FDI- ME

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Submitted By

Arun Sen

Arjun

Anakha

Keerthi Ashok

Hima

Lavanya

Suraj T

Febin

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Indian Economy

Eleventh largest in the world by nominalGDP.

Third largest by purchasing powerparity (PPP).

The country's per capita income stoodat $3,693 IMF, 129th in the world, thusmaking a lower-middle income economy.

One of the fastest-growing economies inthe world.

India has recorded a growth of over 200times in per capita in a period from 1947(Rs249.6) to 2011

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Indian Economy ( contd.)

India is the nineteenth largestexporter and tenth largest importer in theworld.

Economic growth rate stood at around6.5% for the 2011-12 fiscal year.

The fall is mainly because of poorperformance of Secondary sector which

grew by a mere 2.8% in 2011-12. HoweverServices sector grew by 9.4%, unaffectedby global trend.

India's GDP stands at Rs.52.2 trillion as of2011-12.

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Indian Retail Industry

The Indian retail industry is the fifth largest inthe world.

Comprising of organized and unorganizedsectors, India retail industry is one of thefastest growing industries in India.

India retail industry is one of the fastestgrowing industries with revenue in 2011 toamount US$ 320 billion and is increasing at arate of 5% yearly.

A further increase of 7-8% is expected in the

industry of retail in India by growth inconsumerism in urban areas, rising incomes,and a steep rise in rural consumption.

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AT Kearney, the well known internationalmanagement consultancy, recentlyidentified India as the second most

attractive retail destination globally fromamong 30 emergent markets.

With a contribution of 14 per cent to thenational GDP and employing 7 per cent

of the total workforce (only agricultureemploys more) in the country, the retailindustry is definitely one of the pillars ofthe Indian economy.

Unorganised retailing is by far theprevalent form of trade in Indiaconstituting 98 per cent of all retailingtrade, while the organised tradeaccounts for the remaining 2 per cent.

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Challenges facing Indian retail industry

The tax structure in India favors smallretail business

Lack of adequate infrastructure facilities

High cost of real estate Dissimilarity in consumer groups

Restrictions in Foreign Direct Investment

Shortage of retail study options

Shortage of trained manpower Low retail management skill

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The Future of Indian Retail Industry

The retail industry in India is currentlygrowing at a great pace and is expected togo up to US$ 833 billion by the year 2013.

As the country has got a high growth rates,the consumer spending has also gone upand is also expected to go up further in thefuture.

In the last four year, the consumer

spending in India climbed up to 75%. As aresult, the India retail industry is expectedto grow further in the future days.

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What is FDI ???

Investment directly into production in acountry by a company located in anothercountry, either by buying a company in thetarget country or by expanding operations

of an existing business in that country. Investment is done for many reasons

including to take advantage of cheaperwages in the country, special investmentprivileges such as tax exemptions offered

by the country as an incentive to gaintariff-free access to the markets of thecountry or the region.

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Positive Side of FDI

Opportunities galore:- Indian companiesare exporting different types of products tonumerous retailers across the globe

Difference in the quality of the products soldto foreign retailers and the same productssold in the Indian market.

There is an increasing tendency to pay forquality and ease and access to a one-stopshop

The consumers will benefit in the form ofpotential lower prices due to enhanced and,possibly, tough competition in the market.

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Positive Side of FDI (cont)

Benefits for the farmers: the onset of multi-

brand retail, the food and packaging industry willalso get an impetus.

Very limited integrated cold-chain Infrastructure

There could be a complete overhaul of thecurrently fragmented supply chain infrastructure.

Extensive backward integration by multinationalretailers, coupled with their technical andoperational expertise, can hopefully remedy suchstructural flaws.

Farmers can benefit with the farm-to-fork

ventures with retailers which helps (i) to cut downintermediaries ; (ii) give better prices to farmers,and (iii) provide stability and economics of scalewhich will benefit, in the ultimate analysis, both thefarmers and consumers.

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Improved technology and logistics:

In the sphere of processing, grading,handling and packaging of goods andfurther technical developments in areas like

electronic weighing, billing, barcodescanning etc.

Further, transportation facilities can get aboost, in the form of increased number of

refrigerated vans and pre-cooling chamberswhich can help bring down wastage ofgoods.

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Impact on real-estate development:

retailer will require substantial spaces forsetting up business.

Real estate in India has gone through arevamp due to the demand of high-endretail malls and peoples changing

perception towards an enjoyable shoppingexperience.

real estate can get a further facelift in Indiaand receive more investment with theopening up of FDI in multi-brand retail

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FDI IN INDIA

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Critics of FDI

The unorganized retail sector and wouldadversely affect the small retailers, farmersand consumers.

Give rise to monopolies of large corporate

houses which can adversely affect thepricing and availability of goods.

Retail sector in India is one of the majoremployment providers and permitting FDI in

this sector can displace the unorganizedretailers leading to loss of livelihood.

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FDI RETAIL- ARGUMENTS

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RECOMMENDATIONS

1.) India is severely constrained by limitedavailability of bank finance. Thegovernment and RBI need to evolvesuitable lending policies that will enable

retailers in the organized and unorganizedsectors to expand and improveefficiencies. Policies that encourageunorganized sector retailers to migrate to

the organized sector by investing in spaceand equipment should be encouraged

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RECOMMENDATIONS (CONT)

2.) A national commission must beestablished to study the problems of theretail sector and to evolve policies that willenable it to cope with FDI as and when it

comes.

3.) Set up an Agricultural Perishable ProduceCommission (APPC), to ensure that

procurement prices for perishablecommodities are fair to farmers and thatthey are not distorted with relation tomarket prices.

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4.) Entry of foreign players must be gradualand with social safeguards so that theeffects of the labor dislocation can beanalyzed and policy fine-tuned. Initially

allow them to set up supermarkets of aspecified size only in the metros to makethe costs of entry high and according tospecific norms and regulations, so that the

retailer cannot immediately indulge inpredatory pricing.

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OPTIMUM LEVEL OF FDI

The optimum level could be defined as that levelof FDI which generates a targeted growth rateof national income.

There is also the suggestion that in India, atpresent, it is not FDI which promotes growth

but it is growth which attracts foreign firms.This may be so but FDI could accelerate thegrowth process in progress.

FDI, however, is but one of the several factorswhich contribute to growth. As we have arguedelsewhere FDI is not a panacea for the

development problem, it is a catalyst in thegrowth process. It enhances the efficiency ofother inputs in the growth process through itswell known role as a supplier of technologyand know-how.

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CONCLUSION

FDI in multi-brand retail should be seriously

considered by the government and, as withmany other sensitive sectors (like defence), agradual opening up could be made possible.

India needs to take a lesson from China where

organized and unorganized retail seem to co-exist and grow together.

Indias local enterprises will potentially receive

an upgradation with the import of advancedtechnological and logistics managementexpertise from the foreign entities.

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Thank You

FDI- ME

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