FDI in Multi-brand Retail

Name : Rasshmie Deshpande Batch- 101

Foreign direct investment (FDI)

It is a direct investment into production or business in a country by an individual or company of 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. Broadly, foreign direct investment includes-mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra company loans

History
Retailing in India is one of the pillars of its economy and accounts for 14 to 15 percent of its GDP. India is one of the fastest growing retail markets in the world, with 1.2 billion people In 2010, larger format convenience stores and supermarkets accounted for about 4 percent of the industry, and these were present only in large urban centres. India's retail and logistics industry employs about 40 million Indians (3.3% of Indian population) Until 2011, Indian central government denied (FDI) in multi-brand retail, forbidding foreign groups from any ownership in supermarkets, convenience stores or any retail outlets. Even singlebrand retail was limited to 51% ownership and a bureaucratic process

In November 2011, India's central government announced retail reforms for both multi-brand stores and single-brand stores. These market reforms paved the way for retail innovation and competition with multi-brand retailers such as Wal-Mart, Carrefour and Tesco, as well single brand majors such as IKEA, Nike, and Apple In January 2012, India approved reforms for single-brand stores welcoming anyone in the world to innovate in Indian retail market with 100% ownership, but imposed the requirement that the single brand retailer source 30 percent of its goods from India. Indian government continues the hold on retail reforms for multi-brand stores On 14 September 2012, the government of India announced the opening of FDI in multi-brand retail, subject to approvals by individual states On 20 September 2012, the Government of India formally notified the FDI reforms for single and multi brand retail, thereby making it effective under Indian law

Impact of FDI in Multi-Brand Retail

Once big retail brands set up shops in the national capital region, goods will be directly sourced from the producer, eliminating profit margins of the small stores Grocery shops sell products on credit, malls demand cash payment, so people can still buy from small shops. Retail stocks today came under selling pressure after the Aam Aadmi Party Government withdrew the approval given by the previous Sheila Dikshit dispensation for FDI in multibrand retail in Delhi. Allowing global retail chains like Wal-Mart and Tesco to set up shops will result in large-scale job losses The previous Congress government had taken a number of steps to remove bottlenecks in attracting FDI in multi-brand retail. It had even announced plan to make amendments to the Agricultural Produce Marketing Committee (APMC) Act to allow direct connectivity between retailers and farmers

 Last year, the central government permitted 51 per cent FDI in the multibrand retail trading and left its implementation on the states. Delhi has become the first state to withdraw permission for FDI in retail sector The AAP has opposed to FDI in multi-brand retail. If the national capital does not allow FDI in multi-brand retail then Mumbai might be the only metro where such players can enter The Centre, while allowing FDI in multi-brand retail, had allowed state governments to clear the proposals for their respective states Only 12 states and Union territories have supported FDI in multi-brand retail Among those who have opposed FDI in multi-brand retail are West Bengal, and Tamil Nadu. This shuts out Kolkata and Chennai to the retailers. Uttar Pradesh and Gujarat had also opposed the move. Though Andhra Pradesh and Maharashtra are pro FDI in multi-brand retail.

Consumers and common man will become real kings and queens
Entry of global retailers is expected to have direct impact on consumers and common man It is expected to bring down commodity prices for common man Large scale and high volume sourcing & technology edge of global retailers help in realising greater Operational efficiency & wide assortment of goods at lower prices may be made available to consumers Food safety, hygiene, & Quality are value additions More than 60% of wastage can be prevented if specialised cold storage chains are built up on mass scales, which eventually shall help common man

Impact on Multi-brand Retailers

Retailers generally would be interested in opening outlets in metros because of the advantages. Metros offer good opportunities because people are more savvy in terms of going out and (the situation is more favourable) in terms of concentration of population Most large international retailers are in the wait-and-watch mode Apart from the political uncertainty, retailers looking at Mumbai would also have to deal with space shortage and high realty prices Tesco or Wal-Mart will not rent a property for Rs 200 or Rs 250 a square feet. They would certainly look at Rs 40-45 per sq ft. They would not enter Mumbai city unless there are very strong business reasons

Impact on Small & Unorganised Retailers

SMEs will find it difficult to compete in the vicinity of big retailers The prices will be determined by Modern Retailers & small shopkeepers will have to lose out on their profit margin due to predatory pricing strategy Large global retailers such as Wall Mart would kill local shops & millions of jobs , since the unorganized retail sector employs an enormous percentage of Indian population after the Agriculture sector Global retailers will exercise monopolistic power to raise prices & big buying power to reduce the prices received by the suppliers It can lead to asymmetrical growth in cities causing discontent & social tension