FDI in Retail Sector in India

FDI in India’s Retail Sector

More Bad than Good?

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Agenda

Indian retail : An overview

Retail Scenario in India

Why No FDI in Indian retailing

Case study : Retail in Thailand

Is Wal-Mart good for India?

Alternative Options

What is FDI?

WHAT IS FDI?

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

Weekly MarketsVillage FairsMelas

Convenience StoresMom and Pop/Kiranas

PDS OutletsKhadi StoresCooperatives

Exclusive Brand OutletsHyper/Super MarketsDepartment StoresShopping Malls

Traditional/Pervasive Reach

Government Supported

Historic/Rural Reach

Modern Formats/ International

Indian Retail : An Overview

Source of Entertainment

Neighborhood Stores/Convenience

Availability/ Low Costs / Distribution

Shopping Experience/Efficiency

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Retail Scenario in India

Unorganized Retail

– 98%

14% of National

GDP

Employment to 7% of workforce

Fragmented

Forced employment sector

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Affects unorganized players

Increasing Poverty

Kind of employment

Promotion of cartels and monopoly creation.

Increase in real estate prices.

Absence of proper regulations would lead to unfair trade practices.

Predatory Pricing

Drawbacks of FDI

Effects on unorganized players

• Form a majority of Indian Retail business– Contribution to National

Income– Employment to ~ 3.98

million people

• FDI will affect – Sales– Employment

Increasing Poverty

• Dislocation of millions from their occupation.

• Pushing families below the poverty line.

Employment in Retailing• Limited jobs in

manufacturing.

• Cannot provide employment to semi-literate people– Form majority of

population

Creation of Monopolies• Supermarkets will

typically sell everything,– vegetables to the latest

electronic gadgets, at extremely low prices

“ foreign company will buy

big from India and abroad and be able to sell low”

Real Estate Prices

• Sky rocketing real estate prices– Increase in space

requirements– Growth of organized

sector– Requires an additional

220 million sqft by 2010-11

Melas Wal-mart

Predatory Pricing• Given their economies of scale and

huge resources-

– Establishment of monopoly

– Turn into buying low and selling high.

• Problems in terms of:-- volume, quality and delivery-- depressed prices due to cutthroat competition

Retailing In Thailand Good or Bad?

• Entry of foreign capital – – increased share of organized retailing to

40%

• Widespread closure of small and traditional retail outlets

• Increase in poverty

• Government forced to enact new laws.

Is Wal-Mart good for India?

What Wal-Mart can do?

35 Indian towns with Population over 1 million

Average size & Average Performance

Wal-mart stores

Average Turnover – Rs 81000 million

Employees - 10195

Displace – 4,32,000 persons

Total FDI – 20% retail trade => Rs.800 billion / 43,540 persons

Displacement = 8 million

What other alternatives does India

have?

General Recommendations

Availability of bank finance

Improvement of manufacturing sector

Establishment of National Commission

Setup of Cooperative Stores

Regulations for foreign players

Conclusion• FDI in retail is fundamentally different from

Greenfield foreign investment in manufacturing.

• Negative effects of Foreign retailers:– Job loss– Establishment of monopolies– Disruption of supply chains

So do we still need FDI in Indian Retail?

Thank you

Have a Good Day!