Final FDI in Retail (3)

8/3/2019 Final FDI in Retail (3)

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Submitted by, Amarlata KumariSatabdi MohapatraSrijani Ganguli



Retail in India



Growth Potential in India



Introductiony India retail market is estimated at US$ 470 Bn in 2011.

y The organized retail market is estimated at US$ 26 Bn

(6%)

y FDI in Single Brand Retail was permitted in 2006, to the

extent of 51% and now opened to 100% .

y FDI in Multi Brand Retail is now opened up to 51%

y FDI in Cash & Carry whole sale retailing was permitted, to

the extent of 100% ,under the Government approval route,

in 1997.



FDI investment

0,03%Rs 204 cr / USD 44 mn

(single brand)



Prosy Inflow of investment and funds.

y Improvement in the quality & Quantity of employment.

y Growth of infrastructure

y

Growth of the Retail sector in India - Improvement in Retailcapability building

y Push to Infrastructure - Improvement in management of supply

chain

y Push to productivity - The Farming Community in India

y Deepest impact of more supermarkets shall be on retail procurement

systems



Cons

y Misplaced comparison with china.

y Perilous to put the entire food chain into the hands of foreign

concerns.

y Creation of storage and cold chains was the government's

responsibility, not foreign companies.

y International retailers neglect products from small countries,

and rely on the retailers home country suppliers.

y Promoting cartels and creating monopoly.



Retailers point of view

y The globally retailers invest in back-end infrastructurefacilities as a natural business decision.

y These facilities would result in meeting the objective of improving farmers' incomes as well as lower prices toconsumers.

y Eg:



Continued..

y .

y

Controlling the inflation by:

Broad strategies Benefits toshareholders

Technology investments Best practices Transfer of knowhow

Competitive prices Rationalized prices Reduction of wastage across



On Creating Back-end infrastructure

y Improves supply chain and logistics

y Retailers to enhance overall competitiveness,

y Decrease the prices offered to consumers

y

Significantly reduce wastage.

y Deploy growth initiatives across all formats in the

multi-brand retail space.



On job reservations for rural youth

Need of adequate system for formal retail education inIndia.

Locals to be trained

Employment generation



On developing the SME sector through

local sourcing Development of arobust supply

chain

Integrate farmersand small andmedium-sizeenterprises

Helping inplanning theirsupplies

Farmers ,SMEsreceiving higherprices for their

produce/supplies

Knowledge andskills transfer

Transparentmechanism for

pricing

DevelopingSMEs



On integration of small retailers in

the value chain

Easy access of cash

B2B system

Without being dependent on theexisting complex supply chain system

No-frill cash and carry or wholesalecenters.



Continued..

y Shorten and optimize the supply chain

y Eliminate the high costs (fragmented supply chain)

y I

nherent and built-in strategy for the development of smaller retailers.

y Continued to pursue in parallel with its proposedretail operations.

y Eg:



Reasons for allowing FDI in retail

y On impact on Kirana/Mom-pop stores: Critical andsizeable element of the Indian retail ecosystem and will stay onto dominate the retail sector in the foreseeable future.

y On increased employment opportunities: Industry estimates reveal that one person is required for every 350-400sq. ft. of retail space directly interfaces with the consumers

In 2 years: 1.5mn estimated jobs requirementIn 5 years: 3mn estimated jobs requirement



y On farmer margins: Organized retailers form direct andstrategic long-term relationships with farmers bodies

Offer them sustainable and stable prices

Provide protection to farmers against undue price

weather fluctuations.

y On local sourcing: Preference to strengthen local sourcing,

given the consumers demand, price and accessibility and lowcost of sourcing.



y On inflation control: The retail sector can helpthe government to curb inflation in the interests of all stakeholders by:

Decreasing the numbers of intermediaries

Building a proper supply chain between farmersand consumers

Having a steady pricing by taking uncertaintiesinto account



View point opposing FDI in retail

y The entry of large global retailers such as Wal-Mart would kill local shops and millions of jobs.

y The global retailers monopolistic powerto raise prices(for customers)

to reduce the prices (for suppliers)

y It would lead to asymmetrical growth in cities, causingdiscontent and social tension elsewhere.



Position of existing retailers not

consolidatey The Indian retailers have yet to consolidate their

position.

large number of fragmented businesses

Family owned businesses.

Eg: South east Asian countries show that after allowingFDI

, the domestic retailers were marginalized andthis led to unemployment.



Import balance and monopoly

y Can upset the import balance

Preference to global source of products

Resort to predatory pricing.

y Monopoly position

Can increase prices and earn profits

(due to wiped out domestic players)



Lending rates and foreign inf low

yHigher lending rates:

Indian retailers are at a disadvantageous

(International funds have lower interest rates)

y Low inflow of foreign investment:

Little investment needed conduct retail

business.Goods bought on credit and sales are made on

cash basis.



Threat to mandis and existing market

y The procurement centers constituted by big corporate for makingdirect bulk purchases

y This would initially pay attractive prices to farmers and causegradual extinction of `mandis and regulated market yards.

y Mass retailers like Wal-Mart do not cater to the high end

consumers like branded retailers like Marks & Spencer.

y Wal-Mart mostly retails what the bazaar with its numerous shopsalready provides. The likes of a Wal-Mart will only prey on the

existing market.



The CPAS study argues:

To open the Indian Retail sector to FDI without

undertaking far more comprehensive reforms to expand

the industrial sector and value-addition in manufacturing,

would only result in inflicting more pain on the national

economy.



Source of operationy Wal-Mart has a sourcing operation based in

Bangalore

y Indian exports are less than 5% of what it procures

from China.

y

Chinese products are cheaper thoughcompromises on quality.

y Its about getting value for money.



Modernization of supply chain?

y A modern and nationwidesupply chain created for milkand milk products.

y Supply chain for food items suchas cereals, pulses, and sugar andedible oils is effective.

y

The supply chains ,yet to bemodernized covers a very smallpart of urban householdconsumption.



y The MNCs : Deal with only the large-growersFix prices in advance

The system of transparent auctions in Mandis may be bypassed.

y No two supermarket chains will operate in the same domain(farmers left with lower prices offered by the retailer)

y The supermarket earn premiums from customers for improved

quality (the rejects will be dumped on the local farmers-Low earning)



Models to emulatey It will be better to follow the Chinese model of caution

and hurrying slowly.

y China just allowed FDI in retail in 1992 and the cap was at26%.

y

10 years later the cap was raised to 49%.

y 100% FDI in retail was permitted only in 2004, after theinfant retailing industry had acquired some muscle.



Japanese model

y Japan (liberal an economy )imposes law of 2000stringently regulates factors

Garbage removal, parking, noise and traffic.

y Carrefour sold its eight struggling outlets after four yearsto the Japanese Aeon Co.

Japanese regulations favored its own homegrownretail firms.



Malaysian modely Malaysias Bumiputra clause :

30% of equity is held by indigenous Malayans.

y Philippines insist

30% of inventory by value be grown within the country.

ndian retail business should not be fooled by partnership

offers by global retail giants because they want 100 percent

control and eventual ownership. The government shouldretain your strict FDI regulations quoted by Terry LeaghCEO of TESCO.



Final FDI in Retail (3)

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