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FDI IN RETAIL
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What is FDI ?
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.
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What is FDI ?
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.
•For instance: An American company taking a majority stake in a company in China.
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Foreign investment – Investment done by citizens and government of one country (home country) invest in industries of another country (host country).
What is FDI ?
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Foreign investment – Investment done by citizens and government of one country (home country) invest in industries of another country (host country).
Foreign investment
through
Foreign Direct investment
Foreign institutional investment
What is FDI ?
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Foreign investment – Investment done by citizens and government of one country (home country) invest in industries of another country (host country).
Foreign investment
through
Foreign Direct investment
Foreign institutional investment
Automatic Route – No permission required
Government Route – Approval/ license required
What is FDI ?
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MODES OF FDI
BY TARGET
BY MOTIVE
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MODES OF FDI
BY TARGET
BY MOTIVE
Mergers and AcquisitionsHorizontal FDI Vertical FDI. *Backward Vertical FDI *Forward Vertical FDI
Resource-SeekingMarket-SeekingEfficiency-SeekingStrategic-Asset-Seeking
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FDI IN RETAIL
IN INDIA
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The Broad Retail Sector In India
Organized Retail Unorganized Retail
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Organised retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc basically involving the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses.
The Broad Retail Sector In India
Organized Retail Unorganized Retail
Unorganised retailing, on the other hand, refers to the traditional formats of the retail industry involving example, the local kirana shops the corner stores, owner manned general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc. The latter involves a large majority of the indian populace that is involved in the retail industry
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FDI policy in Indian Retail Sector
Single brand retailing 51 % Allowed
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FDI policy in Indian Retail Sector
Single brand retailing
Cash and carry model
51 % Allowed
100 % Allowed
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FDI policy in Indian Retail Sector
Single brand retailing
Cash and carry model
51 % Allowed
100 % Allowed
But what exactly
does this mean?
Multi-Brand Retail Not Allowed
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Single Brand Retail
Conditions for Single Brand Retail: Should be a single brandShould be sold under the same brand internationallyIt would only cover products branded during manufacture
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Cash & Carry Model
Conditions for Single Brand Retail: Cash and carry businesses accept only cash for their product or services (provide the optimum price but with minimal conveniences.)Likewise, once products have been purchased, the customer is responsible for carrying their products away from the place of purchase. No cart assistance services are offered, nor are credit cards or credit accounts of any kind acceptedCash and carry businesses often exist in a warehouse, as is the nature of many wholesalers.
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Multi-Brand Retail
Conditions for Single Brand Retail: Sale of multiple brands under one brandMulti-brand retail comes in different formats like supermarket, hypermarket, compact hyper and the ubiquitous mall. Proposal to allow foreign investments upto the tune of 51% in this sector.
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What are global retailers say about their prospective markets???
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SKILLED WORKERS
COMPETITION
REAL ESTATE PROBLEM
MARKET POWER
SUPPLY CHAIN MANAGEMENT
PROBLEM IN RAISING FUNDS
TAXATION POLICIES
INFLATION
FDI in Retail: Challenges faced by Industry
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‘FDI In Retail- A Policy Perspective’, - Opinion of FICCI and ICICI
FDI can be a powerful catalyst to spur competition in the retail industry.
* It can bring about:* Supply Chain Improvement* Investment in Technology* Manpower and Skill development* Efficient Small and Medium Scale Industries* Increase in exports
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Pros for Allowing FDI in Retail
India’s local enterprises will potentially receive an upgradation with the import of advanced technological and logistics management expertise from the foreign entities.
The government has an opportunity to utilize the liberalization for achieving certain of its own targets:I. improve its infrastructureII. access sophisticated technologiesIII. generate employment for those keen to work in this sector
FDI would lead to a more comprehensive integration of India into the worldwide market and, as such, it is imperative for the government to promote this sector for the overall economic development and social welfare of the country.
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Pros for Allowing FDI in Retail
Employment opportunities in agro-processing, sorting, marketing, logistics management and front-end retail.
10 million jobs to be created in the next three years in the retail sector.
Policy mandates a minimum investment of $100 million with half the amount being invested in back-end infrastructure, including cold chains, refrigeration, transportation, packing, sorting and processing.
Salutary impact on food inflation from efficiencies in supply chain.
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Benefits for Indian Agriculture from FDI in Retail
Investment into warehouse and cold storage chain will result in significant efficiency on supply chain.
Farmers benefited through direct marketing and contract farming programme.
Improves farm production through modern techniques.
Increasing availability of low interest credit for farmers.
Helps farmers secure remunerative prices by eliminating exploitative middlemen.
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Cons of FDI in India
Move will lead to large-scale job losses.
Global retail giants will resort to predatory pricing to create monopoly
Jobs in the manufacturing sector will be lost because structured international retail makes purchases internationally and not from domestic sources.
Opponents of the FDI feel that liberalization would jeopardize the unorganized retail sector and would adversely affect the small retailers, farmers and consumers and give rise to monopolies of large corporate houses which can adversely affect the pricing and availability of goods.
They also contend that the retail sector in India is one of the 2 the chain of food supply, from the farm where it is produced to the consumer major employment providers and permitting FDI in this sector can displace the unorganized retailers leading to loss of livelihood.
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What Lies Ahead?
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FDI Success story China
How FDI is projected to effect the Indian economy?
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• GRDI Position : 3rd
• Size : $ 400 billion
• Growth Rate : 13%
• GDP contribution : 12%
• Major sector : Food and
Grocery
• Employment : 2nd largest
industry (35.06 million)
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Major Retail Players Entering Into India
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2008 2011 2013 20180
0.2
0.4
0.6
0.8
1
1.2
1.4
0.35
0.59
0.830000000000001
1.3
Expected Growth
CAGR 10%
• In the last four year, the consumer spending in India climbed up to 75%.
• By the year 2013, the organized sector is also expected to grow at a CAGR of 40%.
• The total number of shopping malls is expected to expand at a CAGR of over 18.9 per cent by 2015.
Future Predictions
The Politics of FDI
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Recommendations And SuggestionsTo ponder over????
•Should the initial cap on investment could be pegged at 49%?
•Should FDI should be leveraged to create back-end infrastructure?
•Can FDI curb inflation?
•To develop our rural sector ,should conditionality’s be put on the FDI funded chains relating to employment?
• For example, should we stipulate that at least 35% of the jobs in the retail outlets should be reserved for the rural youth?
Some Difficult questions for which our policy makersNeed to find the answers.
Thank You!Hope you had a pleasant
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