FDI in Retail1

8/3/2019 FDI in Retail1

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FDI In Retail In IndiaBy

Mr. Sandip Kadam

RIMSR2010-12


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What is Retail?

In 2004, The High Court of Delhi defined the term

retail

sale for final consumption in contrast to a sale for

further sale or processing (i.e. wholesale).A sale to

the ultimate consumer

Retailing is the last link that connects the individual

consumer with

th

e manufacturing and distributionchain


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WHAT IS FDI?

Movement of capital

across national frontiers in

a manner that grants the

investor controlover theacquired asset.


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Retail Sector poised for phenomenal growth

Source: India Shopping Trends, 2011- Technopak

ORGANISED RETAIL EXPECTED TO GROW 35-40% CAGR

The Indian Retail

Sector, currently the

Fifth largest in theworld, is poised for

phenomenal growth

in the coming years

Size & Positioninthecurrent Scenario

Current Size & Future growth of OrganizedRetailin India


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The IndianRetail Landscape

Organized retail has grown from USD 2 Bn in 2002 to USD 37 Bntoday in a total ofUSD350 Bn

Impact on the consumer; low price and assured quality through supply chain efficiency

Impact on producers, farmers; direct sourcing from SMEs and farmers; providing

critical connect to market place

Investments in the range of USD 30+ Billion expected by 2011 in Retail and Supply

Chain

Scale: Size of organized retail likely to touch USD 70 billion by 2011

Employment: Over 850K direct jobs to be created in Retail in the next 5 years.

Source: India retail report 2009 by Images Retail, CII BCG report on Indias demographic dilemma Dec08


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FDI Policywith RegardtoRetailing in

India (Past)

FDI up to 100% for cash and carry wholesaletrading and export trading allowed under theautomatic route.

FDI up to 51 % with prior Governmentapproval (i.e. FIPB) for retail trade of SingleBrand products, subject to Press Note 3 (2006Series).

FDI not permitted in Multi Brand Retailing inIndia.


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Entry Options For Foreign Players Prior

To FDI In Retail

Franchise Agreements

Cash Carry wholesale Trading

Strategic Licensing Agreements

Manufacturing & wholly owned subsidiaries


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FDI in Retail Sector FDI in single-brand retailing was permitted in

2006, up to 51 per cent of ownership.

57 proposals out of 94 were approved.

FDI inflow of US$196.46 million under the

category of single brand retailing was received.

Retail stocks rose by as much as 5%.


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Whatdoes 51% FDI inmulti-brand

retailmean?

Minimum investment of $100 million.

50% of the investment is to be in backend infrastructuredevelopment.

30% of all raw material has be procured from India's small

and medium industries. Permission to set up malls only in cities with a minimum

population of 10 lakh.

Government has the first right to procure material from thefarmers.

Products should be sold under the same brandinternationally.

Foreign investor should be the owner of the brand.


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What does 100% FDI in Single Brand

Retailing means? Products to be sold should be of a single brand only.

Products should be sold under the same brandinternationally (i.e. products should be sold under thesame brand in one or more countries other than India).

Single brand product-retail trading would cover onlyproducts which are branded during manufacturing.

The foreign investor should be the owner of the brand.

In respect of proposals involving FDI beyond 51

percent, mandatory sourcing of at least 30 percent ofthe value of products sold would have to be done fromIndian small industries/village and cottage industries,artisans and craftsmen.


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Clause On 30% Sourcing From Indian

SMEs

luxury goods retailers will not be able tosource from India because they have tomaintain global standards for their brands

Mandatory sourcing will be in violation ofprovisions of GATT, the bilateral investmentprotection agreement (BIPA) India has signedwith 71 countries as well as theWorld TradeOrganization's Trade Related InvestmentMeasures (TRIMS)


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Benefits To The Aam Adami Development of markets will lead to better choices

Reduced prices

More EmploymentOpportunities


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13

Benefits to the government

Greater Per

Capita Income

Greater Consumer

Spending due to

economic boom

Increasing

Tax Paying

Population

Greater

Sourcing

From India

Reduced Tax

Evasion

GDP Growth

Increased Tax

Revenues

Greater

Exports

Employ

mentBenefits

to Govt.


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Present Condition Of Farmers

Farmers get only 10 to 15% of the price we

pay.

3-4 middlemen in between farmers andcustomers.

Huge post produce losses for farmers due to

inadequate facilities.

A poorly managed food supply infrastructure.


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Improvements by FDI in Retail Supply

Chain

FDI in retail will boost investment in infrastructurefrom the retail players, 3rd party supply chaincompanies as well as the Government

FDI in retail will make way for inflow of knowledgefrom international experts which can give boost to theoverall growth of the industry

It will reduce pre-harvest wastage/losses and thus helpcontrol food inflation

It will remove the middleman from the equation. It willreduce costs which in turn will reduce prices


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Key Issues

Modern retail would displace a large number ofjobs

Global retail chains would adopt predatory

pricing tactics to wipe out domestic competition(small retailers)

Once global retail chains are established, theywould be in a position to dictate prices for both

buying wholesale, and selling retail products Retailing itself cannot boost GDP. The growth in

manufacturing sector needs to be increased


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Penetration of top 20 International

Retailers

Norway 99%

Sweden 94%

Switzerland 88%

France 81%

UK 64%

Portugal 57%

If foreignretailerscouldcapture 20 % ofindian RetailMarket,something about 8 Million jobswill belost. Their

levelofefficiencymeantheyneedlessandlessof people

foreach 1000 croresof Turnover - Business Line April

2005


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FDI in Retail Inflation

??Inflation = fn (...) of

Crude Price

Excess Liquidity (Stimulus Package)

No unload (hoarding by Govt. )

Fragmented and lengthy value chain


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Wal-Mart in US

Every farmer has access to Computer

High levels of Commodity Trading

Condition of US farmers should be much

prosperous.Isnt it.. ??????

US -- Direct Support to Farmers

Why is US year after year giving indirect subsidies

to farmers ? Acc to a UNCTAD Report if the green box subsidy

is removed, the US Agriculture will collapse !!


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Supply Chain Improvement: Penny

Wise, Pound foolish

We are talking about reducing the Intermediariesin the System

Whowill betheintermediariesinnewsystem..

??

Big Corporates

Brand Ambassador

Large Power CNBC ReportsaysRetailwantstoincrease

advertisementexpense

closeto 1BN $,oncethenewnormsareapproved


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Results

High Real Estate Prices

Land Acquisition : Displacement of people

Cannot provide employment to semi-literatepeople

Form majority of population

Push

ing families below th

e poverty line The main purpose defeated if focus is on front

line instead of back end


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Conclusion

We should accept the FDI in retail, Because

1. Its wholesome package handled by the best

economic brains in the country

2. Society will take care of itself if malls areharmful they can not do business here they

will be thrown out.

3. We should not miss the bus like we have missed

the bus of industrial revolution due to infightingof small kingdoms , zamindhars and Nawabs all

over the India


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Th

ank you!!!

FDI in Retail1

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