Foreign Direct Investment in Retail

The Retail Industry is the sector of economy which is consisted of individuals, stores, commercial complexes, agencies, companies, and organizations, etc., involved in the business of selling or merchandizing diverse finished products or goods to the end-user consumers directly and indirectly. Goods and products of the retail industry or sector, are the finished final objects/products of all sectors of commerce and economy of a country. The Retail sector of India is vast, and has huge potential for growth and development, as the majority of its constituents are un-organized. The retail sector of India handles about $250 billion every year, and is expected by veteran economists to reach to $660 billion by the year 2015. The business in the organized retail sector of India, is to grow most and faster at the rate of 15-20% every year, and can reach the level of $100 billion by the year 2015. Here, it is noteworthy that the retail sector of India contributes about 15% to the national GDP, and employs a massive workforce of it, after the agriculture sector. India's growing economy with a rate of approximately 8% per year, makes its retail sector highly fertile and profitable to the foreign investors of all sectors of commerce and economy, of all over the world. Global Jurix, a full-fledged legal organization prominent worldwide, provides all-encompassing services and advice for most lucrative and secured fdi in indian retail sector.

FDI in Retail India

AT Kearney (a globally famous international management consultancy) recognized India as the second most alluring and thriving retail destination of the world, among other thirty growing and emerging markets. At present, other profitable retail destinations of the world are China and Dubai of Asia. Diverse foreign direct investment in indian retail is greatly cherished by most of the major and leading retailers of USA and European countries, including Walmart (USA), Tesco (UK), Metro (Germany), and Carrefour (France). Liberalization of trade policy and loosening of barriers and restrictions to the foreign investment in the retail sector of India, have collectively made the fdi in retail sector quite easy and smooth. Our services are easily and economically available for the following ways of fdi in indian retail. The fdi in india's retail business can be made through any of the following routes:

Joint Ventures Franchising Sourcing of Supplies from small-scale sector Cash and Carry Operations Non-Store Formats

FDI can be defined as a cross border investment, where foreign assets are invested into the organizations of the domestic market excluding the investment in stock. It brings private funds from overseas into products or services. The domestic company in which foreign currency is invested is usually being controlled by the investing foreign company. Eg. An American company taking major stake in a company in India. Their ROI is based on the performance of the project. In the past decades, FDI was concerned only with highly industrialized countries. US was the worlds largest recipient of FDI during 2006 with an investment of 184 million from OECD (Organization for Economic Co-operation and Development) countries. France, Greece, Iceland, Poland, Slovak Republic, Switzerland and Turkey also have a positive record in FDI investments. Now, during the course of time, FDI has become a vital part in every country more particularly with the developing countries. This is because of the following reasons: Availability of cheap labor. Uninterrupted availability of raw material. Less production cost compared with other developed countries. Quick and easy market penetration.

FDI in the Retail sector: Retailing is one of the worlds largest private industry. Liberalizations in FDI have caused a massive restructuring in retail industry. The benefit of FDI in retail industry superimposes its cost factors. Opening the retail industry to FDI will bring forth benefits in terms of advance employment, organized retail stores, availability of quality products at a better and cheaper price. It enables a countrys product or service to enter into the global market. Cheaper production facilities: FDI will ensure better operations in production cycle and distribution. Due to economies of operation, production facilities will be available at a cheaper rate thereby resulting in availability of variety products to the ultimate consumers at a reasonable and lesser price. Availability of new technology:

FDI enables transfer of skills and technology from overseas and develops the infrastructure of the domestic country. Greater managerial talent inflow from other countries is made possible. Domestic consumers will benefit getting great variety and quality products at all price points. Long term cash liquidity: FDI will provide necessary capital for setting up organized retail chain stores. It is a long term investment because unlike equity capital, the physical capital invested in the domestic company is not easily liquidated.

NEW DELHI: The government has said that the 30% norm for sourcing from local small and medium enterprises is not just for the local market only, and anything sourced from such enterprises by a single brand retailer for its global operations will also be considered as fulfilling the rules. Besides, the government may also be waiving off the sourcing condition for retailers of high-precision items such as sports watches, who may genuinely not get high quality inputs from SMEs in the country.

This clarification by the government is likely to make single brand retail more attractive. "People have to sit with our officials and understand what exactly we are saying in the policy. The domestic sourcing from SMEs has to be for what foreign retailers manufacture in India even if they sell it outside the country," commerce and industry minister Anand Sharma told ET in an interview. The government increased FDI limit in single brand retail from 51% to 100% earlier this year, but with a rider that at least 30% of the company's sourcing has to be done from the local SME sector. Initially, the local sourcing condition was met with skepticism from a number of multinational retail companies who said that it was impractical. Several companies have now started carrying out formal assessments of whether there's a possibility for them to source locally before they take a decision on either making fresh investments in single-brand retail or increasing their stake in their existing single brand retail ventures in the country. While UK-based shoe company Pavers England has already made an application for licence for single brand retail in India, DIPP secretary Saurabh Chandra said last week that there were other proposals too in the pipeline. When asked whether there would be exemptions for companies selling high precision goods that may not be able to source parts locally, the minister said that the final policy would take

care of this. "That is a matter of detail that will come in the regulation. I am sure dispensations can be made there," Sharma said. While the explanation on what constitutes sourcing is a shot in the arm for prospective investors, foreign investors are also seeking more flexibility on the definition of SMEs currently defined as any enterprise with a maximum investment of $1 million in plant and machinery. "Many global luxury brands want to enter India, but with full control over their operations in the country. While the explanation on allowing domestic sourcing for exports would help, clarity on the definition of SMEs is also necessary to enable brands make a decision faster," says Abhay Gupta, chief executive officer of luxury service provider Luxury Connect. It will be difficult to get quality, consistency and also high volumes from small and medium businesses according to the current definition, he added