap is made by allowing foreign direct
investment in India
This goes without saying that there is no free luncheon and everything has a price to be paid
for and this could be very well in the form of taking away the profits from Indian funds.

This could be sited with an example such as :-
Mr. X (a foreigner) invests 10000 dollars in India with a promise to provide all the modern
facilities to the Indian citizens. But when Mr. X is investing such a sum the Cost benefit
analysis can be had from the following:
On the benefit side
1. He gives employment to Indian people
2. A good quality product at reasonable price.
3. He eliminates the intermediaries by providing an effective and a highly sophisticated
distribution system.
4. Therefore there is control on the rise of inflationary threat.
On the loose side
1. He disrupts the self-employed class which is already into business
2. He is free to import as much as possible thereby making the Indian farmer lame duck
for loss of production opportunity and thereby creating a lacuna in the balance of
trade in the economy.
3. He dictates the Indian market and thereby can be a price maker in future.
4. He provides employment to have a sound educational background only at salaries
which he can demand, thereby reducing the wage structure in vogue

The above example can be very well be correlated to the Unorganized sector in India with the
advent of Wal-Mart and other retail giants coming into India.



Therefore one can easily smell a rat as these giants in the name of globalization can inject
funds and siphon off huge sum of money from the India which could not be beneficial to
India from a long term perspective.

As seen from the studies the present demographic structure of employment where majority of
the Indian society is in the unorganized sector will be jobless and a new class of educated
class will emerge and will get satisfied in getting employed with the retail giants.

Therefore the already self employed class will get replaced and no new employment
generation will take place. Also there is a danger of taking a leap into the arena where people
will develop a mindset of a satisfied job this in turn India will be creating a class of Educated
Employed and destroying a class of Educated Self Employed who are Entrepreneurs,
innovators and a real contributors to the nation.

FDI encouraging policy can remove the present limitations in Indian system such as:
1. Infrastructure
There has been a lack of investment in the logistics of the retail chain, leading to an
inefficient market mechanism. Though India is the second largest producer of fruits and
vegetables (about 180 million MT), it has a very limited integrated cold-chain infrastructure,
with only 5386 stand-alone cold storages, having a total capacity of 23.6 million MT. , 80%
of this is used only for potatoes. The chain is highly fragmented and hence, perishable
horticultural commodities find it difficult to link to distant markets, including overseas
markets, round the year. Storage infrastructure is necessary for carrying over the agricultural
produce from production periods to the rest of the year and to prevent distress sales. Lack of
adequate storage facilities cause heavy losses to farmers in terms of wastage in quality and
quantity of produce in general. Though FDI is permitted in cold-chain to the extent of 100%,
through the automatic route, in the absence of FDI in retailing; FDI flow to the sector has not
been significant.

2. Intermediaries dominate the value chain
Intermediaries often flout mandi norms and their pricing lacks transparency. Wholesale
regulated markets, governed by State APMC Acts, have developed a monopolistic and non-
transparent character. According to some reports, Indian farmers realize only 1/3rdof the total
price paid by the final consumer, as against 2/3rdby farmers in nations with a higher share of
organized retail.


3. Improper Public Distribution System (PDS)
There is a big question mark on the efficacy of the public procurement and PDS setup and the
bill on food subsidies is rising. In spite of such heavy subsidies, overall food based inflation
has been a matter of great concern. The absence of a farm-tofork retail supply system has
led to the ultimate customers paying a premium for shortages and a charge for wastages.

4. No Global Reach
The Micro Small & Medium Enterprises (MSME) sector has also suffered due to lack of
branding and lack of avenues to reach out to the vast world markets. While India has
continued to provide emphasis on the development of MSME sector, the share of
unorganized sector in overall manufacturing has declined from34.5% in 1999-2000 to 30.3%
in 2007-08. This has largely been due to the inability of this sector to access latest technology
and improve its marketing interface.

Thus the rationale behind allowing FDI in Indian retail sector comes from the fact, that it will
act as a powerful catalyst to spur competition in retail industry, due to current scenario of
above listed limitations, low completion 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 farmer income & agricultural growth and assist in lowering consumer prices
inflation.

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 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. Lastly, it is to be noted that the Indian Council of Research in International Economic
Relations (ICRIER), a premier economic think tank of the country, which was appointed to
look into the impact of BIG capital in the retail sector, has projected the worth of Indian retail
sector to reach $496 billion by 2011-12 and ICRIER has also come to 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.


In light of the above, it can be safely concluded that allowing healthy FDI in the retail sector
would not only lead to a substantial surge in the countrys GDP and overall economic
development, but would inter alia also help in integrating the Indian retail market with that of
the global retail market in addition to providing not just employment but a better paying
employment, which the unorganized sector (kirana and other small time retailing shops) have
undoubtedly failed to provide to the masses employed in them.

Industrial organizations such as CII, FICCI, US-India Business Council (USIBC), the
American Chamber of Commerce in India, The Retail Association of India (RAI) and
Shopping Centers Association of India (a 44 member association of Indian multiband
retailers and shopping malls) favor a phased approach toward liberalizing FDI in multi-brand
retailing and most of them agree with considering a cap of 49-51 per cent to start with. The
international retail players such as Walmart, Carrefour, Metro, IKEA, and TESCO share the
same view and insist on a clear path towards 100 per cent opening up in near future. Large
multinational retailers such as US-based Walmart, Germanys Metro AG and Woolworths
Ltd, the largest Australian retailer that operates in wholesale cash-and-carry ventures in India,
have been demanding liberalisation of FDI rules on multi-brand retail for some time

Why India is Attracting Global Retailers?

There are many reasons why India is attracting foreign players. And important point is that
there are a lot of employment opportunities in retail sector in India.
Indian retail industry occupies the second place, after agriculture, so far as
employment is concerned. Presently 1.71 lakh persons (public sector) and 5.06 lakh
persons (private sector) are directly engaged in the organized wholesale and retail
sector (Economic Survey-Statistical Appendix, 2011-12).
According to Associated Chambers of Commerce and Industry of India
(ASSOCHAM), the retail sector will create 50,000 jobs in the next few years.
According to the US Census Bureau, the young population in India will constitute
53per cent of the total population by the year 2020 and 46.5 per cent of the population
by the year 2050and it is much higher than countries like the US, the UK,
Germany, China etc. Indias demographic scenario is likely to change favorably, and
therefore, the scenario for the organized retail will also change favorably.


No doubt, major organized retailers have a far lesser reach in Indian market than in
other developed countries, the first-mover advantage of some retail players will
contribute to the sectors growth.
There is a very huge industry with no large players. Some Indian large players have
entered just recently like Reliance, Trent, etc. Moreover, India can support significant
players averaging US$1 billion in Grocery and US$0.3-0.5 billion in apparel within
next ten years.
In addition to these, improved standards of living and continuing economic growth,
growing spending power and increasing number of conscious customers aspiring to
have quality and branded products in India are also attracting to global retail players
to enter the Indian market. The transition will open multiple opportunities for
companies and investors.
There is a golden opportunity for foreign players to enter the Indian market. Growth
rates of the industry both in the past and those expected for the next decade coupled
with the changing consumer trends such as increased use of credit cards, brand
consciousness, and the growth of population under the age of 35 are factors that
encourage a foreign player to establish outlets in India.
India thus continues to be among the most attractive countries for global retailers.
Foreign direct investment (FDI) inflows between April 2000 and April 2010, in
single-brand retail trading, stood at US$ 194.69 million, according to the Department
of Industrial Policy and Promotion.

Challenges in Indian Retail Sector for Global Retailers
In India the retailing industry has a long way to go and to become a flourishing industry,
retailing needs to cross various obstacles. Following are the challenges:
1. Organized retail sector will face the competition from unorganized sector. The Indian
retail sector is full of the unorganized retailing with the dominance of small and
medium enterprises as opposed to the presence of few giant corporate retailing
outlets.
2. The trading sector is highly fragmented, with a large number of intermediaries who
operate at a strictly local level and there is no barrier to entry, so far as the structure
and scale of these operations are concerned (Singhal, 1999).


3. The tax structure in India favours small retail business as maximum retailers are sole
owners of the business and under the present tax regime tax rates are favourable for
the individual tax payers. Its not in the case of organized retail as these businesses
established in the company form and has to pay huge taxes, which is negligible for
small retail business. Thus, the cost of business operations is very high in India.
4. There is absence of infrastructure facilities for the organized retailers like developed
supply chain and integrated IT management. This absence of adequate infrastructure
facilities, lack of trained work force and low skill level for retailing management
further makes the sector quite complex.
5. Rapid price changes, low margins, high cost of real estate, threat of product
obsolescence and heterogeneous consumer groups are the other challenges that the
retail sector in India is facing.
6. In India Government regulations and policies and real estate prices will affect the
retail industry.

7. Consumer spending pattern is not consistent and there is no consistent increase all
over the globe, so this may also pose problems for the retail sector. Consumer
spending may further contact as banks are very cautious in lending nowadays.
8. Organized retailers have been facing a difficult time in attracting customers from
traditional kirana stores, especially in the food and grocery segment.
9. This long impending approval includes a set of riders for the foreign investors, aimed
at ensuring 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. These riders could complicate potential FDI
investments, acting as a damper.




Table 5.3 RIDERS FOR THE MULTI-BRAND AND SINGLE-BRAND RETAIL

Parameters

Multi-brand retail Single-brand retail

Ownership/ investment
requirement
Minimum investment of US$
100 million by the foreign
investor
The foreign investor should be
an owner of the brand
I nvestment towards
back-end
infrastructure
At least 50% of the investment
by the foreign company to be
in back-end infrastructure1

Location of stores Stores to be restricted to cities
with a population of one
million or more,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 should be
through domestic small and
medium enterprises (SMEs)
In respect of proposals
involving FDI beyond 51%,
30% sourcing would
mandatorily have to be done
from domestic SMEs and
cottage industries artisans and
craftsmen
Approval of State While the proposals on FDI
will be sanctioned by the
Centre, approvals from each
While the proposals on FDI
will be sanctioned by the
Centre, approvals from each
Sales 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









Whatever decision is being taken by anyone there are always two aspects of it and allowing
FDI in retail in India is not an exception. This section throws light on both the aspects of the
FDI in retail in India.

6.1 Positive Aspects
1. In the battle between the advocators and opponent of unrestrained FDI flows in the
Indian retail industry, the interests of the consumers have been disregarded.
Therefore, interests of consumers at large in relation to the interests of retailers must
be considered first of all.
2. The recommendation of the Survey made excited most of the organized retailers.
3. Investment Commission in July, 2006, suggested that 49% FDI shall be allowed in the
Indian retail sector without any restrictions on the number of outlets or location of
stores.
4. The Commission also opined that foreign investment would help in improving the
retail and supply chain infrastructure, and generate large-scale employment in the
country.
5. In addition, the Indian retailers could experience some of the best operational
practices of these international retailers. Ultimately, the benefit will reach to the
consumers in the form of product variety, lower price and efficient services.
6. The recommendations of the Investment Commission proved to be very promising
and paved the way for a positive feedback to the global retailers towards the Indian
retail sector
7. The global retailers have advanced management practices inventory management and
have new technologies which can improve productivity and efficiency in retailing
8. Adoption of integrated supply chain management by global retailers is likely to lower
down the prices
9. FDI in retailing will assure the customer service, quality of product and better
shopping experience.
10. They promote the linkage of local suppliers, farmers and producers, to global market
and this will ensure a profitable and reliable market to these local players

11. FDI in retail would reduce cost of intermediation and entail setting up of integrated
supply chains that would minimize wastage, give producers a better price and benefit
both producers and consumers. From the stand point of consumers, organized


retailing would help reduce the problem of adulteration, short weighing and
substandard goods.
12. Moreover, with the free flow of finance in conjunction with advent of healthy inflow
of FDI, the supermarkets and hypermarkets will be in a better position than small
retailers to make shopping a pleasant experience by making investments in much
needed infrastructure facilities like parking lots, coffee shops.
13. It can thus be safely contended that with the possible advent of unrestrained FDI
flows in retail market, the interests of the retailers constituting the unorganized retail
sector will not be gravely undermined, since nobody can force a consumer to visit a
mega shopping complex or a small retailer/sabji mandi.
14. Consumers will shop in accordance with their utmost convenience, where ever they
get the lowest price, max variety, and a good consumer experience. Moreover, it is to
be noted that the small retailers will still remain in their business because of their
location near the residential societies
15. Allowing FDI in the retail sector would lead to a substantial increase in the countrys
GDP and overall economic development. It will also help in integrating the Indian
retail market with that of the global retail market.
16. It will provide better paying employment, which the unorganized sector (kirana and
other small time retailing shops) have failed to provide.
17. Apart from this, by allowing FDI in retail trade, India will significantly grow in terms
of standards of quality and consumer expectations. The interest of the consumers
should take precedence over the interest of the retailers and consequently FDI in retail
should be permitted

6.2 Negative Aspects
Queue of Big Giants with Bags Full of Foreign Exchange ArmorsWaiting for Opening up of
Doors of Indian Retail Industry and Ready to Present Competition to Local Retailers









Table 6.2 WAL-MART VS. INDIAN RETAIL
Wal-Mart Indian Retailer

The largest retailer in the world with
annual turnover-$ 256 billion and
annual growth-12-13%


Had a turnover of Rs.1,86,075 only

Net Profit in 2004-$ 9,000 million Only 4% of the 12 million retail
outlets were larger than 500 square
feet in size

Employing more than 1.4 million
persons
Total turnover of the unorganized
retail sector was Rs.7,35,000 crores


More than 4,800 stores and more than
1,400 are outside USA

Employing 39.5 million persons

Average size of a Wal-Mart is 85, 000
square feet



Average turnover per store was about
$ 51 million and turnover per
employee was averaged at $ 1,75,000



Foreign direct investment plays an important role in Indias growth dynamics. The examples
are software and services industry, two-wheeler, automobile and auto-component industries,
electronics and telecommunications.

Claims of Monopoly:
The entry of big retail giants like Walmart, Tesco is touted to monopolize the retail sector and
threaten the livelihoods of kirana (mom-and-pop) shops. This is most unlikely because of the
following reasons
1. Foreign brands are allowed to set up stalls only in cities with a minimum population of 10
lakh which would mostly count to 50-80 cities. The kirana shops will still continue to
thrive and will by no means annihilate their livelihoods.
2. Unlike the huge number of kirana shops which you would find in every lane, these big
retail malls will be a significant drive from your house. You would probably shop in
these outlets to stock your weeks grocery. But given the fact that vegetables are


perishable very soon, you would not drive all the way to these big retail outlets but
instead walk into a kirana shop in your neighborhood and buy your food items.
3. Your vegetables and fruits are most of the times fresh in kirana shops. Personally, I prefer
to buy vegetables and fruits from kirana stores even if they cost me an extra 1 or 2 rupee.

Modernization of Indian Retail sector:
1. The Indian retailing is nascent and its SCM has been ineffective. The entry of FDI will
bring in innovative retailing processes, effective supply chain management, and efficient
storage options.
2. Statistics reveal that more than 40% of food production does not reach consumers. They
either rot during transportation or is not properly stored at convenience stores.
3. Organized Retailing will avoid food loss and eliminate middlemen thereby increasing the
income for the farmers. But this is turn is argued to bring in new set of middlemen like
the quality guys, packaging companies and so on.
4. For food preservation, new cold storage processes will be employed. But given the fact
that India is a power starved country, one is left to wonder how these expensive storage
systems would be powered.
5. With close to 50% investment in India, our infrastructure will improve and most of the
profits would still come to India (thanks to our high taxation rules which on the flip side
is hindering the FDI)
6. Online Retailing: Content writing for product descriptions on their online site is in itself a
big money deal. Imagine maintaining their websites to cater to Indian audience. Thats a
lot of money for content writing industries.

Employment Opportunities:

1. FDI is projected to bring in employment opportunities to millions of people. With IT,
most of the processes would be automated with less need for humans.
2. Many argue that the employment rate would hardly be 3-4%. But that 3-4% would mean
millions and millions of people.
The Union Cabinet has approved 51% FDI in multi-brand retail and raised the cap on FDI in
single-brand retail from 51% to 100%. Partner & National Leader - Retail and Consumer


Products, Pinakiranjan Mishra, and Partner - Tax, Paresh Parekh, share their views on this
development.

Growth of the Retail sector in India - Improvement in Retail capability building
About 5-7 years back, the industry was expected to grow at a much faster rate than what it
actually has. Lack of retail experience & capability has been one of the primary reasons for
this subdued growth. FDI in retail will make way for inflow of knowledge from international
experts which can give boost to the overall growth of the industry. Capability building apart
from financial investments is extremely important for the industry.

Push to Infrastructure - Improvement in management of supply chain
FDI in retail will boost investment in infrastructure from the retail players, 3rd party supply
chain companies as well as the Government in the back of a sophisticated front end that
international players are likely to bring. This will improve the efficiency of the supply chain,
which will bring down the wastage, increase efficiency and reduce the overall cost to the
consumer.
Push to productivity - The Farming Community in India
Our productivity in food & agriculture is one of the lowest in the world and there is a
significant opportunity for upliftment of output with investment in better farming practices.
FDI in retail will mean that the farming community will have a new support group with a
common interest which is expected to give a great push to productivity.
Likely impact if there is relaxation of FDI policy in Retail
Single brand
This is a welcome step. FDI investment in single brand retailing till now has just been 0.03%
[Rs 204 cr / usd 44 mn] of total FDI investments from April 2000 to September 2011. This
relaxation is likely to result in increase in FDI in retail sector, by way of either new foreign
entrants, or buy outs / increase in stake / M&A amongst existing single brand JVs with
foreign partners. We could also potentially see present licensing / distributor / franchise
arrangements being converted to either JVs with respective foreign retailer / brands, or,
foreign retailers completely buying out the Indian licensee / franchisee / distributor.


Multi brand
This is a welcome and historic step. This is likely to result in increase in investments and
growth in Indian retail sector, which is ranked amongst the top retail destinations in the
world. Besides new entrants / joint ventures, this could also result in combination of existing
cash and carry operations of foreign players with retail operations of Indian retailers, or,
foreign retailer acquiring stakes in existing Indian retail entity. Also, this could provide
further options to existing Indian retail chains / groups to raise long term capital for
expansion and maybe to attract partnerships with some global players. Also, foreign multi
brand retailers, who did not want to enter India through cash and carry operations, may now
explore Indian presence by having stake in Indian retail company.
Whatever decision is being taken by anyone ,there are always and will be two aspects of it
and allowing FDI in retail in India is not an exception.










Categories Of Retail Market
http://www.indianrealtynews.com/category/retail-market
Is FDI in retail a death knell for SMEs
http://www.financialexpress.com/news/Is-FDI-in-retail-a-death-knell-for-SMEs/138090/1
Indias number of dometic grocery chains & early foreign entrants
http://cci.gov.in/images/media/ResearchReports/FDI%20and%20Market%20Power%20%20
TransNational%20Corporations%20and%20Impact%20on%20Competition.pdf
Research Article on FDI in retail
http://www.vsrdjournals.com/MBA/Issue/2012_07_July/Web/3_Arun_Kr_Singh_773_Resea
rch_Article_MBA_July_2012.pdf
Indian FDI watch FDI more bad than good.
http://www.indiafdiwatch.org/fileadmin/India_site/10-FDI-Retail-more-bad.pdf
Yahoo Answers
http://in.yahoo.com/
Google Inc.
http://www.google.co.in/
Share Tips on FDI in Retail
http://www.sharetipsinfo.com/fdi-retail.html
Anirban Chakrabarty Article on FDI in retail
http://www.valuenotes.com/uploads/article_pdf/Anirban%20Chakraborty_FDI_11Oct12.pdf
How will FDI affect the retail sector in India
http://www.quora.com/FDI-in-Retail-in-India/How-will-FDI-affect-the-retail-sector-in-India
Is India ready to take on FDI?
http://www.grin.com/en/e-book/183618/fdi-in-india-s-multi-brand-retail-sector-how-to-get-
ready-for-the-big


National Issues in retail sector
http://www.halfmantr.com/display-national-issues/230-retail-sector-the-issue-of-fdi
http://www.studyfreak.com/gdHome.php?gd=59









PROJECT REPORT
ON
The study of foreign direct Investment in
retail sector of INDIA

Submitted for the partial completion of the degree of
Bachelor of Business Administration