Impact of FDI on Indian Retail Trade: Good, Bad or a Mix

Mr. Kapil Kumar1 and Mr. Sandeep Sheoran2

(e-mail: kapiljangra25@gmail.com)1.

Asst. Professor, SDCM.

(e-mail: sheoran.3593@gmail.com)2.

Asst. Professor, SDCM.

Abstract: - Retailing is the interface between the producer and the individual consumer buying for personal

consumption. AT Kearney, the well-known international management consultancy, recently identified India as the

‘second most attractive retail destination’ globally from among thirty emergent markets. It has made India the cause

of a good deal of excitement and the cynosure of many foreign eyes. This sector’s contribution is 14% of Indian

GDP. FDI is playing a vital role in the growth of retail sector in India. The main aim of this paper is to highlight the

role of Foreign Direct Investment in retail industry in India. Secondary data from various sources have been

extensively used for the purpose. This paper also tries to develop an insight as to what had been the various issues

relating to FDI in retail sector in India. The results show that India is on the top of emerging retail markets with

highest potential. India’s FDI in retail sector accounts for 22% of its total Fade’s inflow.

Keywords: Retail Sector, FDI, growth, issues, favourite, labour index, retail index, retail reforms

I. Present Indian Scenario In Retail Market

In Indian retail sector there is a paradigm shift from unorganized to organized sector and Indian retail sector

has suddenly become active. Some major retail players are trying to move in retail market.

Reliance Industries has launched its retail operations branded "Reliance retail" in the country by opening

outlets in Hydra bad that sells fruits vegetables and grocery.

Aditya Birla group is also going to spend Rs.15000 crore to set up 6000 outlets in 3 years. Aditya Birla

group is expected to open its first store by the middle of next year.

Bharti Enterprises is planning to tie up for his field fresh foods pvt. Ltd. With the U.K based Tesco to set

up chain stores in India.

Wal-Mart has initiated talks with Indian companies for franchised or cash and carry transaction. Wal mart

is also planning to tie up with Bharti Enterprises.

Large FMCG players like HLL, ITC, Dabour and Marico are putting in place systems to service Reliance

as the off take of consumer goods from HLL is expected to be large.

World second largest retail chain the 74.5 billion Carrefour is also set to enter India along with Dubai based

Landmark group which operates the lifestyle chain of stores in India. According to Carrefour's plans

include opening 200 hypermarkets throughout India in the next 10 Years.

A recent study by "Real estate services provider Frank Knight India" revealed that the Indian retail sector is

worth $210 billion and is expected to grow at between 5 to 7% per year.

II. Impact of FDI in Retail on the domestic retail sector?

The Indian retail sector is the second largest employer in India after agriculture, employing over 4 crore (40

million) persons as per the latest National Sample Survey (NSS) 2009-10. Most of these are small unorganised or

self-employed retailers, who are unable to find gainful employment in other sectors of the economy. The average

size of a Walmart supermarket in the US is 108000 sq.ft employing around 225 persons. In 2010, Walmart sold

$405 billion amount of goods through its 9800 odd outlets 5 located across 28 countries, em ploying around 2.1

million (21 lakh) persons. The Commerce Minister has claimed that FDI in retail will create 10 million (1 crore)

jobs in 3 years with 4 million (40 lakhs) jobs created directly and the rest in the backend logistics. The number of

stores worldwide and employee strength of the top 4 MNC retailers are given below.

As per studies one Walmart supermarket can displace over 1300 Indian small retail stores and thereby

render around 3900 persons jobless. The employment created against this in that supermarket will be 214 (or

maximum 225, which is the average in the US). Clearly, there will be severe job losses if giant MNC supermarkets

are allowed entry into the Indian market.

III. Why Indian market is so much attractive

The reason why India is attracting the foreigners for business is because of the phenomenal growth and

development of retail industry. This is reflected in the Global Retail Development Index (GRDI); which represents

countrywide yearly growth and development in retail sector. Index includes top 20 countries as per their growth.

Based on the GRDI analysis data, top five countries are analyzed to identify the market potential.

The above table shows that India is ranked among top 10 with the score of 42 among twenty countries in

terms of retail growth in 2011. So we can say that in last three years India attained remarkable growth in retail trade.

Growth in the retail trade is not the only factor to be considered but labor plays important role because it is labor

intensive industry. The appropriateness of the country depends upon best combination of Growth –Development and

Labor as main resource. Considering this further analysis is done with the help of retail labor index and position of

India is analyzed.

The above table depicts that India is fourth in terms of labor growth among fifteen countries in

2007. Thus it can be concluded that India is enjoying better position than other competing

countries in retail sector.

IV. Indian govt. proposals for FDI in retail

V. Social impact and controversy with retail reforms

The November 2011 retail reforms in India have sparked intense activism, both in opposition and in support of the

reforms.

Critics of the Indian retail reforms announcement are making one or more of the following points:

Independent stores will close, leading to massive job losses. Walmart employs very few people in the United

States. If allowed to expand in India as much as Walmart has expanded in the United States, few thousand jobs

may be created but millions will be lost.

Walmart will lower prices to dump goods, get competition out of the way, become a monopoly, then raise

prices. We have seen this in the case of the soft drinks industry. Pepsi and Coke came in and wiped out all the

domestic brands.

India doesn't need foreign retailers, since homegrown companies and traditional markets may be able to do the

job.

Work will be done by Indians, profits will go to foreigners.

Remember East India Company. It entered India as a trader and then took over politically.

There will be sterile homogeneity and Indian cities will look like cities anywhere else.

The government hasn't built consensus.

VI. Conclusion :The bottom line

The allowing of FDI in retail is one of the most crtical reforms taking place in India post the great reforms

period of 1991. Well the only difference is that this time around there we are not staring at bankrupcty but only at

slow down in the economy. There has been huge hue and cry amongst the opposition benches and the some of the

allies of the rulling party over the new policy to allow upto 51% FDI in multi brand retail in India. Amartya Sen, the

Indian born Nobel prize winning economist, in a December 2011 interview claims foreign direct investment in multi

brand retail can be good thing or bad thing depending on the nature of the investment. Quite often, claims Professor

Sen, FDI is a good thing for India. The collapse of the Rupee by one-fifth in just weeks, dwindling forex inflows and

net FII outflows have forced a desperate government to sell India’s retail trade wholesale. Corporate and

multinational lobbying to induct FDI in retail, branding it as “big ticket reform”, has been intense in the last few

years. The lobbies have won. India has lost. The decision betrays a metropolitan bias; and exposes lack of

understanding of India’s agricultural and rural economy. That it will endlessly damage the huge 1.2 million strong

community-run retail business in India is undisputed. But the less known truth is that it will destroy food security in

rural India. How? Read on. 

VII. References :

Reports

Global retail development index/2005/2006/2007

Trade and foreign investment /comparing India and china/Stanford university/June1-3/2006

The great Indian retail story/Ernst & young report/Page 8/9/10

Foreign direct investment policy/April 2006

International Experience on Policy Issues/India vs China

Alan Rosling/Chairman, Jardine Matheson Group – India/ FICCI Footfalls 15th November 2002/New

Delhi

Reserve bank of India/Financial highlights

http://worldbank.org/data/countrydata/aag/ind/ag.pdf

Websites

http://www.economywatch.com/foreign-direct-investment/fdi-india

http://www.indiafdiwatch.org/index.php?id=47

www.indiastatistics.com

http://en.wikipedia.org/wiki/Retailing_in_India

Research papers

FDI in retailing :Challenges and Opportunities /Radhika vishvas & V.Murugaiah/third AIMS international

conference on management

FDI in retail-II /Inviting more trouble/CPAS/Mohan Guruswami and Kamal Sharma/ February 2006

E- Articles:

http://in.finance.yahoo.com/q/rr?s=WMT

http://walmart.windwhip.net/winca.htm /Retailbiz/December 6/2006

http://www.rediff.com/money/2005/jul/22spec1.htm/ FDI in retail good news/T.Thomas

http://www.thehindubusinessline.com/iw/2005/12/18/stories/2005121800480600.htm/FDI in retail will not

displace labour /Mr B.S. Nagesh, CEO, Shoppers' Stop

http://indlaw.com/FDI in retail: Govt policy committed to safeguarding interests of Indian industry and

consumer