Impact of Fdi Indian Retail Entrepreneurs

Volume 3, Number 2, April June 2014
ISSN (Print):2279-0934, (Online):2279-0942

PEZZOTTAITE JOURNALS
IMPACT OF FDI INDIAN RETAIL ENTREPRENEURS

S. Ilayaraja1
ABSTRACT
After the liberalization, many sectors have nourished in our country. One of such sectors is retail. For a long time, there were
efforts for FDI (Foreign Direct Investment) in the retail sector so that the trader can reap the benefit of FDI. The entry of FDI
can create job opportunities in the country because it is envisaged as a great relief for the unemployment status but a
havocking fear of FDI in retail trade is that it will certainly disrupt the livelihood of the poor people engaged in this trade. The
FDI will create a monopoly power in the country. However, FDI in retail leads to both boon and horrible situation in the
country. In this regard, this paper examines the positive and negative impacts of FDI in the country in retail sector, and in
relation to the Small retail entrepreneurs in India.
KEYWORDS
Foreign Direct Investment, Small Scale Entrepreneurs, Organized Retail, Unorganized Retail etc.
INTRODUCTION
Retail is the sale of goods and services from individuals or businesses to the end-user. Retailers are part of an integrated system
called the supply chain. A retailer purchases goods or products
). Retail sector in India encompasses 7%
of the workforce and contributes 12% share in GDP (Deloitte Report, 2013). The sector consists of food items, groceries, durable
goods, consumables, etc. Retailing can be done in fixed locations either like stores or markets, door-to-door or by delivery. The
marketing strategies of the retailers are Department stores, Warehouse stores, Variety stores, Mom-And-Pop, Specialty stores,
General store, Convenience stores, Hypermarkets, Supermarkets, Malls, Vending Machines, etc. (Keerthi, et al., 2012).
Table-1: Retail Market Categories
Category 2011 Estimates Category 2011 Estimates

(in US $Bn) (in US $Bn)
Food and Grocery 325 Restaurants & Food Joints 8.8
Apparel 35 Footwear 4.5
Jewelry and Watches 25.6 Beauty Services 1.3
Consumer Electronics & IT 22.7 Health/Fitness Services 1
Pharmacy 13.9 Others 23
Furnishings & Furniture 9.1 Total (US $ Bn) 470
Sources: Techno Park Analysis
Chart-1: Indias Retail Market (in Billions) Chart-2: Expected Growth Rate (in %)
Sources: Techno Park Analysis
The retail sector is structured into two types:

Organized sectors,
Unorganized sector.
1
Assistant Professor, Department of Management Studies, Madurai Kamaraj University, & Research Scholar, Department of
Management Studies, Manonmaniam Sundaranar University, Tamil Nadu, India, rathnailayaraja@yahoo.com
International Journal of Retailing & Rural Business Perspectives Pezzottaite Journals. 960 | P a g e
Organized Sector
The organized retailing is the trading activities undertaken by licensed retailers, those who are registered for sales tax, income tax,
etc. these include the corporate-backed hypermarkets and retail chains, and the privately owned large retail businesses. India has
only 9- % z . F P S S R R G T
L S .
Table-2: Share of Organized Retail in India
Year 2002 2005 2009 2010 2013

Total Retail (in billion INR) 8250 10000 18450 19500 24000
Organized Retail (in billion INR) 150 350 920 1350 2400
Share of Organized Retail (%) 1.80 3.50 5.00 7.00 10.00
Sources: www.nielsen.com
Unorganized Sector
Indian retail is dominated by a large number of small retailers consisting of local kirana shops popularly known as mom and pop
stores, dairy shops, green grocers etc., which together make up the so-called unorganized retail or traditional retail. About 90%
constitutes the unorganized sector in India.
The FDI refers to capital inflows from abroad that is invested in or to enhance the production capacity of the economy. The Indian
parliament has allowed FDI in retail on December 7, 2012. Manmohan Singh, the Prime Minister of India, feels that this will be
beneficial for both consumers and farmers. Agricultural marketing is also expected to be benefited with the introduction of new
technologies. Thus, the FDI enters into India and strips a major role in our country at present (Gupta, 2012).
ADVANTAGES OF CONVENTIONAL AND MODERN ORGANISED RETAIL REFORMS
Conventional Modern Organized

Large Bargaining Power Low operating cost and overheads
Low operating cost and overheads Range and variety of goods
Long operating hours, strong customer Long operating hours, quality assurance
relations, convenience and hygiene. (brand related and durability).
Chart-1: The Fragmented Retail Sector in India
Sources: YES Bank Analysis
FACTORS DRIVING THE GROWTH OF RETAIL IN INDIA
After the liberalization the entry and exit process become more frequent. Many foreign countries have entered into India and have
tremendous stipulation in their area by occupying the country. Numerous factors stipulate the growth of retail sector in India.
Some of the factors are listed below:
International brands entering the Indian market,

A greater variety of new stores,
Dual family income,
Organized Sector
The organized retailing is the trading activities undertaken by licensed retailers, those who are registered for sales tax, income tax,
etc. these include the corporate-backed hypermarkets and retail chains, and the privately owned large retail businesses. India has
only 9- % z . F P S S R R G T
L S .
Table-2: Share of Organized Retail in India
Year 2002 2005 2009 2010 2013

Total Retail (in billion INR) 8250 10000 18450 19500 24000
Organized Retail (in billion INR) 150 350 920 1350 2400
Share of Organized Retail (%) 1.80 3.50 5.00 7.00 10.00
Sources: www.nielsen.com
Unorganized Sector
Indian retail is dominated by a large number of small retailers consisting of local kirana shops popularly known as mom and pop
stores, dairy shops, green grocers etc., which together make up the so-called unorganized retail or traditional retail. About 90%
constitutes the unorganized sector in India.
The FDI refers to capital inflows from abroad that is invested in or to enhance the production capacity of the economy. The Indian
parliament has allowed FDI in retail on December 7, 2012. Manmohan Singh, the Prime Minister of India, feels that this will be
beneficial for both consumers and farmers. Agricultural marketing is also expected to be benefited with the introduction of new
technologies. Thus, the FDI enters into India and strips a major role in our country at present (Gupta, 2012).
ADVANTAGES OF CONVENTIONAL AND MODERN ORGANISED RETAIL REFORMS
Conventional Modern Organized

Large Bargaining Power Low operating cost and overheads
Low operating cost and overheads Range and variety of goods
Long operating hours, strong customer Long operating hours, quality assurance
relations, convenience and hygiene. (brand related and durability).
Chart-1: The Fragmented Retail Sector in India
Sources: YES Bank Analysis
FACTORS DRIVING THE GROWTH OF RETAIL IN INDIA
After the liberalization the entry and exit process become more frequent. Many foreign countries have entered into India and have
tremendous stipulation in their area by occupying the country. Numerous factors stipulate the growth of retail sector in India.
Some of the factors are listed below:
International brands entering the Indian market,

A greater variety of new stores,
Dual family income,
Knowledge about different product through different media like internet, television, etc., and knowledge about the latest
trend and fashion,
Rising income and increase in convergence of consumer taste and preferences,
Another important reason is changing consumer pattern,
Growing urbanization.
Graph-3: Urban Population Growth
Sources: www.globalresearch.ca
CURRENT SCENARIO
Government allowed 51% FDI in multi- brand retail and increased FDI limit in single brand retail from 49% to 100%. This is
right now put on the back burner due to opposition from the political parties. There is stiff opposition being seen within the UPA
allies in context of FDI in retail. In addition, opposition party is seeing this as an opportunity to get the political mileage. Gupta
(2012) in her study pointed out that FDI in retail would undoubtedly enable India to integrate its economy with that of the global
economy. Thus, actually FDI in the buzzing Indian retail sector should not just be freely allowed but should be significantly
encouraged.
Regulation of FDI and FII in India
The entry of foreign investment in our country is been regulated in accordance to the following:
RBI (Reserve bank of India),

FIPB (Foreign Investment Promotion Board) of the Department of Commerce under Ministry of Finance,
ICRIER (Indian Council for Research on International Economic Relations).
Process of FDI
The greatest advantage to foreign players and a diplomatic cause to Indian players is that there is no process for the FDI in our
country. The foreigners enjoys this benefits which can lead to havocking situation to our Indian players in the long set.
Implementation stages of FDI in India
The sequential events of the FDI in India are as follows:
Table-3: Stages of FDI in India
Year Stages
1995 T O z T 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 for trading
house.
2000 FDI in cash and carry brought under the automatic route Up to 51%.
2006 FDI in cash and carry brought under the automatic route up to 100% and 51% investment in single brand retail
outlet permitted.
2008 FDI up to 51% automatic route in e-commerce and not in retail trade.
2011 FDI up to 51% in multi brand retail and in single brand retail.
2012 FDI up to 100% in single brand retail permitted.
Sources: CAIT
General Facts
India has been reeling from food price inflation (it was 12% a couple of months ago). The efficiencies of superior
supply chains will reduce wastage and costs, thus lowering prices.
More and more entry of foreign players will result into huge amount of capital inflow in the country and profit earned
by these companies will give the government a handsome amount of money in terms of taxes.
FDI in organized retail could help tackle inflation, particularly with wholesale prices.
It is estimated that 50% of the investment and jobs should go to rural areas, 30% of the inputs should be sourced from
medium-sized and small enterprises.
There will be major investments in retail, creating at least 10 million jobs in industries such as agro-processing and
logistics.
Improvement in the quality of employment.
Constraints
Minimum Investment to be done is $100 million.

50% of the investment should be done in improving the back end infrastructure.
30% of all raw materials have to be procured from the small and medium enterprises.
Permission to set retail stores only in cities with a minimum population of 10 lakhs.
Government has the first right to procure material from the farmers.
Chart-2
Sources: Authors Compilation
HOW FDI CAN COME IN INDIA?
Kalyanasundaram (2012) discussed about the changes in the Indian retailing and how the foreign players are emerging into the
country and highlighted the rationale for permitting the foreign direct investment in retail and the challenges to be addressed in
Indian retail sector.
The Entry options for foreign players to make the investment in India through the following ways:
Franchise Agreements
It is I . I v FDI
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.
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.
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 Piramyd, Mumbai, SPAR entered into a
similar agreement with Radhakrishna Food Lands Pvt. Ltd.
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.
Although prior to Jan 24, 2006, FDI was not authorized in retailing, most general players had been operating in the country. Some
of entrance routes used by the foreign players have been summarized above. Still there is opposition by the people to restrict the
FDI in the retail sector (Joseph et al, 2008).
Table-4: Flow of FDI in India
Financial Year Amount of FDI Inflows

2011-2012 ( April-March) (In Rs. Crores) (In US$ mn)
1. April,2011 13,847 3,121
2. May,2011 20,946 4664
3. June,2011 25,371 5656
4. July,2011 4,886 1099
5. August,2011 12,814 2830
6. September,2011 8,407 1766
7. October,2011 5,715 1161
8. November,2011 12,814 2538
9. December,2011 7,124 1353
10. January, 2012 10,288 2004
11. February, 2012 10,874 2211
12 March, 2012 40,766 8101
2011-2012 (up to March, 2012) 173,947 36504
2010-2011 (up to March, 2011) 88,520 19427
Percentage growth over last year (+) 97% (+) 88%
Sources: Fact sheet on FDI
If FDI occupy majority of share in India or if FDI comes into the country there are pros and cons in relation to the FDI in retail
sector. Now let us see the accreditations for why shall FDI in retail are allowed? In addition, why shall FDI in retail not is
allowed? Will it pave a way for success? Alternatively, what are all the consequences it may create? Let us discuss the advantages
and disadvantages, which can provide answers to the above questions. Sharma (2010) in his paper discussed about the real fact
and the assumptions in relation to the FDI, he also discussed about the FDI policy, the entry modes of FDI and discussed about the
pros and cons of the entry of FDI.
THE POSITIVE IMPACTS OF FDI IN RETAIL
Sharma (2010) in his report stated that the country should allow FDI in retail as it could create various advantages in our country.
Some of the greater merits and favors by the welcoming of such FDI in India are as follows:
Competition
The entry of FDI in India will create a healthy competition that can foster the growth of innovation in retail industry. The healthy
and tough competition can make their products better in all ways that lead to direct and indirect economic growth by contribution
of GDP, at present retail sector share is of 12%. If FDI comes in the GDP can still increase.
Technology
Efficient logistics, production, and distribution channels will be propagated. The digital records, warehousing technologies and
various other factors lead to a change in the country. Wastage and Storage problems will be resolved. Post harvesting loses can be
summoned by using of technology.
Consumers
The consumers will get improved product availability, quality & reduce wastages and they get best products and services at
reasonable price. Moreover, Safety & quality standard will be quite high which will improve overall shopping experience of
consumers. Up gradation of lifestyle & fashion of people, and they will get easy access to international brands.
Back End & Supply Chain Improvement
Inadequate storage facilities cause heavy losses to farmers. 25%-30% of food and vegetables, 5%-7% of food grain in India are
wasted every year. An 11th plan-working group has estimated a total investment of Rs 65,000 crores in agriculture infrastructures,
so that the food inflation and fluctuation in food prices can be controlled.
Better Realization for Farmers
Today, Intermediaries dominate the value chain. Indian farmers realize only 1/3rd of the total price paid by the final consumer
against 2/3rd by farmers in nations with a higher share of organized retail. FDI can ensure better realization for farmers &
producers and provide cost advantage to the farmers.
Economic Growth
Sourcing from India will increase & Exports to get significant boost. Through FDI India can also become a shopping destination
. S T x b . D
infrastructure will be build, thus real estate sector will grow consequently banking sector, as money need to be required to build
infrastructure would be provided by banks.
Bhasin (2010) said that over the past decade, there is a complete change in the landscape of retail sector in India with the entry of
organized retail. Players including Bharti Enterprises, Reliance Retail, Aditya Birla Group and Future Group entered the segment
and registered early breakthroughs in the mind-space of the consumers. Even as the opponent of organized retail critically
evaluated the impact of the entry of large players in the retail segment.
With the Government allowing FDI in single-brand retail and gears up to garner support for FDI in Multi-brand retail, there will
be a growth in economy.
Low Cost Products
With more foreign companies investing in retail, consumers will get more choices and will have to spend less.
Employment Will Increase
The employment opportunities in the retail sector are definitely on the rise but organized retail is yet to become a preferred career
option for most of India's educated class (CAIT, 2012). Thus, the entry of FDI can create jobs for people in India, where
unemployment is a major problem, foreign companies that come to India, will offer jobs to Indians.
Table-5: Jobs through FDI
Company Number of Employees Number of Stores Average Number of

World-wide World-wide Jobs Per Store
Wal-Mart 2100000 9826 214
Carrefour 471755 15937 30
Metro 283280 2131 133
Tesco 492714 5380 92
Sources: CAIT
SSI
FDI can help small and medium scale sectors supply in large volumes, increase quality, become a vendor to international players,
increase the quality of products, and become cost competitive in global arena. Traditional trade will continue to have its own place
and should not decline. Even in the last three years when modern retail has grown 24 per cent, unorganized retail has continued to
grow at a slower rate of 10-12 per cent.
Better Service for Small Retailers
An ICRIER study, 'Impact of Organized Retailing on the Unorganized Sector, 2008', shows no evidence of a decline in overall
employment in the unorganized sector as a result of the entry of organized retailers. Rather small retailers evolve like adding new
product lines and brands, better display, renovation of the store, introduction of self-service, enhanced home delivery, more credit
sales, acceptance of credit cards, etc. The government thinks that 30 percent mandatory sourcing from small-scale sectors will
help small industry. However, the real vision from the nation is that the small and medium industry does not have more growth in
comparison to other sectors. Thus with the invention of FDI, it leads to:
Massive job generation,

Increase the inflow of foreign investment,
Reduce farm wastage,
Strong back-end infrastructure
Food supply chain, etc.
THE NEGATIVE IMPACTS OF FDI IN RETAIL SECTOR
FDI in Retail should not be allowed because of the adverse impacts of it, which are as follows:
Job Losses
Retail industry in India is the second largest employer after agriculture; any game-changing situation can lead to heavy job losses
particularly in rural areas and small cities. Therefore, it will create the situation for reduction in employment.
Entrepreneurial Talent
As these big retail giants are very particular and predefined about their operations, they would require very less amount of
creativ .
Exports & Imports
It can upset the import balance, as large international retailers may prefer to source majority of their products globally rather than
investing in local products. Initially, they often sell below cost in the new markets. Once the domestic players are wiped out of the
market, foreign players enjoy a monopoly position, which allows them to increase prices and earn profits.
Power of Scale
Unfair competition and abilities of big retailers to sustain losses can lead to large-scale exit of domestic retailers, especially the
small family managed outlets and the petty shop owners.
Economic Revenue
FDI v v I v
economy. Therefore, the Indian income is taken outside.
RETAIL SECTOR: FUTURE PROSPECTS
The overall retail market (organized and unorganized) is expected to grow at a compounded rate of 15 % over the next
5 years from INR 23 trillion in 2011-12 to INR 47 trillion in 2016-17.
Organized retail is expected to grow faster than total retail at 24 % by 2016-17 as compared to 15% growth of total
retail during the same period.
This growth will be driven by increasing influence among urban consumers, growing preference for branded products
and higher aspirations among youth.
On the supply side, this growth will be supported by expansion plans of existing players and the entry of new players.
Consequently, organized retail penetration is likely to increase to 10% in 2016-17 from 7 % in 2010-11.
It is expected that store-based retailing will witness a CAGR of 7.6% during 2011-16 and will grow by 44% in absolute
terms over this period
Within store-based retailing, grocery retailers are forecasted to grow at a CAGR of 8.9% during 2011-16 and non-
grocery retailers will grow at 6% in current sales value terms.
Among the traditional grocery retailers, kirana stores will continue to be the largest contributor to value share by 2016,
expected to account for a 61% share of constant value sales.
In terms of outlet numbers, independent small grocers will account for 74% share in 2016.
Hypermarkets are expected to see the fastest growth between 2011-16 with a CAGR of 13.4% and 87.4% in absolute
terms.
Modern Grocery Retailers as a whole would grow at a CAGR of 11.7% in 2011-16 as compared to 8.2% for traditional
grocery retailers.
WHAT INDIA MIGHT HAVE DONE?
According to Government of India, India has one of the highest percentages of post-harvest loss, a lot as high as 40% or even
more. This loss leads to misery of farmers and high cost of agricultural produce for consumers. Proponents of FDI in Retail
believe magical effect on reducing post-harvest loss. But the government itself can elucidate the importance of post harvesting to
the farmers and improve the technology so as to sophisticate the post harvesting loses in our country.
Secondly, the government instead of making reforms in unorganized retail sector, it is trying to create a rift in harmonious society
(producer-transporter-trader-consumer) and is working against the poor and common citizen. The tiers of the process can be
reduced from 7 to 4 layers. Therefore, instead of inviting FDI in Retail, the Government should work out a comprehensive
strategy, to upgrade and modernize the existing retail trade, which could meet all requirements of, modernize retailing.
It is also suggested that Government should formulate a National Policy for Retail Trade with defined parameters for its structured
and well-designed growth including availability of finance from Banks & other financial institutions at primary sector lending rate
to enable the existing retailers to expand their business and to meet the global challenges.
Goetz and Swaminathan (2004) witnessed that the savings of the people increased from 18% in 1991 to nearly 36% in 2012.
However, the major quest is that these savings did not turn-up in equivalent investment. Even though the savings increase the
investment remains constant Government could take some initiatives in encouraging the savings into such investment in our
country.
CONCLUSION
There are more challenges that are to be faced by the foreign players to enter in the country. Indian environment is not conclusive
for them. The process of setting up the FDI in India is very simple. Therefore, they start building up their routes in a faster way
into our country. The harmony with the Indian retailer cannot be maintained with those foreign bugs. They cannot interpret the
relationship with the petty shop owners, the mom and pop shops. India is envisaged for its own Culture, so they will oversee the
cultural constraints in growth of foreign cultures. Therefore, in part of considerations with the Environment, Culture, Competition
and Annachi relationships are some of the factors that lead the FDI a lot more time to yield profit. It should not say that the entry
of FDI would create more competition and it spoils the local retailers. Competitions cannot be vanished, one has to compete with
the competitors and so they only can survive.
REFERENCES
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5. (2012, October). FDI in Retail- Advantage Farmers (Report). ASSOCHAM India.
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Bangalore: Christ University.
7. Joseph, M., Soundararajan, N., Manisha Gupta, M., & Sahu, S. (2008). Impact of Organized Retailing on the
Unorganized Sector (Working Paper No. 222). Indian Council for Research on International Economic Relations.
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Implications. International Journal of Engineering and Management Science, 3(3), 280-283.
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Traders Vyapar Bhawan.
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Volume 3, Number 2, April June 2014

ISSN (Print):2279-0934, (Online):2279-0942

IMPACT OF FDI INDIAN RETAIL ENTREPRENEURS

Table-1: Retail Market Categories

Category 2011 Estimates Category 2011 Estimates

Sources: Techno Park Analysis

The retail sector is structured into two types:

Table-2: Share of Organized Retail in India

Year 2002 2005 2009 2010 2013

ADVANTAGES OF CONVENTIONAL AND MODERN ORGANISED RETAIL REFORMS

Conventional Modern Organized

Chart-1: The Fragmented Retail Sector in India

Sources: YES Bank Analysis

FACTORS DRIVING THE GROWTH OF RETAIL IN INDIA

International brands entering the Indian market,

Table-2: Share of Organized Retail in India

Year 2002 2005 2009 2010 2013

ADVANTAGES OF CONVENTIONAL AND MODERN ORGANISED RETAIL REFORMS

Conventional Modern Organized

Chart-1: The Fragmented Retail Sector in India

Sources: YES Bank Analysis

FACTORS DRIVING THE GROWTH OF RETAIL IN INDIA

International brands entering the Indian market,

Graph-3: Urban Population Growth

Regulation of FDI and FII in India

RBI (Reserve bank of India),

Implementation stages of FDI in India

The sequential events of the FDI in India are as follows:

Table-3: Stages of FDI in India

Minimum Investment to be done is $100 million.

Sources: Authors Compilation

HOW FDI CAN COME IN INDIA?

Cash And Carry Wholesale Trading

Strategic Licensing Agreements

Manufacturing and Wholly Owned Subsidiaries

Table-4: Flow of FDI in India

Financial Year Amount of FDI Inflows

THE POSITIVE IMPACTS OF FDI IN RETAIL

Back End & Supply Chain Improvement

Better Realization for Farmers

Low Cost Products

Employment Will Increase

Table-5: Jobs through FDI

Company Number of Employees Number of Stores Average Number of

Better Service for Small Retailers

Massive job generation,

THE NEGATIVE IMPACTS OF FDI IN RETAIL SECTOR

Exports & Imports

RETAIL SECTOR: FUTURE PROSPECTS

WHAT INDIA MIGHT HAVE DONE?

3. (2013). Fact Sheet of FDI.

5. (2012, October). FDI in Retail- Advantage Farmers (Report). ASSOCHAM India.

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