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FDI In Retail In India

By Mr. Sandip Kadam RIMSR 2010-12

What is Retail?
In 2004, The High Court of Delhi defined the term retail sale for final consumption in contrast to a sale for further sale or processing (i.e. wholesale). A sale to the ultimate consumer Retailing is the last link that connects the individual consumer with the manufacturing and distribution chain

WHAT IS FDI?
Movement of capital across national frontiers in a manner that grants the investor control over the acquired asset.

Retail Sector poised for phenomenal growth


Size & Position in the current Scenario

The Indian Retail Sector, currently the Fifth largest in the world, is poised for phenomenal growth in the coming years
Current Size & Future growth of Organized Retail in India

ORGANISED RETAIL EXPECTED TO GROW 35-40% CAGR

Source: India Shopping Trends, 2011- Technopak

The Indian Retail Landscape


 Organized retail has grown from USD 2 Bn in 2002 to USD 37 Bn today in a total of USD 350 Bn

 Impact on the consumer; low price and assured quality through supply chain efficiency  Impact on producers, farmers; direct sourcing from SME s and farmers; providing
critical connect to market place  Investments in the range of USD 30+ Billion expected by 2011 in Retail and Supply Chain Scale: Size of organized retail likely to touch USD 70 billion by 2011 Employment: Over 850K direct jobs to be created in Retail in the next 5 years.

 

Source: India retail report 2009 by Images Retail, CII BCG report on India s demographic dilemma Dec 08

FDI Policy with Regard to Retailing in India (Past)


FDI up to 100% for cash and carry wholesale trading and export trading allowed under the automatic route. FDI up to 51 % with prior Government approval (i.e. FIPB) for retail trade of Single Brand products, subject to Press Note 3 (2006 Series). FDI not permitted in Multi Brand Retailing in India.

Entry Options For Foreign Players Prior To FDI In Retail


Franchise Agreements Cash Carry wholesale Trading Strategic Licensing Agreements Manufacturing & wholly owned subsidiaries

FDI in Retail Sector


FDI in single-brand retailing was permitted in 2006, up to 51 per cent of ownership. 57 proposals out of 94 were approved. FDI inflow of US$196.46 million under the category of single brand retailing was received. Retail stocks rose by as much as 5%.

What does 51% FDI in multi-brand retail mean?


Minimum investment of $100 million. 50% of the investment is to be in backend infrastructure development. 30% of all raw material has be procured from India's small and medium industries. Permission to set up malls only in cities with a minimum population of 10 lakh. Government has the first right to procure material from the farmers. Products should be sold under the same brand internationally. Foreign investor should be the owner of the brand.

What does 100% FDI in Single Brand Retailing means?


Products to be sold should be of a single brand only. Products should be sold under the same brand internationally (i.e. products should be sold under the same brand in one or more countries other than India). Single brand product-retail trading would cover only products which are branded during manufacturing. The foreign investor should be the owner of the brand. In respect of proposals involving FDI beyond 51 percent, mandatory sourcing of at least 30 percent of the value of products sold would have to be done from Indian small industries/village and cottage industries, artisans and craftsmen.

Clause On 30% Sourcing From Indian SMEs


luxury goods retailers will not be able to source from India because they have to maintain global standards for their brands Mandatory sourcing will be in violation of provisions of GATT, the bilateral investment protection agreement (BIPA) India has signed with 71 countries as well as the World Trade Organization's Trade Related Investment Measures (TRIMS)

Benefits To The Aam Adami


Development of markets will lead to better choices Reduced prices More Employment Opportunities

Benefits to the government

Greater Per Capita Income

Greater Consumer Spending due to economic boom GDP Growth

Employ Benefits Greater ment to Govt. Exports Increasing Tax Paying Population Increased Tax Revenues Greater Sourcing From India

Reduced Tax Evasion

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Present Condition Of Farmers


Farmers get only 10 to 15% of the price we pay. 3-4 middlemen in between farmers and customers. Huge post produce losses for farmers due to inadequate facilities. A poorly managed food supply infrastructure.

Improvements by FDI in Retail Supply Chain


FDI in retail will boost investment in infrastructure from the retail players, 3rd party supply chain companies as well as the Government FDI in retail will make way for inflow of knowledge from international experts which can give boost to the overall growth of the industry It will reduce pre-harvest wastage/losses and thus help control food inflation It will remove the middleman from the equation. It will reduce costs which in turn will reduce prices

But ,What About These Questions???

Key Issues
Modern retail would displace a large number of jobs Global retail chains would adopt predatory pricing tactics to wipe out domestic competition (small retailers) Once global retail chains are established, they would be in a position to dictate prices for both buying wholesale, and selling retail products Retailing itself cannot boost GDP. The growth in manufacturing sector needs to be increased

Penetration of top 20 International Retailers


Norway 99% Sweden 94%

Switzerland

88%

France

81%

UK

64%

Portugal

57%

If foreign retailers could capture 20 % of indian Retail Market , something about 8 Million jobs will be lost. Their level of efficiency mean they need less and less of people for each 1000 crores of Turnover - Business Line April 2005

FDI in Retail
Inflation = fn (...) of

Inflation

??

Fragmented and lengthy value chain Crude Price Excess Liquidity (Stimulus Package) No unload (hoarding by Govt. )

Wal-Mart in US
Every farmer has access to Computer High levels of Commodity Trading Condition of US farmers should be much prosperous. Isn t it .. ?????? US -- Direct Support to Farmers Why is US year after year giving indirect subsidies to farmers ? Acc to a UNCTAD Report if the green box subsidy is removed, the US Agriculture will collapse !!

Supply Chain Improvement: Penny Wise, Pound foolish


We are talking about reducing the Intermediaries in the System Who will be the intermediaries in new system.. ??
Big Corporates Brand Ambassador Large Power CNBC Report says Retail wants to increase advertisement expense close to 1BN $, once the new norms are approved

Predatory Strategy
According to FICCI study, total turnover of the organized and unorganized retail trade in India is less than the turnover of Wal-mart. With its incredibly deep pockets major global retailing chains like Wal-Mart will be able to sustain losses in its Indian operations for many years till its immediate competition is wiped out.

Results
High Real Estate Prices Land Acquisition : Displacement of people Cannot provide employment to semi-literate people
Form majority of population

Pushing families below the poverty line The main purpose defeated if focus is on front line instead of back end

Conclusion
We should accept the FDI in retail, Because
1. Its wholesome package handled by the best economic brains in the country 2. Society will take care of itself if malls are harmful they can not do business here they will be thrown out. 3. We should not miss the bus like we have missed the bus of industrial revolution due to infighting of small kingdoms , zamindhars and Nawabs all over the India

Thank you!!!

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