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MUMBAI UNIVERSITY
PROJECT ON
A STUDY OF AN ANALYSIS OF ICICI PRUDENTIAL LIFE INSURANCE
POLICY MASTER IN COMMERCE
(M.COM. IN ACCOUNTANCY)
SEMESTER: II
ACADEMIC YEAR 2012-13
SUBMITTED BY
MISS. CHETTIAR PRIYANKA RAJENDRAN
ROLL NO: 6278
GUIDED BY
PROF. S V RANE
PARLE TILAK VIDYALAYA ASSOCIATIONS
MULUND COLLEGE OF COMMERCE
MULUND (W) MUMBAI - 80
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DECLARATION
I the undersigned, Miss Chettiar Priyanka Rajendran, a student of Mulund College of Commerce
Stud ying in M.com [Accountancy] Semes ter-II , h ereb y de clare that the proje ct work prese nted i
this report is my original work.
This work has not been previously submitted to any other university for any other
examination.
Date: __ th Feb., 2013
Place: Mumbai
--------------------------
(Chettiar Priyanka Rajendra
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CERTIFICATE
I, Mr. / Ms. ________________________, hereby certify that Miss Chettiar Priyanka Rajendran, a st udent o
Mulund College Of Commerce Studying in M.com [Accountancy] Semester-II, has completed
project on topic, A Study of an Analysis of ICICI Prudential Life Insurance Policy, in the academic year 2012-
2013.
The information submitted is true and original to the best of my knowledge.
Signature of Project Guide Signature of Principal
Signature of Co- ordinator Signature of External Guide
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ACKNOWLEDGEMENT
At outset, we would like to thank the institutions for having provided us with an opportunity to carry out a
project of this magnitude that helped me satisfy my curiosity as far as my area of interest was concerned.
The essence of this project i.e. its contents have been compiled with help of varied sources of secondary
database, but we would specially like to acknowledge the support, suggestions and feedback received from my
Project Guide.
First of all, I would like to express my deepest gratitude to my supervisor Professor S V Rane , who guided me
and assisted me to accomplish my dissertation in the last six months. I have benefited from his academic
knowledge and personal encouragement and also made great progress through his valuable advices. When I
encountered some problems, he is very patient and supportive. Meanwhile, I would like to express my gratitud
to my parents and my friends for supporting my studies during this journey. Their endless love and support giv
me strong confidence to face future work and life after the study. All my gratitude cannot be expressed in
words, without any of them I could not get the present achievement.
Also my faculty member Prof. S V Rane guide and suggest me about the project. A lot of other people have als
contributed directly and indirectly to completion of this project would not have seen light of the day. Our heart
felt gratitude to all of them.
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INDEX
Sr No. Particulars Page No.
1 Introduction 1
2 Policy in India 10
3 Limitations 16
4 Recent scenario 22
5
6
Recommendations
Boon / Curse
27
31
7 Case Study 33
8 Conclusion 38
9 Bibilography 39
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Introduction
Marketing is an assessment, ascertainment, and fulfillment of consumer needs and desire into products and
services through planning and creating demand for companies products, serving the consumer demand through
planned physical distribution with the for help of marketing channels expanding the marketing even in the face
of keen competition. As a corporate state of mind which insists integration and co-ordination of all marketing
functions in welded with all co-operative functions, with a basic objective of maximizing long range corporate
profits and satisfy the customer needs and wants.
The Creation of customer implies three things:-
1) Development of product through technical and market research on which afford salesopportunities.2)
Persuading the customer to buy through advertisement and sales promotion.3) Making the product available in
form at a price, time and place the customer want. Marketing research is the function, which links the consume
/ customer and public to the marketer through information used to identify and define marketing opportunities
and problems. Objective of marketing research may be primary to gather information from different customer
attitudes and opinions. The insurance sector in India has come a full circle form being an open competitive
market to nationalization and back to a liberalized market again. Tracing the developments in the Indian
insurance sector reveals the 360 degree turn witnessed over a period of almost two centuries.
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HISTORY
FDI Policy in India
FDI as defined in Dictionary of Economics (Graham Bannock et.al) is investment in a foreign country throug
the acquisition of a local company or the establishment there of an operation on a new (Greenfield) site. To p
in simple words, FDI refers to capital inflows from abroad that is invested in or to enhance the productio
capacity of the economy.
Foreign Investment in India is governed by the FDI policy announced by the Government of India and th
provision of the Foreign Exchange Management Act (FEMA) 1999. The Reserve Bank of India (RBI) in th
regard had issued a notification, which contains the ForeignExchange Management (Transfer or issue
security by a person resident outside India) Regulations, 2000. This notification has been amended from time t
time.
The Ministry of Commerce and Industry, Government of India is the nodal agency for motoring and reviewin
the FDI policy on continued basis and changes in sectoral policy/ sectoral equity cap. The FDI policy is notifie
through Press Notes by the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy an
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Promotion (DIPP).The foreign investors are free to invest in India, except few sectors/activities, where prio
approval from the RBI or Foreign Investment Promotion Board (FIPB) would be required.
FDI Policy with Regard to Retailing in India
It will be prudent to look into Press Note 4 of 2006 issued by DIPP and consolidated FDI Policy issued
October 2010 which provide the sector specific guidelines for FDI with regard to the conduct of tradin
activities.
a) FDI up to 100% for cash and carry wholesale trading and export trading allowed under the automatic rout
b) FDI up to 51 % with prior Government approval (i.e. FIPB) for retail trade of Single Brand product
subject to Press Note 3 (2006 Series).FDI is not permitted in Multi Brand Retailing in India.
Entry Options For Foreign Players prior to FDI Policy
Although prior to Jan 24, 2006, FDI was not authorised in retailing, most general players ha\d been operating
the country. Some of entrance routes used by them have been discussed in sum as below:-
1. Franchise Agreements
It is an easiest track to come in the Indian market. In franchising and commission agents services, FDI (unless
otherwise prohibited) is allowed with the approval of the Reserve Bank of India (RBI) under the Foreign
Exchange Management Act. This is a most usual mode for entrance of quick food bondage opposite a world.
Apart from quick food bondage identical to Pizza Hut, players such as Lacoste, Mango, Nike as good as Marks
as good as Spencer, have entered Indian marketplace by this route.
2. Cash And Carry Wholesale Trading
100% FDI is allowed in wholesale trading which involves building of a large distribution infrastructure to assis
local manufacturers. The wholesaler deals only with smaller retailers and not Consumers. Metro AG of
Germany was the first significant global player to enter India through this route.
3. Strategic Licensing Agreements
Some foreign brands give exclusive licences and distribution rights to Indian companies. Through these right
Indian companies can either sell it through their own stores, or enter into shop-in-shop arrangements
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distribute the brands to franchisees. Mango, the Spanish apparel brand has entered India through this route wi
an agreement with Piramyd, Mumbai, SPAR entered into a similar agreement with Radhakrishna Foodlands Pv
Ltd
4. Manufacturing and Wholly Owned Subsidiaries.
The foreign brands such as Nike, Reebok, Adidas, etc. that have wholly-owned subsidiaries in manufacturin
are treated as Indian companies and are, therefore, allowed to do retail. These companies have been authorise
to sell products to Indian consumers by franchising, internal distributors, existent Indian retailers, own outlet
etc. For instance, Nike entered through an exclusive licensing agreement with Sierra Enterprises but now has
wholly owned subsidiary, Nike India Private Limited.
FDI in Single Brand Retail
The Government has not categorically defined the meaning of Single Brand anywhere neither in any of i
circulars nor any notifications.
In single-brand retail, FDI up to 51 per cent is allowed, subject to Foreign Investment Promotion Board (FIPB
approval and subject to the conditions mentioned that (a) only single brand products would be sold (i.e., retail o
goods of multi-brand even if produced by the same manufacturer would not be allowed), (b) products should b
sold under the same brand internationally, (c) single-brand product retail would only cover products which a
branded during manufacturing and (d) any addition to product categories to be sold under single-brand wou
require fresh approval from the government.
While the phrase single brand has not been defined, it implies that foreign companies would be allowed to se
goods sold internationally under a single brand, viz., Reebok, Nokia, Adidas. Retailing of goods of multip
brands, even if such products were produced by the same manufacturer, would not be allowed.
Going a step further, we examine the concept of single brand and the associated conditions:
FDI in Single brand retail implies that a retail store with foreign investment can only sell one brand. F
example, if Adidas were to obtain permission to retail its flagship brand in India, those retail outlets could on
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sell products under the Adidas brand and not the Reebok brand, for which separate permission is required.
granted permission, Adidas could sell products under the Reebok brand in separate outlets.
But, what is a brand?
Brands could be classified as products and multiple products, or could be manufacturer brands and own-lab
brands. Assume that a company owns two leading international brands in the footwear industry say A an
R. If the corporate were to obtain permission to retail its brand in India with a local partner, it would need
specify which of the brands it would sell. A reading of the government release indicates that A and R woul
need separate approvals, separate legal entities, and may be even separate stores in which to operate in Indi
However, it should be noted that the retailers would be able to sell multiple products under the same brand, e.g
a product range under brand A Further, it appears that the same joint venture partners could operate variou
brands, but under separate legal entities.
Now, taking an example of a large departmental grocery chain, prima facie it appears that it would not be able
enter India. These chains would, typically, source products and, thereafter, brand it under their private label
Since the regulations require the products to be branded at the manufacturing stage, this model may not wor
The regulations appear to discourage own-label products and appear to be tilted heavily towards the foreig
manufacturer brands.
There is ambiguity in the interpretation of the term single brand. The existing policy does not clearly codif
whether retailing of goods with sub-brands bunched under a major parent brand can be considered as singl
brand retailing and, accordingly, eligible for 51 per cent FDI. Additionally, the question on whether co-brand
goods (specifically branded as such at the time of manufacturing) would qualify as single brand retail tradin
remains unanswered.
FDI in Multi Brand Retail
The government has also not defined the term Multi Brand. FDI in Multi Brand retail implies that a retail sto
with a foreign investment can sell multiple brands under one roof.
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In July 2010, Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce circulated
discussion paper on allowing FDI in multi-brand retail. The paper doesnt suggest any upper limit on FDI
multi-brand retail. If implemented, it would open the doors for global retail giants to enter and establish the
footprints on the retail landscape of India. Opening up FDI in multi-brand retail will mean that global retaile
including Wal-Mart, Carrefour and Tesco can open stores offering a range of household items and grocer
directly to consumers in the same way as the ubiquitous kiranastore.
Foreign Investors Concern Regarding FDI Policy in India
For those brands which adopt the franchising route as a matter of policy, the current FDI Policy will not make
any difference. They would have preferred that the Government liberalize rules for maximizing their royalty an
franchise fees. They must still rely on innovative structuring of franchise arrangements to maximize their
returns. Consumer durable majors such as LG and Samsung, which have exclusive franchisee owned stores, ar
unlikely to shift from the preferred route right away.
For those companies which choose to adopt the route of 51% partnership, they must tie up with a local partner.
The key is finding a partner which is reliable and who can also teach a trick or two about the domestic market
and the Indian consumer. Currently, the organized retail sector is dominated by the likes of large business
groups which decided to diversify into retail to cash in on the boom in the sectorcorporates such as Tata
through its brand Westside, RPG Group through Food world, Pantaloon of the Raheja Group and Shoppers
Stop. Do foreign investors look to tie up with an existing retailer or look to others not necessarily in the busine
but looking to diversify, as many business groups are doing?
An arrangement in the short to medium term may work wonders but what happens if the Government decides t
further liberalize the regulations as it is currently contemplating? Will the foreign investor terminate th
agreement with Indian partner and trade in market without him? Either way, the foreign investor must negotia
its joint venture agreements carefully, with an option for a buy-out of the Indian partners share if and whe
regulations so permit. They must also be aware of the regulation which states that once a foreign compan
enters into a technical or financial collaboration with an Indian partner, it cannot enter into another joint ventu
with another Indian company or set up its own subsidiary in the same field without the first partners consen
if the joint venture agreement does not provide for a conflict of interest clause. In effect, it means that foreig
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brand owners must be extremely careful whom they choose as partners and the brand they introduce in Indi
The first brand could also be their last if they do not negotiate the strategic arrangement diligently.
Concerns for the Government for only Partially Allowing FDI in Retail Sector
A number of concerns were expressed with regard to partial opening of the retail sector for FDI. The Honb
Department Related Parliamentary Standing Committee on Commerce, in its 90th Report, on Foreign an
Domestic Investment in Retail Sector, laid in the Lok Sabha and the Rajya Sabha on 8 June, 2009, had made a
in-depth study on the subject and identified a number of issues related to FDI in the retail sector. Thes
included:
It would lead to unfair competition and ultimately result in large-scale exit of domestic retailers, especially th
small family managed outlets, leading to large scale displacement of persons employed in the retail secto
Further, as the manufacturing sector has not been growing fast enough, the persons displaced from the reta
sector would not be absorbed there.
Anotherconcern is that the Indian retail sector, particularly organized retail, is still under-developed and in
nascent stage and that, therefore, it is important that the domestic retail sector is allowed to grow an
consolidate first, before opening this sector to foreign investors.
Antagonists of FDI in retail sector oppose the same on various grounds, like, that the entry of large glob
retailers such as Wal-Mart would kill local shops and millions of jobs, since the unorganized retail sect
employs an enormous percentage of Indian population after the agriculture sector; secondly that the glob
retailers would conspire and exercise monopolistic power to raise prices and monopolistic (big buying) power
reduce the prices received by the suppliers; thirdly, it would lead to asymmetrical growth in cities, causin
discontent and social tension elsewhere. Hence, both the consumers and the suppliers would lose, while th
profit margins of such retail chains would go up.
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Limitations
LIMITATIONS OF THE PRESENT SETUP
Infrastructure
There has been a lack of investment in the logistics of the retail chain, leading to an inefficient mark
mechanism. Though India is the second largest producer of fruits and vegetables (about 180 million MT), it h
a very limited integrated cold-chain infrastructure, with only 5386 stand-alone cold storages, having a tot
capacity of 23.6 million MT. , 80% of this is used only for potatoes. The chain is highly fragmented and henc
perishable horticultural commodities find it difficult to link to distant markets, including overseas market
round the year. Storage infrastructure is necessary for carrying over the agricultural produce from productio
periods to the rest of the year and to prevent distress sales. Lack of adequate storage facilities cause heavy loss
to farmers in terms of wastage in quality and quantity of produce in general. Though FDI is permitted in col
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chain to the extent of 100%, through the automatic route, in the absence of FDI in retailing; FDI flow to th
sector has not been significant.
Intermediaries dominate the value chain
Intermediaries often flout mandi norms and their pricing lacks transparency. Wholesale regulated marke
governed by State APMC Acts, have developed a monopolistic and non-transparent character. According
some reports, Indian farmers realize only 1/3rd
of the total price paid by the final consumer, as against 2/3rd
b
farmers in nations with a higher share of organized retail.
Improper Public Distribution System (PDS)
There is a big question mark on the efficacy of the public procurement and PDS set-up and the bill on foo
subsidies is rising. In spite of such heavy subsidies, overall food based inflation has been a matter of gre
concern. The absence of a farm-to-forkretail supply system has led to the ultimate customers paying
premium for shortages and a charge for wastages.
No Global Reach
The Micro Small & Medium Enterprises (MSME) sector has also suffered due to lack of branding and lack
avenues to reach out to the vast world markets. While India has continued to provide emphasis on th
development of MSME sector, the share of unorganised sector in overall manufacturing has declined fro
34.5% in 1999-2000 to 30.3% in 2007-08. This has largely been due to the inability of this sector to access late
technology and improve its marketing interface.
Rationale behind Allowing FDI in Retail Sector
FDI can be a powerful catalyst to spur competition in the retail industry, due to the current scenario of lo
competition and poor productivity.
The policy of single-brand retail was adopted to allow Indian consumers access to foreign brands. Since Indian
spend a lot of money shopping abroad, this policy enables them to spend the same money on the same goods i
India. FDI in single-brand retailing was permitted in 2006, up to 51 per cent of ownership. Between then an
May 2010, a total of 94 proposals have been received. Of these, 57 proposals have been approved. An FD
inflow of US$196.46 million under the category of single brand retailing was received between April 2006 an
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September 2010, comprising 0.16 per cent of the total FDI inflows during the period. Retail stocks rose by a
much as 5%. Shares of Pantaloon Retail (India) Ltd ended 4.84% up at Rs 441 on the Bombay Stock Exchang
Shares of Shoppers Stop Ltd rose 2.02% and Trent Ltd, 3.19%. The exchanges key index rose 173.04 point
or 0.99%, to 17,614.48. But this is very less as compared to what it would have been had FDI upto 100% bee
allowed in India for single brand.
The policy of allowing 100% FDI in single brand retail can benefit both the foreign retailer and the India
partner foreign players get local market knowledge, while Indian companies can access global be
management practices, designs and technological knowhow. By partially opening this sector, the governme
was able to reduce the pressure from its trading partners in bilateral/ multilateral negotiations and cou
demonstrate Indias intentions in liberalising this sector in a phased manner.
Permitting foreign investment in food-based retailing is likely to ensure adequate flow of capital into the count
& its productive use, in a manner likely to promote the welfare of all sections of society, particularly farme
and consumers. It would also help bring about improvements in farmer income & agricultural growth and assi
in lowering consumer prices inflation.
Apart from this, by allowing FDI in retail trade, India will significantly flourish in terms of quality standard
and consumer expectations, since the inflow of FDI in retail sector is bound to pull up the quality standards an
cost-competitiveness of Indian producers in all the segments. It is therefore obvious that we should not on
permit but encourage FDI in retail trade.
Lastly, it is to be noted that the Indian Council of Research in International Economic Relations (ICRIER),
premier economic think tank of the country, which was appointed to look into the impact of BIG capital in th
retail sector, has projected the worth of Indian retail sector to reach $496 billion by 2011-12 and ICRIER h
also come to conclusion that investment of big money (large corporates and FDI) in the retail sector would
the long run not harm interests of small, traditional, retailers.
In light of the above, it can be safely concluded that allowing healthy FDI in the retail sector would not onl
lead to a substantial surge in the countrys GDP and overall economic development, but would inter alia al
help in integrating the Indian retail market with that of the global retail market in addition to providing not ju
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employment but a better paying employment, which the unorganized sector (kirana and other small tim
retailing shops) have undoubtedly failed to provide to the masses employed in them.
Industrial organisations such as CII, FICCI, US-India Business Council (USIBC), the American Chamber
Commerce in India, The Retail Association of India (RAI) and Shopping Centers Association of India (a 4
member association of Indian multi-brand retailers and shopping malls) favour a phased approach towar
liberalising FDI in multi-brand retailing, and most of them agree with considering a cap of 49-51 per cent t
start with.
The international retail players such as Walmart, Carrefour, Metro, IKEA, and TESCO share the same view an
insist on a clear path towards 100 per cent opening up in near future. Large multinational retailers such as US
based Walmart, Germanys Metro AG and Woolworths Ltd, the largest Australian retailer that operates
wholesale cash-and-carry ventures in India, have been demanding liberalisation of FDI rules on multi-bran
retail for some time.
Thus, as a matter of fact FDI in the buzzing Indian retail sector should not just be freely allowed but per cont
should be significantly encouraged. Allowing FDI in multi brand retail can bring about Supply Cha
Improvement, Investment in Technology,Manpower and Skill development,Tourism Development, Great
Sourcing From India,Upgradation in Agriculture, Efficient Small and Medium Scale Industries, Growth
market size and Benefits to govemment through greater GDP, tax income and employment generation.
Prerequisites before allowing FDI in Multi Brand Retail and Lifting Cap of Single Brand Retail
FDI in multi-brand retailing must be dealt cautiously as it has direct impact on a large chunk of population. Le
alone foreign capital will seek ways through which it can only multiply itself, and unthinking application
capital for profit, given our peculiar socio-economic conditions, may spell doom and deepen the gap betwee
the rich and the poor. Thus the proliferation of foreign capital into multi-brand retailing needs to be anchored
such a way that it results in a win-win situation for India. This can be done by integrating into the rules an
regulations for FDI in multi-brand retailing certain inbuilt safety valves. For example FDI in multi bran
retailing can be allowed in a calibrated manner with social safeguards so that the effect of possible labo
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dislocation can be analyzed and policy fine tuned accordingly. To ensure that the foreign investors make
genuine contribution to the development of infrastructure and logistics, it can be stipulated that a percentage
FDI should be spent towards building up of back end infrastructure, logistics or agro processing unit
Reconstituting the poverty stricken and stagnating rural sphere into a forward moving and prosperous rur
sphere can be one of the justifications for introducing FDI in multi-brand retailing. To actualize this goal it ca
be stipulated that at least 50% of the jobs in the retail outlet should be reserved for rural youth and that a certa
amount of farm produce be procured from the poor farmers. Similarly to develop our small and mediu
enterprise (SME), it can also be stipulated that a minimum percentage of manufactured products be source
from the SME sector in India. PDS is still in many ways the life line of the people living below the poverty lin
To ensure that the system is not weakened the government may reserve the right to procure a certain amount o
food grains for replenishing the buffer. To protect the interest of small retailers the government may also put i
place an exclusive regulatory framework. It will ensure that the retailing giants do resort to predatory pricing
acquire monopolistic tendencies. Besides, the government and RBI need to evolve suitable policies to enable th
retailers in the unorganized sector to expand and improve their efficiencies. If Government is allowing FDI,
must do it in a calibrated fashion because it is politically sensitive and link it (with) up some caveat fro
creating some back-end infrastructure.
Further, To take care of the concerns of the Government before allowing 100% FDI in Single Brand Retail an
Multi- Brand Retail, the following recommendations are being proposed [19]:-
Preparation of a legal and regulatory framework and enforcement mechanism to ensure that large retaileare not able to dislocate small retailers by unfair means.
Extension of institutional credit, at lower rates, by public sector banks, to help improve efficiencies of smaretailers; undertaking of proactive programme for assisting small retailers to upgrade themselves.
Enactment of a National Shopping Mall Regulation Act to regulate the fiscal and social aspects of the entiretail sector.
Formulation of a Model Central Law regarding FDI of Retail Sector.Back-end logistics must for FDI in multi-brand retail
http://cdn.legalindia.in/wp-includes/js/tinymce/plugins/paste/pasteword.htm?ver=327-1235#_ftn19http://cdn.legalindia.in/wp-includes/js/tinymce/plugins/paste/pasteword.htm?ver=327-1235#_ftn197/29/2019 Jforeign direct investment i.e fdi in retail of india
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The government has added an element of social benefit to its latest plan for calibrated opening of the mult
brand retail sector to foreign direct investment (FDI). Only those foreign retailers who first invest in the bac
end supply chain and infrastructure would be allowed to set up multi brand retail outlets in the country. The ide
is that the firms must have already created jobs for rural India before they venture into multi-brand retailing.
It can be said that the advantages of allowing unrestrained FDI in the retail sector evidently outweigh th
disadvantages attached to it and the same can be deduced from the examples of successful experiments
countries like Thailand and China; where too the issue of allowing FDI in the retail sector was first met wit
incessant protests, but later turned out to be one of the most promising political and economical decisions
their governments and led not only to the commendable rise in the level of employment but also led to th
enormous development of their countrys GDP.
Moreover, in the fierce battle between the advocators and antagonist of unrestrained FDI flows in the India
retail sector, the interests of the consumers have been blatantly and utterly disregarded. Therefore, one of th
arguments which inevitably needs to be considered and addressed while deliberating upon the captioned issue
the interests of consumers at large in relation to the interests of retailers.
It is also pertinent to note here that it can be safely contended that with the possible advent of unrestrained FD
flows in retail market, the interests of the retailers constituting the unorganized retail sector will not be gravel
undermined, since nobody can force a consumer to visit a mega shopping complex or a small retailer/sab
mandi. Consumers will shop in accordance with their utmost convenience, where ever they get the lowest pric
max variety, and a good consumer experience.
The Industrial policy 1991 had crafted a trajectory of change whereby every sectors of Indian economy at on
point of time or the other would be embraced by liberalization, privatization and globalization.FDI in mul
brand retailing and lifting the current cap of 51% on single brand retail is in that sense a steady progression o
that trajectory. But the government has by far cushioned the adverse impact of the change that has ensued in th
wake of the implementation of Industrial Policy 1991 through safety nets and social safeguards. But the chang
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that the movement of retailing sector into the FDI regime would bring about will require more involved an
informed support from the government. One hopes that the government would stand up to its responsibilit
because what is at stake is the stability of the vital pillars of the economy- retailing, agriculture, an
manufacturing. In short, the socio economic equilibrium of the entire country.
Recent Scenario
1] Today, India is perceived as one of the most favorable global investment destinations. In the wake of
liberalization, even the Indian retail sector has scaled an impressive growth curve over the last decade, with
considerable consumer acceptance for organized retailing formats, particularly in the urban areas.
Notwithstanding the above performance, the organized retail segment is still in a nascent stage with global
retailers entering India only in the last few years, constrained by regulations allowing entry primarily through
cash and carry operations. Complex corporate structures and the fact that intermediaries obtain a
disproportionate share of value in the supply chain have always deterred foreign investments in the retail arena
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2] The Indian retail industry is the fifth largest in theworld. Comprising of organized and unorganized sectors,
retail industry is one of the fastest growing industries in India, especially over the last few years. With growing
market demand, the industry is expected to grow at a pace of 25-30% annually. The Indian retail industry is
expected to grow from Rs. 35,000 crore in 2004-05 to Rs. 1,09,000 crore by the year 2010 and hence is the mo
promising emerging market for investment. In 2007, the retail trade in India had a share of 8-10% in the GDP
(Gross Domestic Product) of the country, while it rose to 12% in 2009 and reached 22% by 2010. Unorganized
retailing is by far the prevalent form of trade in India constituting 98% of total trade, while organized trade
accounts only for the remaining 2% and this is projected to increase to 15-20 per cent by 2010.
3] Nonetheless the organized sector is expected to grow faster than GDP growth in next few years driven by
favorable demographic patterns, changing lifestyles, and strong income growth. In this context the present pape
attempts to review the issues and implications of FDI inflows in to the Indian retail sector. Question of FDI in
Indian Retail Sector: Should it be allowed? Issues and Implications of FDI in Indian retailing sector.. India is a
nation of shopkeepers. The country has around 12 million stores, which means one store for every 100
customers. Retailing in India is at a very interesting era as various factors are bringing about the big bang effec
to retail. The creation of malls across the country and new high-streets had suddenly urged traditional retailers
modernize themselves. Development of retail is happening across tier 1, 2 and 3 cities and this makes chain
store retail interesting. Now with FDI in retail likely to become a reality, the shopkeepers landscape will
change even further. Its only imperative that the Indian retail has benchmarks of excellence that will catapult
the industry into the global arena.
4] The main fear of FDI in retail trade is that it will certainly disrupt the livelihood of the poor people engaged
in this trade. The opening up of big markets to foreign sponsored departmental outlets will not necessarily
absorb them; rather they may try to establish the monopoly power in the country.
5] The 51% foreign direct investment (FDI) will obviously have a negative impact on small retailers, but it wi
benefit the consumers as they will have wider choices Foreign direct investment in Indian retail sector: Issues
and implications 281 at competitive prices. It will accelerate the retail market growth and provide more
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employment opportunities. The FDI Bill will definitely have a positive impact on the retail industry and the
country by attracting more foreign investments. With big retail giants coming to India, it will surely improve o
back-end storage and procurement process. Once these multi-chain retailers establish themselves, they will
create infrastructure facilities, which will also propel the existing infrastructure. The farmers will be benefited
from FDI as they will be able to get better prices for their products. The elimination of the intermediate channe
in the procurement process will lead to reduction of prices for consumers. By allowing 51% foreign investmen
in the Indian market, it will teach the local retailers about real competition and help in insuring that they give
better service to Indian consumers. It is obviously good for local competition. The impact on local kirana shop
will not be affected. The kirana stores operate in a different environment catering to a certain set of customers
and they will continue to find new ways to retain them.
6]There is ambiguity in the interpretation of the term single brand. The existing policy does not clearly codify
whether retailing of goods with sub-brands bunched under a major parent brand can be considered as single-
brand retailing, and accordingly eligible for 51 percent FDI. Additionally, the question on whether co-branded
goods (specifically branded as such at the time of manufacturing) would qualify as single brand retail trading
remains unanswered.FDI in Single and Multi-Brand Retail Sectors
Foreign Direct Investment under the Industrial Policy 1991 and thereafter under different Foreign Trade Policie
is being allowed in different sectors of the economy in different proportion under either the Government route
or Automatic Route. In Retailing, presently 51 per cent FDI is allowed in single brand retail through the
Government Approval route while 100 per cent FDI is allowed in the cash-and-carry (wholesale) formats unde
the Automatic route. Under the Government Approval route, proposal for FDI in Single Brand Product
Retailing are received in the Department of Industrial Policy and Promotion, Ministry of Commerce &
Industry. Automatic route dispenses with the need of multiple approvals from Government and/or regulatory
agencies (Government of India or the RBI). Of late, the Government of India has expressed its desire to bring
the Multi-Brand retailing within the ambit of FDI, and in the process has put in train a debate on its possible
outcome. Unlike FDI in single brand retailing which pertains to brand loyal and a relatively small high income
clientele, FDI in multi-brand retailing would have direct impact on a vast spectrum of population and thus a
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sensitive issue. Left alone foreign capital will seek ways through which it can only multiply itself, and
unthinking application of capital for profit, given our peculiar socio-economic conditions, may spell doom and
deepen the hiatus between the rich and the poor. Thus the proliferation of foreign capital into multibrand
retailing needs to be anchored in such a way that it results in a win-win situation for India. This can be done by
integrating into the rules and regulations for FDI in multibrand retailing certain inbuilt safety valves. For
example FDI in multibrand retailing can be allowed in a calibrated manner with social safeguards so that the
effect of possible labor dislocation can be analyzed and policy fine tuned accordingly. To ensure that the foreig
investors make a genuine contribution to the development of infrastructure and logistics, it can be stipulated th
a percentage of FDI should be spent towards building up of back end Infrastructure, logistics or agro processin
units. One of the justifications for introducing FDI in multi-brand retailing is to transform the poverty stricken
and stagnating rural sphere into a forward moving and prosperous rural sphere. To actualize this goal it can be
stipulated that at least 50% of the jobs in the retail outlet should be reserved for rural youth and that a certain
amount of farm produce be procured from the poor farmers. Similarly, to develop the small and medium
enterprise (SME), it can also be stipulated that a minimum percentage of manufactured products be sourced
from the SME sector in India. Public Distribution System is still in many ways the life line of the people living
below the poverty line. To ensure that the system is not weakened the government may reserve the right to
procure a certain amount of food grains for replenishing the buffer. The government may also put in place an
exclusive regulatory framework to protect the interest of small retailers. It will ensure that the retailing giants d
resort to predatory pricing or acquire monopolistic tendencies. Besides, the government and RBI need to evolv
suitable policies to enable the retailers in the unorganized sector to expand and improve their efficiencies.The
Industrial policy 1991 had crafted a trajectory of change whereby every sectors of Indian economy at one point
of time or the other would be embraced by liberalization, privatization and globalization. FDI in multibrand
retailing is in that sense a steady progression of that trajectory. But the government has by far cushioned the
adverse impact of the change that has ensued in the wake of the implementation of Industrial Policy 1991
through safety nets and social safeguards. But the change that the movement of retailing sector into the FDI
regime would bring about will require more involved and informed support from the government. One hopes
that the government would stand up to its responsibility, because what is at stake is the stability of the vital
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pillars of the economy- retailing, agriculture, and manufacturing. In short, the socio economic equilibrium of th
entire country.
7] Rationale Behind Allowing FDI in Retail SectorFDI can be a powerful catalyst to spur competition in the
retail industry, due to the current scenario of low competition and poor productivity. The policy of single-brand
retail was adopted to allow Indian consumers access to foreign brands. Since Indians spend a lot of money
shopping abroad, this policy enables them to spend the same money on the same goods in India. FDI in single-
brand retailing was permitted in 2006, up to 51 per cent of ownership. Between then and May 2010, a total of 9
proposals have been received. Of these, 57 proposals have I.J.E.M.S., VOL.3(3) 2012: 280-283 ISSN 2229-
600X282 been approved. An FDI inflow of US$196.46 million under the category of single brand retailing wa
received between April 2006 and September 2010, comprising 0.16 per cent of the total FDI inflows during the
period. Retail stocks rose by as much as 5%. Shares of Pantaloon Retail (India) Ltd ended 4.84% up at Rs 441
on the Bombay Stock Exchange. Shares of Shoppers Stop Ltd rose 2.02% and Trent Ltd, 3.19%. The
exchanges key index rose 173.04 points, or 0.99%, to 17,614.48. But this is very less as compared to what it
would have been had FDI up to 100% been allowed in India for single brand.
8] The policy of allowing 100% FDI in single brand retail can benefit both the foreign retailer and the Indian
partnerforeign players get local market knowledge, while Indian companies can access global best
management practices, designs and technological knowhow. By partially opening this sector, the government
was able to reduce the pressure from its trading partners in bilateral/multilateral negotiations and could
demonstrate Indias intentions in liberalizing this sector in a phased manner.
9] Permitting foreign investment in food-based retailing is likely to ensure adequate flow of capital into the
country, & its productive use in a manner likely to promote the welfare of all sections of society, particularly
farmers and consumers. It would also help bring about improvements in farmers income & agricultural growth
and assist in lowering consumer prices inflation.
10] Apart from this, by allowing FDI in retail trade, India will significantly flourish in terms of quality standard
and consumer expectations, since the inflow of FDI in retail sector is bound to pull up the quality standards and
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cost-competitiveness of Indian producers in all the segments. It is therefore obvious that we should not only
permit but encourage FDI in retail trade. Lastly, it is to be noted that the Indian Council of Research in
International Economic Relations (ICRIER), a premier economic think tank of the country, which was
appointed to look into the impact of BIG capital in the retail sector, has projected the worth of Indian retail
sector to reach $496 billion by 2011-12 and ICRIER has also come to the conclusion that investment of big
money (large corporates and FDI) in the retail sector would in the long run not harm interests of small
traditional retailers.
11] Further, to take care of the concerns of the Government before allowing 100% FDI in Single Brand Retail
and MultiBrand Retail, the following recommendations are being proposed
10 Preparation of a legal and regulatory framework and enforcement mechanism to ensure that large retailers
are not able to dislocate small retailers by unfair means. Extension of institutional credit, at lower rates, by
public sector banks, to help improve efficiencies of small retailers; undertaking of proactive programme for
assisting small retailers to upgrade themselves. Enactment of a National Shopping Mall Regulation Act to
regulate the fiscal and social aspects of the entire retail sector. Formulation of a Model Central Law regardin
FDI of Retail Sector.
Recommendations
The few recommendations for formulation of policies by government:
Much of the Indian retail trade (particularly grocery) still has traditional features: small family-run shops and
street hawkers dominate the situation in most of the country. However, the retail trade in India is now
undergoing an intensive structural change which could cause irreversible damage to local commodity supply
chains and competition. The existing regulations are not adequate to fulfil the new 49requirements. India can
learn (and perhaps forestall loss of genuine competition and product variety) from the experience of south-east
Asian countries which are improving regulatory frameworks and some advanced retailing economies like
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Germany which are already considered more successful regulators in this sector. German competition policies
content and implementation are significant for India to the extent that they are different from other advanced
retailing countries like the US and Great Britain. German policy now proactively aims to preserve small and
medium competitors in retail sector.Policies for Competitiveness with Inclusiveness in the Supermarket
Revolution.As the supermarket revolution proceeds in developing countries, governments have several options
for helping small farmers participate in supermarket channels (or gain access to viable alternatives) and
traditional retailers coexist or compete with the modern retail sector.
Option 1:Regulate Modern Retail? To the extent developing countries have regulated modern retail; their goal
has been to reduce the speed and scope of its spread. The regulations have mainly limited the location and hour
of modern retail. On balance, theseregulations have done little to limit supermarket spread, partly because
although regulations tend to targe large-format stores (and thus not limit small traditional stores), modern retail
comes in a wide variety of formats, including neighbourhood stores and convenience stores.Few developing
countries have a pro-traditional or prosmall retail policy. Instead they usually take a laissez-faire approach to
small shops and hawkers and make minimum initial public investments in open and covered municipal market
A number of developing countries even have policies that encourage the development of supermarkets and
regulate wet-markets in order to modernize commerce, lower food prices and congestion, and increase public
hygiene and economic competitiveness.Finally, in the early stages of supermarket spread, the supermarket
sector is relatively fragmented (weakly concentrated), and farmers and processors thus have a wide range of
potential buyersamong supermarket chains and between the modern and traditional sectors. In the advanced
stage of supermarket spread, however, the sector becomes concentratedfor example, in Latin America four t
five chains typically control about 75percent of a sector that in turn controls an average of 55percent of food
retail. At that stage it is important for governments and the private sector to enforce competition policies.
Option 2: Upgrade Traditional Retail. A number of good examples of programs to upgrade traditional retail
exist. Of particular interest are those of East and Southeast Asia, such as in China, Hong Kong, the Philippines
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Singapore, and Taiwan. In most of these countries, the programs in question are municipal, sometimes under a
national umbrella policy. The programs have several elements in common:50
Governments involved in these programs have a broad tent approachthat is, they allow development of
supermarkets as well as traditional retailers.
They are proactive: the Hong Kong Consumer Councils dictum of managing and facilitating changerath
than leaving wet-markets to flounder and collapse, characterizes all the East and Southeast Asian approaches
studied. They promote traditional retailer modernization and competitiveness. Singapores approach is to
cherish but upgrade and modernize.Hong Kongs policy is to retain but modernize.
They accept the social and market role of wet-markets, hawkers, and small traditional shops but encourage
them to locate in non-congested areas and on fixed sites (to increase hygiene and tax payment) and to improve
their physical infrastructure. They also train the operators in business skills, food safety, and hygiene.
They experiment with privatizing wet-market management in some cases (such as in China and Hong Kong).
Option 3: Upgrade Wholesale Markets to Serve Retailers and Farmers Better. Small shops and wet-market stal
operators typically source food products from wholesale markets, which typically buy from small farmers.
Upgrading wholesale markets infrastructure and services is thus important to the whole traditional supply
chain. Private-sector actors are helping traditional retailers (and supermarket independents and chains) obtain
the services and products they need.Examples are modern cash-and-carry chains that act as wholesalers,
likeBharti/Wal-mart in India, Metro in China, and Makro in Pakistan. But governments and wholesaler
associations also need to invest in upgrading wholesale markets in order to maximize access by farmers and
retailers. Such programs have been undertaken in China and Mexico.
Option 4: Help Farmers Become Competitive Suppliers toSupermarkets. Private-sector programs are emerging
to help small farmers get the assets and services they need to supply supermarket channels. Metro, for example
has direct procurement links to fish and vegetable farmers in China. Agrifood businesses in India, like ITC,
Tata, Godrej, Reliance, and DSCL Hariyali , have rural business hubs that offer consumables, farm inputs, and
technical assistance and procure output from farmers.Governments need to supplement private efforts with
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public investments inimproving farmers access to assets, services, training, and information. Some of these
assets are public goods, such as regulations on retailer-supplier relations to promote fair commercial practices,
wholesale market upgrading, market information, and physical infrastructure such as cold chains and roads.
Other assets are semi-51 public or private goods, such as assistance with market linkages between small farmer
cooperatives and supermarket chains; training in postharvest handling; and credit facilities for making on-farm
investments in assets needed to meet quality and volume requirements, such as irrigation and greenhouses.
Option 5: Urban Planning Laws. The state of urban planning in India is such that there is as yet no ceiling on th
size or number of retail outlets that may be started in a designated commercial zone. The ministry of urban
development at the central level has no jurisdiction over urban area planning in the states except in the case of
exceptional laws pertaining to the coastal regions, forests, the Delhi region and union territories. It is clear that
land use laws/zoning laws are not the most commonly used regulatory devices against large format retailing an
at present the land use laws in urban centres are in the most pliant condition since the local governments
implement them and they are most susceptible to omission and commission on behalf of real estate developers
who, in turn, share a common interest with corporate retailers.What is needed is to include regulations for the
establishment of big retail projects in States Regional Planning documents. When municipalities allow big reta
projects, they are scrutinised to ensure that they meet the requirements of regional planning.The position of the
neighbouring municipalities thus needs to be strengthened by a new law (that has been introduced to adjust
German building law with European regulation). New big retail projects are now checked to assess their
influence on thelocal supply. Investors in retail have to prove that their project will not end up affecting retail
shops in the same or neighbouring municipality, and smaller shops in the neighbouring municipalities will not
close down due to the new competition. The proposal of not allowing FDI in retail initially to major cities, SEZ
as well as certain sectors; and also not allowing in cities with population of less than 1million is move in right
direction.
Option 6: Regulation of misleading statements andadvertisements. The law against dishonest competition
(referred to as unfair trade practices in India) forbids a number of marketing practices which are regarded as
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dishonest.These include misleading statements or advertisements about business circumstances, especially the
nature, origin, manner of manufacture or the pricing of goods or commercial services or the size of the availabl
stock. In a recently reported case in India a leading corporate retailer, Subhiksha claimed in advertisements tha
its prices were the lowest compared to rivals like Big Bazar, DMART, and Apana Bazar,etc. Big Bazar filed a
case against the advertisements and the Advertising and Standards Council of India is understood to have given
its verdict in April 2007. However, the verdict has not been made public as yet.52
Option 7: Regulatory Framework to avoid monopolistic practices. The possible monopolistic/ monopsonistic
tendencies of the large retailers (fears of predatory behaviour and abuse of dominance) would have to be
proactively dealt to ensure competition in the market. Appropriate policy formulation can also aide this cause,
was done during the telecom sector liberalisation with the National Telecom Policy mandating that each circle
should have at least 4-6players. It is to be understood that free and fair competition in procurement of farm
produce is the key to farmers enhanced remuneration.
FDI in retail is a boon for India
Foreign direct investment (FDI) refers to foreign capital that is invested to enhance the production capacity of
the economy. However, FDI in retail is different from the investment in corporate, manufacturing or
infrastructure sectors. Retail can be single or multi brand and may be described as a sale to the ultimate
consumer at a margin of profit.
While the FDI in single-brand retailing was allowed earlier, FDI in multi-brand retailing is being allowed now.
This means a retail store with foreign direct investment can sell multiple brands under one roof. So, it is the lin
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between the producer/manufacturer and the individual consumer. India had to open up the retail trade sector to
foreign investment as she is a signatory to the World Trade Organizations General Agreement on Trade &
Services, which includes wholesale and retail services.
The Indian retail sector is highly fragmented with around 97 per cent of its business being run by unorganized
retailers. Organized retail is still at a nascent stage. With the entry of FDI, the retail sector will become
organized. Foreign investment in food-based retailing would ensure adequate flow of capital into the country
and its productive use.
It will promote welfare of farmers by agriculture growth and thereby increasing their income level. At present,
intermediaries, known by different names in different parts of the country, flout the business ethics, prices lack
transparency and the due share of farmer is not paid to him. Regulated markets have also developed
monopolistic character. Indian farmers, at present, realize only 1/3rd of the final price paid by the consumer as
against 2/3rd realized by farmers in the countries with a greater share of organized retail. FDI will assist in
reducing the dominance of value chain by intermediaries.
FDI in retail will make the consumer happy as well. In the absence of intermediaries, the consumer will end up
paying lower price for a better product. Besides, in the unorganized sector, consumer has to argue and fight a lo
in case he has to return some faulty product to the retailer. This process will be standardized.
It will serve as an antidote to inflation. The producer will get direct payment from the retailer and the same wil
be higher than what he was getting earlier due to the foul play by intermediaries. In accordance to the provision
made, any company going for 51% partnership in retail will have to tie up with a local partner. This will
improve the income levels of all concerned and will make economy flourish with quality branded products at a
lower price.
FDI will improve investment in logistics of the retail chain, leading to an efficient market mechanism. India is
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one of the biggest producers of fruits and vegetables (more than 180 million tonne). However, it does not have
strong integrated cold-chain infrastructure with only around 5,400 cold storages having total capacity of about
24 million tonne. The irony is that 80% of the capacity is used only for preservation of potatoes. Perishable
horticultural commodities find it difficult to link to distant markets, including overseas markets. FDI will
become a catalyst in avoiding distress sale and erosion & wastage in quality and quantity of the produce.
Foreign direct investment in the retail sector will spur competition as the current scenario is of low competition
and poor productivity. India will flourish in terms of quality standards and consumer expectations.
Fears that the entry of FDI in multi-brand retail may cause unemployment as foreign firms may not procure
material from domestic producers and may import the same from international market are unfounded as the
entry of big companies like Reliance and Tata has substantially improved the life standard of farmers and
villages from where they are procuring. The present public distribution system will also be strengthened with
better products and storage facility. Even the FDI retail may be assigned this job. Allowing FDI in multi-brand
retail will bring about supply chain improvement, investment in technology, manpower & skill development,
upgrade in the agriculture sector, and benefits to the government through greater GDP and tax income. The
organized sector will also lay stress on producing more and will generate more employment in production.
Case Study
FDI in Indian Retail: The Big Benefits Will Come Tomorrow, Not Today
Published: September 20, 2012 in India Knowledge @Wharton
The Indian governmentrecently announced aslew of reforms, including allowing foreign
direct investment (FDI) in multi-brand retail up to a level of 51%. A policy requiring that
single-brand retail multinationals source 30% of products and materials from small
businesses and craftsmen was changed to mandating that the same amount come from
http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4703http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4703http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4703http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4703http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=47037/29/2019 Jforeign direct investment i.e fdi in retail of india
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Indian firms. In this op-ed, Johns Hopkins University professorRavi Aron, who is a senior fellow at
Wharton'sWilliam and Phyllis Mack Center for Technological Innovation, argues that opening up FDI will no
only lead to a greater variety of products for sale and increased consumer choice, but also penetrate deep into
the hinterland of Indian economic activity and do much to improve the country's "shunned sectors" --
infrastructure and logistics.
The direct FDI impact in the short term from retail chains will be modest. If you look at the numbers -- as per
[financial information services firm] CEIC Data -- FDI in 2008 was in the ballpark of US$35 billion and
declined in 2009 and 2010. FDI in 2011 came in at around US$27 billion or so. So if we ask the question: Will
international retail chains in the shorter term -- an 18-to-24 month horizon -- bring in US$8 billion to get back
on track, the answer is probably not.
Large retail chains when they venture abroad do so in three phases. In Phase One, they often set up a test
case/pilot project. This can be done through a partnership with local chains (with risk and revenue sharing), or
few flagship stores that serve as brand broadcasters. The chains employ this initial-phase entry strategy to learn
lessons about the local markets. They assess demand, test merchandizing strategies and set up operational
capabilities. In this phase, they bring in some investment to cover their set-up costs and for establishing their
sourcing (supply) footprint. This usually takes 18-to-24 months.
In the second phase, firms expand their demand footprint; they open more stores and increase both the scale of
operations (volume of products sourced) and scope of products that they feature. There is considerable
investment in this phase in the form of real estate acquisition, putting in operational infrastructure, establishing
sourcing relationships, establishing supply chains and massive logistics capabilities. This is volume-independe
investment -- that is, investment meant to gear up for volumes of business to come, but not calibrated to the
current volume of business.
In the third phase, the investment keeps pace with the rate of expansion. As volumes grow and urban and semi
urban retail locations get saturated, companies look for new locations and bring in investment that is calibrated
http://carey.jhu.edu/faculty_research/Faculty_Bios/ravi_aron.htmlhttp://carey.jhu.edu/faculty_research/Faculty_Bios/ravi_aron.htmlhttp://carey.jhu.edu/faculty_research/Faculty_Bios/ravi_aron.htmlhttp://mackcenter.wharton.upenn.edu/http://mackcenter.wharton.upenn.edu/http://mackcenter.wharton.upenn.edu/http://mackcenter.wharton.upenn.edu/http://carey.jhu.edu/faculty_research/Faculty_Bios/ravi_aron.html7/29/2019 Jforeign direct investment i.e fdi in retail of india
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to growth in volumes. It is in the second phase and the third phase -- which come after the initial 18-to-24
months -- that large investments manifest themselves.
Other Impacts
The arrival of foreign retail chains has twofold impact. First, those companies set up supply chains and logistic
capabilities, spurring significant improvements in the infrastructure needed to source, ship, store and deliver
products (covering all aspects of value chain and supply chain activities, including storage, warehousing, and
information-intensive operations). Second, their entry and expansion induce domestic competitors to invest in
infrastructure and logistics, as well as greatly speed up the emergence of product standards (especially in
perishables and personal consumables), and begin the process of bypassing monopoly buyers and traders that
dominate procurement in many product categories today.
For these reasons, foreign investment in retail has an impact that goes beyond its direct investment impact. It is
a force multiplier that induces even more investment from competitors.
Impact on Mom-and-Pop Retailers
FDI is often opposed on the grounds that it will put mom-and-pop stores out of business. This is very unlikely
for several reasons.
The big-box retailers, when they venture into developing markets, do not use the same business model as they
do in the U.S. Walmart -- the most iconic of these companies and the one most often cited as a threat to Indian
mom-and-pop stores -- is by no means the lowest-price retailer in China. Walmart U.S. is based on "everyday
low prices." The firm has an activity system that is meant to help Walmart compete as a cost leader. The
company began by locating in rural areas and then moved to suburban and semi-urban areas in the U.S. In
China, the rural areas and semi-urban areas are not where the money is. Consumers in China -- unlike their
American counterparts living in suburbia - do not drive miles and do bulk purchasing, nor do they have massiv
storage facilities at home. In India, China, Brazil, Indonesia, Thailand and Mexico, the vast majority of educate
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middle and upper classes live in the cities (and not in semi-urban and rural areas) where real estate is very
expensive and population density is high.
The foreign retail chains will need to make very expensive real estate investments. They will have a very high
variable cost of operation. Their fixed, volume-independent costs are also likely to be much higher than the
mom-and-pop convenience stores. These chains will operate with price points that are much higher than those
featured by the mom-and-pop shops.
These firms' real competition will be the domestic multi-brand retailers. A recent study by the CII and Boston
Consulting Group estimated the size of organized retail of US$28 billion in 2010 to be 6% to 7% of the total
retail market in India. The study predicted that the size of retail -- total retail sector size, not just organized reta
-- would grow to US$1.25 trillion by 2020 if the efficiencies that typically come from greater competition and
modernization of retail supply systems were to be unleashed. Under this scenario, the study predicts that the siz
of organized retail could grow to US$260 billion or about 20.8% of the total market. So even under this
scenario, the idea that a fractional segment that accounts for 20.8% of the total economic activity of a sector ca
drive the remaining 79% of that sector out of business does not stand the scrutiny of reason.
The CII/BCG study also estimates that if the organized retail sector is not modernized -- the "as is" economic
scenario, as the study calls it -- the size of the sector will be about US$170 billion. This underperforms the
earlier scenario by about 35% or so. That difference could be a job creation deficit of about 1.4 million jobs wi
an even higher potential loss of economic product since organized retail pays better than local, scale-deprived
mom-and-pop establishments. This is without taking into consideration other jobs that would not be created in
economic activities that span infrastructure and logistics.
Supply Footprint: Traders -- Not Farmers -- Beware
The foreign retail chains will have a more significant impact on traders that dominate procurement of
commodities and perishables, including grains and cereals. It is not surprising that these traders are the most
virulent opponents of FDI in retail (the main opposition party that derives its support from the trading castes an
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traders has openly stated that "traders' interests will be harmed by FDI in retail"). Indian farmers and many oth
rural producers are at the mercy of large and well-organized monopsony buyers. Very often these traders
dominate geographies and account for nearly all procurement in their geographies. In many states, the food
ministry determines who it will buy from and this is usually a small number of traders who in turn dominate
direct procurement from farmers in their geographies. These are economic fiefdoms that they dominate and
exploit. When the Carrefours, Walmarts and Tescos set up direct procurement mechanisms where sophisticated
procurement systems are put in place and information about demand (prices, product varieties and quantities
demanded) becomes more easily available, it becomes more difficult for the middlemen to dominate local
geographies and restrict competition. The emergence of these supply chains that drive transparency of
information will bring significantly more competition in sourcing.
The CII-Boston Consulting Group study found that an Indian tomato farmer earns about 30% or even less of th
final price paid by the consumer (in developed countries, that percentage can be as much as 70%). For this
reason alone, farmers and producers should welcome this development (and for this reason alone, traders oppo
it). Indeed, the Indian Farmer and Industrial Alliance (IFIA), a joint venture of the Consortium of Indian
Farmers Associations (CIFA), recognized the potential benefits of eliminating middlemen and has expressed it
support for opening the retail sector to foreign investment.
As with any other sector, the entry of foreign players introduces competition that will benefit some and will
work to the detriment of others. The beneficiaries in this case are the Indian consumers, the lower middle class
which will benefit from the well-paying jobs that will be created, and the producers of goods -- including
farmers -- that have been at the mercy of middlemen and monopsony buyers and trader monopolies. As usual,
the interests that are threatened have sought to portray this move as detrimental to India. In another time, it was
said in the U.S. that "what was good for [General Motors] was good for America." It took some time for that
belief to lose its status as an axiomatic truth. It is time that India reexamined its axiomatic beliefs. After all, the
East India Company left more than 100 years ago.
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Conclusion
A Start Has Been Made
Walmart has a joint venture with Bharti Enterprises for cash-and-carry (wholesale) business, which runs the
Best Price stores. It plans to have 15 stores by March and enter new states like Andhra Pradesh , Rajasthan,
Madhya Pradesh and Karnataka.
Duke, Wallmarts CEO opined that FDI in retail would contain inflation by reducing wastage of farm output as
30% to 40% of the produce does not reach the end-consumer. In India, there is an opportunity to work all the
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way up to farmers in the back-end chain. Part of inflation is due to the fact that produces do not reach the end-
consumer, Duke said, adding, that a similar trend was noticed when organized retail became popular in the US
Many of the foreign brands would come to India if FDI in multi brand retail is permitted which can be a
blessing in disguise for the economy.
In light of the above, it can be safely concluded that allowing healthy FDI in the retail sector would not only
lead to a substantial surge in the countrys GDP and overall economic development, but would inter alia also
help in integrating the Indian retail market with that of the global retail market in addition to providing not just
employment but a better paying employment, which the unorganized sector have undoubtedly failed to provide
to the masses employed in them. Thus, as a matter of fact FDI in the buzzing Indian retail sector should not jus
be freely allowed but per contra should be significantly encouraged. Allowing FDI in multi brand retail can
bring about Supply Chain Improvement, Investment in Technology, Manpower and Skill Development,
Tourism Development, Greater Sourcing from India, Up-gradation in Agriculture, Efficient Small and Medium
Scale Industries, Growth in market size and Benefits to Government through greater GDP, tax income and
employment generation.
Bibliography
Websites:-
www.Legalserviceindia.com www.Manupatra.com www.Scribd.com www.cci.in www.rbi.org.in www.dipp.nic.in
http://www.legalserviceindia.com/http://www.manupatra.com/http://www.scribd.com/http://www.cci.in/http://www.rbi.org.in/http://www.dipp.nic.in/http://www.dipp.nic.in/http://www.rbi.org.in/http://www.cci.in/http://www.scribd.com/http://www.manupatra.com/http://www.legalserviceindia.com/7/29/2019 Jforeign direct investment i.e fdi in retail of india
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www.legallyindia.com www.icsi.edu www.retailguru.com
Reports/ Research Papers
A.T. Kearneys Report on Indian Retail, 2008 FDI Consolidated Policy Dr.R.KBalyan FDI in Indian Retail- Beneficial or Detrimental-research paper Damayanthi/S.Pradeekumar-FDI is it the Need of he Hour? Google search Dipakumar Dey-Aspects of Indian Economy-Google search
Newspapers
The Economic Times
http://www.legallyindia.com/http://www.icsi.edu/http://www.retailguru.com/http://www.retailguru.com/http://www.icsi.edu/http://www.legallyindia.com/