FDI in Retail2
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Transcript of FDI in Retail2
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FDI inRetail
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INDIAN RETAIL
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Modern Retail
Supermarkets, ExclusiveShowrooms
Sophisticated operations
Shelves are accessible tocustomers
Multiple brands under a single roof
Discounts on MRP are common
Big Bazaar, Croma etc
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Urban Retail
Neighborhood Kirana Shops
90% products are Branded
Extremely good Inventory turnover Low margins
Average Size of shops is small
Gives credit Home delivery
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Rural retail
Hand cart and pavement vendors
Unbranded items are higher in number
Two consumers may pay different pricesfor the same product on the same day
Mandis and village Haats
Small average size of establishment
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Some Pics
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Indian Retail
Contributes 15% to GDP
Estimated to be $450 Billion
Employs 40 Million (8% of employed Indians)
Over 14 million outlets operate in the country
Only 4% of the outlets are more than 500Sqft
Food consists of 70% of the retail sales
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Indian retail chains
Bata, Nike
Titan
Zara Catmoss
Food Bazaar
Reliance Fresh
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What is FDI?
FDI is a measure of the ownership ofproductive assets, such as factories,
mines and land and water
To acquire a lasting managementinterest (10 percent or more of votingstock) in an enterprise
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FDI Types
By incorporating a wholly ownedsubsidiary or company
By acquiring shares in an associatedenterprise through a merger
An acquisition of an unrelated enterprise
Participating in an equity joint venturewith another investor or enterprise
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Current FDI Limits
Sector FDI Limit
Hotel & Tourism 100%
Pharmaceuticals 100%
Power 100%
Roads & Ports 100%
Single Brand Retail 100%
Telecom 74%
Wholesale Cash and Carry Stores 100%
Insurance 26%
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Current Operations (Foreign)
Already present in single brand retail
Franchisee Retailers (ZARA,Mango)
Sourcing is local Adidas, Nike etc manufacture too
Pepsi was forced to invest in India in
factories for potato products Cash and Carry Wholesale (Metro)
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Views of Affected
Parties
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Why is the Govt interested?
WTO agreement
Most retailers interested in food
Procurement on large scale Upgradation in agriculture
Investment in food processing and cold
storage
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Continued
Farmers will get more from same piece ofland
Consumers will benefit SMEs will be able to access foreign
markets
No chain has monopoly in the world
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Cold storage Infrastructure
Cold Storage facilities very poor
5386 stand-alone cold storages, having atotal capacity of 23.6 million
80 % capacity used for potatoes Rest 20% capacity < 1% of the annual farm
output of India
100% FDI allowed in Cold Storage
Not much interest in establishing coldstorage facility
20-40% wastage in case of perishables
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Some numbers
Increased taxes from organized retail through VAT(from 30,000 Crore to 250,000 Crore)
Low inflation will ensure low interest rates
Long term growth of over 9% can be achieved
% of unorganizedTraders *
60% 30% 10%
VAT paid on goods * NIL 1% 4-12.5%
* PWC Report
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Small retailers
Concerned about losing their livelihood
Razor thin margins
Advantage of low inventory turnover(bestin world) and credit to customers
If someone undercuts them then they will
have to shut shop Credit Card is a competitor
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Continued
Compare Wal-Mart to East IndiaCompany
Kirana stores have closed down in largecities with advent of large chains (365)
Worried about planned householdpurchases
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Farmers
Small Indian farmers realize only 1/3rd ofthe total price paid by the final Indian
consumer (Fruits and vegetables) Internationally farmers receive 2/3 times
At mercy of middlemen
in 2010 tomatoes sold at 50 Rs werebought at 5 Rs from farmers
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Continued
Govt provides MSP
Mandis ensure better prices in case of
Grains, pulses and oilseeds Low-productivity
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Middlemen
Excellent Procuremnt skills
Modern indian retailers have not been
able to match them Farmers have not been able to break the
nexus of middlemen
All business happens early morning (4a.m.)
All is cash
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Who is worried?
Modern retail: They are ok as they cansell their existing brands
Rural retail: No Wal-Mart will go tovillages
Urban Retail: Worried
Middlemen:W
orried as betterprocurement capacity will run them down
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Some Interesting
Facts
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Country OrganizedRetail %*
UnorganizedRetail% *
India 3 97
China 20 80
South Korea 15 85
Indonesia 25 75
Philippines 35 65
Thailand 40 60
Malaysia 50 50
*Source: CRISIL
Retail Trade in S E Asia
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Share of retailing in employment
across different countries
Country Employment in %
India 8% (4 Crore)
USA 11% (1.5 Crore)Poland 12%
Brazil 15%
China 7%
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Facts
Even a small shop costs over a crore
Falling prices will help Aam Admi so why theparties favor the Crorepati Bania against the
aam admi?
50 Million retailers launched a bandh againstFDI which is larger than the entire organizedsector (30 Mil)
Strong trader lobby, fund elections
Previously RPM was in place in US and UK
Abolished in 1964
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Pros and cons of FDI in retail
Wal-Mart has highest number of law suitsagainst it by employees
Retail requires low skilled people soemployment will be similar
Unemployment of Kiranas
W
al-Mart Big Box model needs acres ofparking
US pays the highest subsidy inagricultural products
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Kirana Vs Online retail
In thanksgiving season 39% bought goods fromonline shopping Vs 44% from Hypermarkets
4000 megastores closed in Britain alone in lastyear
Small Bookshops Vs Borders and Barnes &Nobles Vs Amazon
Educated children does not want to stay inKirana
GST will not allow Kiranas to evade tax
Expensive labor will make cheap home deliverydifficult
Credit Card usage expanding
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Summary
FDI in retail helps farmers
Good for government
Good for consumers Worrisome for Kiranas and Middlemen
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Thank You!