FDI

Foreign direct investment (FDI) is a direct investment into production or

business in a country by an individual or company of another country, either by

buying a company in the target country or by expanding operations of an existing

business in that country. Foreign direct investment is in contrast to portfolio

investment which is a passive investment in the securities of another country such

as stocks and bonds.

Foreign direct investment (FDI) or foreign investment refers to the net

inflows of investment to acquire a lasting management interest (10% or more) in an

enterprise operating in an economy other than that of the investor. Foreign direct

investment is the sum of equity capital, reinvestment of earnings and other long or

short term capital as shown in the balance of payments. It usually involves

participation in management, joint venture, transfer of technology and expertise.

There are two types of FDI: 1) Inward foreign direct investment and 2) Outward

foreign direct investment.

Foreign direct investment excludes investment through purchase of shares.

Foreign direct investment can be used as one measure of growing economic

globalization.

In 1991, India was under great debt, to overcome financial crisis Indian

government open the gates of foreign investment, to invest in India. This led to the

economic development, stability & foreign money which overcome the economic

depression & capital crisis. This step boost the government to inflow the money

through various sectors like industry, health, infrastructure, service etc. to process

development in a planned manner & not depend only on the tax payers money which

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can be improvise through liberal fiscal & monetary policy & also to improve the

condition of banking sector. To put India at the forefront, improve GDP and to

generate employment opportunities with better diagnostic techniques. In the 1970s

there was almost no foreign investment, with little in 1980, with liberalization in

1991 and in year 1996 inflow to India exceed $6 billion. Though dampened by

global financial crises after 1997, net direct investment flows to India remain

positive. India similar to international market in different economy permits foreign

investment and open gates through RBI route or through Government approval route.

With the rapid economic development & changing scenario of market,

India also permit foreign investment in various sectors like energy, power, health,

education, media, aircraft, telecom etc. through either mode foreign direct

investment, foreign portfolio investment scheme, foreign venture capital investment,

investment in government securities by Non-Resident Indian, Person of Indian

origin, Foreign entity in partnership firm, companies, LLP etc. through various

investment securities like issues of shares, debentures etc.

Due to foreign investment, it supplement domestic market, enable

high growth rate, generate employment, improvise technology & more importantly at

macro-economic level it relax potential balance of payment requirement, inflexible

demand of foreign debt, foreign investment, presence of foreign firms reduces

market concentration & promotes a more competitive market with consumer driven

economy.

Economic development of developing countries depends largely on

massive equity and loan capital inflows from the developed countries. Foreign

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Investment plays a significant role in economic development of a country by

enhancing economic activity and there by generating employment opportunities. It

acts as a supplement to domestic investment. Foreign investment is of two types.

They are Foreign Direct Investment (FDI) and Foreign institutional investors (FII). .

India in 1997 allowed foreign direct investment (FDI) in cash and carry wholesale.

Then, it required government approval. The approval requirement was relaxed, and

automatic permission was granted in 2006. Between 2000 to 2010, Indian retail

attracted about $1.8 billion in foreign direct investment, representing a very small

1.5% of total investment flow into India.

In India FDI policy allows for investment through financial alliance,

joint schemes and technical alliance, euro issues and private placements. Liberal and

investor-friendly policy on FDI by the Indian Government resulted in a vigorous

growth in Foreign Investment. Supporters of FDI in retail trade talk of how

ultimately the consumers benefited by both price reductions and improved selection,

brought about by the technology and know-how of foreign players in the market.

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PURPOSE OF THE STUDY:

The purpose for the study of FDI in retail sector in India is to understand how

it helps in developing the economy, which is seen as a temporary measure during the

development of capital markets and it is used to understand the role of FDI in retail

sector because it boosts savings and brings additional employment to the country.

OBJECTIVES OF THE STUDY:

Objectives of the present study are

To study the retail industry in India

To analyze and compare single brand retail stores through FDI in India

To analyze and compare multi brand retail stores through FDI in India

To analyze growth of retail sector in India

METHODOLOGY OF THE STUDY:

The study is basically exploratory in nature and the entire gamut of discussion has

been made on the basis of secondary sources. The analysis will be done with the help

Secondary data. The data is collected mainly from websites, annual reports, World

Bank reports, research reports, already conducted survey analysis, database available

etc.

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SCOPE OF THE STUDY:

The main scope of the study is confined to India and it is also confined to retail

sector only. Foreign Direct Investment is made in all sectors but it is confining to

only certain percentage but in retail sector, its presence is 100 percent. So many

foreign investors are interested to invest in retail sector.

LIMITATIONS:

This study is conducted only in retail sector; it does not include all sectors.

This study is conducted only in India.

This study is completely based on secondary data rather than primary data.

The time period is taken from 2001 to 2012.

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STRUTURE OF INDIAN RETAIL SECTOR:

Definition of Retail:

The word ‘Retail’ is derived from the French word ‘Retaillier’ meaning

‘to cut a piece off’ or ‘to break bulk’.

In 2004, The High Court of Delhi [15] defined the term retail as a sale

for final consumption in contrast to a sale for further sale or processing (i.e.

wholesale). A sale to the ultimate consumer.

Thus, retailing can be said to be the interface between the producer and

the individual consumer buying for personal consumption. This excludes direct

interface between the manufacturer and institutional buyers such as the government

and other bulk customers. Retailing is the last link that connects the individual

consumer with the manufacturing and distribution chain. A retailer is involved in the

act of selling goods to the individual consumer at a margin of profit.

The retail sector of India is vast, and has huge potential for

development, as the majority of its constituents are un-organized. The retail sector of

India contributes about 15% to the national GDP, and employs a massive workforce

of it, after the agriculture sector.

The retail sector of India handles about $250 billion every year, and is

expected by veteran economists to reach to $660 billion by the year 2015. The

business in the organized retail sector of India is expected to grow at the rate of 15-

20 percent every year, and can reach the level of $100 billion by the year 2015.

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Division of Retail Industry – Organised and Unorganized Retailing

The retail industry is mainly divided into: -

1) Organized Retailing and

2) Unorganized Retailing

1) Organised retailing: refers to trading activities undertaken by licensed retailers,

that is, those who are registered for sales tax, income tax, etc. These include the

corporate-backed hypermarkets and retail chains, and also the privately owned large

retail businesses.

2) Un-organized retailing: On the other hand, refers to the traditional formats of

low-cost retailing, for example, the local kirana shops, owner manned general stores,

paan/beedi shops, convenience stores, hand cart and pavement vendors, etc. The

Indian retail sector is highly fragmented with 97 percent of its business being run by

the unorganized retailers. The organized retail however is at a very nascent stage.

The sector is the largest source of employment after agriculture, and has deep

penetration into rural India generating more than 10 per cent of India‘s GDP.

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Graph 1: Market share of organized v/s unorganized

Growth and Evolution of Indian Retail Sector:

The Indian Retail Industry is the 5th largest retail destination and the

second most attractive market for investment in the globe after Vietnam as reported

by AT Kearney‘s seventh annual Globe Retail Development Index (GRDI), in

2008.The growing popularity of Indian Retail sector has resulted in growing

awareness of quality products and brands. As a whole Indian retail has made life

convenient, easy, quick and affordable. Indian retail sector specially organized retail

is growing rapidly, with customer spending growing in unprecedented manner. It is

undergoing metamorphosis. Till 1980 retail continued in the form of kiranas that is

unorganized retailing. Later in 1990s branded retail outlet like Food World, Nilgiris

and local retail outlets like Apna Bazaar came into existence. Now big players like

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Reliance, Tata‘s, Bharti, ITC and other reputed companies have entered into

organized retail business.

The multinationals with 51% opening of FDI in single brand retail

has led to direct entrance of companies like Nike, Reebok, Metro etc. or through

joint ventures like Wal-mart with Bharti, Tata with Tesco etc.

Evolution of retail sector:

It can be seen in the share of organized sector in 2007 was 7.5% of

the total retail market. Organized retail business in India is very small but has

tremendous scope. The total in 2005 stood at $225 billion, accounting for about 11%

of GDP. In this total market, the organized retail accounts for only $8 billion of total

revenue. According to A T Kearney, the organized retailing is expected to be more

than $23 billion revenue by 2010.

The retail industry in India is currently growing at a great pace and is

expected to go up to US$ 833 billion by the year 2013. It is further expected to reach

US$ 1.3 trillion by the year 2018 at a CAGR of 10%. As the country has got a high

growth rate, the consumer spending has also gone up and is also expected to go up

further in the future. In the last four years, the consumer ending in India climbed up

to 75%. As a result, the Indian retail industry is expected to grow further in the future

days. By the year 2013, the organized sector is also expected to grow at a CAGR of

0%. The key factors that drive growth in retail industry are young demographic

profile, increasing consumer aspirations, growing middle class incomes and

improving demand from rural markets. Also, rising incomes and improvements in

infrastructure are enlarging consumer markets and accelerating the convergence of

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consumer tastes. Liberalization of the Indian economy, increase in spending per

capita income and the advent of dual income families also help in the growth of retail

sector. Moreover, consumer preference for shopping in new environs, availability of

quality real estate and mall management practices and a shift in consumer demand to

foreign brands like McDonalds, Sony, Panasonic, etc. also contributes to the spiral of

growth in this sector. Furthermore, the Internet revolution is making the Indian

consumer more accessible to the growing influences of domestic and foreign retail

chains.

One report estimates the 2011 Indian retail market as generating sales

of about $470 billion a year, of which a miniscule $27 billion comes from organized

retail such as supermarkets, chain stores with centralized operations and shops in

malls. The opening of retail industry to free market competition, some claim will

enable rapid growth in retail sector of Indian economy. Others believe the growth of

Indian retail industry will take time, with organized retail possibly needing a decade

to grow to a 25% share. A 25% market share, given the expected growth of Indian

retail industry through 2021, is estimated to be over $250 billion a year: a revenue

equal to the 2009 revenue share from Japan for the world's 250 largest retailers.

The Economist forecasts that Indian retail will nearly double in economic value,

expanding by about $400 billion by 2020. The projected increase alone is equivalent

to the current retail market size of France.

In 2011, food accounted for 70 percent of Indian retail, but was under-

represented by organized retail. A.T. Kearney estimates India's organized retail had a

31 percent share in clothing and apparel, while the home supplies retail was growing

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between 20 to 30 percent per year. These data correspond to retail prospects prior to

November announcement of the retail reform.

GROWTH OF RETAIL OUTLETS IN INDIA:

The origins for retail business in India can be traced with the

emergence of Kirana stores and mom-and–pop stores. These stores used to cater the

needs of local people. Gradually, the government started supporting the rural retail

and many franchise stores came up with the help of Khadi and village Industries

Commission. The economy began to open up in the 1980’s resulting in the changing

scenario of retailing. The first few companies to come up with retail chains with

textile sector. Later Titan launched new showrooms in the organized retail sector.

With the passage of time new entrants moved on from manufacturing to pure

retailing.

In the present scenario, India is the fifth largest in the world in terms of

retail industry. Comprising of organized and unorganized sectors, Indian retail

industry is one of the fastest growing industries, especially and the last few years.

Though initially, the retail industry in India was mostly unorganized, with the change

of tastes and preferences of the consumers, the industry is getting more popular in

these days and getting organized as well. With growing market demand, the industry

is expected to grow at a pace of 25-30 percent annually.

Indian Retail Industry is the most promising emerging market for

investment. According to the 8th Annual Global Retail Development Index (GRDI)

of AT Kearney, the retail trade in India had a share of 8-10 percent in the GDP

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(Gross Domestic product) of the country in the year 2007. In 2009, it rose to 12

percent in the year 2008 and expected to reach 22 percent in the next few years. The

Indian Retail Industry is expected to grow to US $700 billion in the year 2010

according to a report by North bride capital. In the same year the organized sector

will be 20 percent of the total market share as compared to the share of organized

sector in 2007 was 7.5 percent of the total retail market. Retail is India’s largest

industry and for over 10 percent of the India’s GDP and around 8 percent of the

employment. Retail sector is one of India’s fastest growing sectors with a 5 percent

compounded annual growth rate. As India has a huge middle class base and its

untapped retail industry are key attractions for global retail giants planning to enter

newer markets. Due to the changing lifestyles, strong income growth in the middle

class population and favorable demographic patterns, Indian retail is expected to

grow 25 percent annually and expected that retail business in table-1 clearly reflects

the growth of retail industry India could be worth US $ 175-200 billion by 2016 in

India.

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Table1: Growth of Retail Outlets in India (‘000)

OUTLETS FOOD

RETAILERS

NON-FOOD

RETAILERS

TOTAL

RETAILERS

1996 2769 5773.6 8542.6

1997 2943.9 6040 8983.6

1998 3123.4 6332.2 9455.6

1999 3300.2 6666.3 9966.5

2000 3480 7055.5 10534.4

2001 3682.9 7482.1 11165

Major Retailers in India are:

1. Pantaloon:

Pantaloon is one of the biggest retailers in India with more than 450 stores

across the country. Headquartered in Mumbai, it has more than 5 million sq.ft retail

space located across the country. In 2001, Pantaloon launched country’s first

hypermarket ‘big Bazaar’.

It has the following retail segments:

Food & Grocery: Big Bazaar, Food Bazaar

Home Solutions: Hometown, Furniture Bazaar, Collection-1

Consumer Electronics: e-zone

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Shoes: Shoe Factory

Books, Music & Gifts: Depot

Health & Beauty Care: Star, Sitara

E-tailing: Futurebazaar.com

Entertainment: Bowling Co.

2. Tata group:

Tata group is another major player in Indian retail industry with its

subsidiary Trent, which operates Westside and Star India Bazaar established in 1998,

it also acquired the largest book and music retailer in India ‘Landmark’ in 2005.

Trent owns over 4lakh sq. ft retail space across the country.

3. RPG Group:

RPG Group is one of the earlier in the Indian retail market, when it came into

food and grocery retailing in 1996 with its retail Food world stores. Later it also

opened the pharmacy and beauty care outlets ‘Health & Glow’.

4. Reliance:

Reliance is one of the biggest players in Indian retail industry. More than

300 Reliance Fresh stores and Reliance Mart are quite popular in the Indian retail

market.

5. AV Birla Group:

AV Birla Group has a strong presence in Indian apparel retailing. The brands like

Louis Philip, Allen Solly, Van Heusen, Peter England are quite popular.

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Table2: Major Retailers in India

RETAIL

ER

STORES

Pantaloon Retailer Big bazaar, Food bazaar , Hometown, furniture bazaar, collection-I, e-zone, shoe factory, Depot, Futurbazaar.com, Bowling co.

K Raheja Group Shopper's Stop, Crossword, Homes stop,

Mother care.

Tata Group Westside, Star India Bazaar, Croma, Titan, Tanishq.

Landmark Lifestyle, Home Centre, Landmark International, Max Retail, Fun city.

Piramal Group TruMart, Priamyd Megastore

Reliance Reliance Hyper-mart

Aditya Birla Group Louis Phillipe, Van Heusen, Allen Solly, Peter England,Trouser town

RPG Group Food world, Spencer's, Music World

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RETAILING IN INDIA:

Retail outlets in India are in the form of

1. Malls:

This is the largest form of organized retailing today. Located mainly in

metro cities. They lend an ideal shopping experience with amalgamation of product,

service and entertainment, all under a common roof. Examples include Shoppers

Stop, Piramyd, and Pantaloon. Speciality Stores: Chains such as the Bangalore based

Kids Kemp, the Mumbai books retailer Crossword, RPG’s music chain planet are

focusing on specific market segments and have established themselves strongly in

their sectors.

2. Discount Stores:

As the name suggests, discount stores or factory outlets. Offer discounts

on the MRP through selling in bulk reaching economies of scale or to clear excess

stock left over at the season. The product category can range from a variety of

perishable/non-perishable goods.

3. Department Stores:

These are large stores catering to a variety of consumer needs.

Departmental Stores are expected to take over the apparel business from exclusive

brand showrooms. Among these, the biggest success is K Raheja’s Shoppers Stop,

which started in Mumbai and now has more than seven large stores across India and

even has its own in store brand clothes called Stop.

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4. Hyper Markets/Super Markets:

Large self-service outlets, catering to varied shopper needs are termed as

Supermarkets. These are located in or near residential high streets. These stores

today contribute to 30 percent of all food and grocery organized retailer sales. Super

Markets can further be classified in to mini supermarkets and large supermarkets,

having a strong focus on food and grocery and personal sales.

5. Convenience Stores:

These are relatively small stores located near residential areas. They stock

a limited range of high turnover convenience products and are usually open for

extended periods during the day, seven days a week. Prices are slightly higher due to

the convenience premium.

6. MB Outlets:

Multi Brand outlets, also known as Category Killers, offer several brands

across a single product category. These usually do well in busy market places and

Metros.

7. Mom-And-Pop or Kirana Stores:

It is a retail outlet that is owned and operated by individuals. The range of

products are very selective and few in numbers. These stores are seen in local

community often are family-run businesses. The square feet area of the store depends

on the store holder.

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8. Category Killers or Category Specialist:

By supplying wide assortment in a single category for lower prices a

retailer can "kill" that category for other retailers. For few categories, such as

electronics, the products are displayed at the centre of the store and sales person will

be available to address customer queries and give suggestions when required. Other

retail format stores are forced to reduce the prices if a category specialist retail store

is present in the vicinity. For example: Pai Electronics store in Bangalore, Tata

Croma.

9. E-Retailers:

The customer can shop and order through internet and the merchandise are

dropped at the customer's doorstep. Here the retailers use drop shipping technique.

They accept the payment for the product but the customer receives the product

directly from the manufacturer or a wholesaler. This format is ideal for customers

who do not want to travel to retail stores and are interested in home shopping.

However it is important for the customer to be wary about defective products and

non secure credit card transaction. Example: Amazon.com and Ebay.com

Recent Trends in Retail sector:

Retailing in India is witnessing a huge revamping exercise.

India is related the fifth most attractive emerging retail market.

Multiple drivers are leading to a consumption boom:

- Favorable demographies

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- Growth in income

- Increasing population of women

- Raising aspirations: Value added goods sales

- Growing number of double-income households

Food and apparel retailing are the key drivers of growth.

Organized retailing in India can be largely seen in urban areas.

Rural markets are emerging as a huge opportunity for retailers reflected in the

share of the rural market across most categories of consumption

- ITC is experimenting with retailing through its e-Chou pal.

- HLL is using its Project Shakti initiative leveraging women self-help

groups to explore the rural market.

- Mahamaza is leveraging technology and network marketing concepts to act

as an aggregator and serve the rural markets.

IT is a tool that has been used by retailers ranging from Amazon.com to eBay to

radically change buying behavior across the globe.

CHALLENGES OF RETAILING IN INDIA:

In India the retailing industry has a long way to go and to

become a truly flourishing industry, retailing needs to cross various hurdles. The first

challenge facing the organized retail sector is the competition from unorganized

sector. Needless to say, the Indian retail sector is overwhelmingly swarmed by the

unorganized retailing with the dominance of small and medium enterprises in

contradiction to the presence of few giant corporate retailing outlets.

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The trading sector is also highly fragmented, with a large number of

intermediaries who operate at a strictly local level and there is no barrier to entry,

given the structure and scale of these operations (Singhal 1999).The tax structure in

India favors small retail business. Organized retail sector has to pay huge taxes,

which is negligible for small retail business. Thus, the cost of business operations is

very high in India. Developed supply chain and integrated IT management is absent

in retail sector. This lack of adequate infrastructure facilities, lack of trained work

force and low skill level for retailing management further makes the sector quite

complex. Also, the intrinsic complexity of retailing- rapid price changes, threat of

product obsolescence, low margins, high cost of real estate and dissimilarity in

consumer groups are the other challenges that the retail sector in India is facing. The

status of the retail industry will depend mostly on external factors like Government

regulations and policies and real estate prices, besides the activities of retailers and

demands of the customers also show impact on retail industry. Even though economy

across the globe is slowly emerging from recession, tough times lie ahead for the

retail industry as consumer spending still has not seen a consistent increase. In fact,

consumer spending could contract further as banks have been overcautious in

lending. Thus, retailers are witnessing an uphill task in terms of wooing consumers,

despite offering big discounts. Additionally, organized retailers have been facing a

difficult time in attracting customers from traditional kirana stores, especially in the

food and grocery segment. While in some sectors the restrictions imposed by the

government are comprehensible; the restrictions imposed in few others, including the

retail sector, are utterly baseless and are acting as shackles in the progressive

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development of that particular sector and eventually the overall development of the

Indian Inc. The scenario is kind of depressing and unappealing, since despite the on-

going wave of incessant liberalization and globalization, the Indian retail sector is

still aloof from progressive and ostentatious development. This dismal situation of

the retail sector undoubtedly stems from the absence of an FDI encouraging policy in

the Indian retail sector.

Also FDI encouraging policy can remove the present limitations in

Indian System such as

1. Infrastructure:

There has been a lack of investment in the logistics of the retail chain, leading to an

inefficient market mechanism. Though India is the second largest producer of fruits

and vegetables (about 180 million MT), it has a very limited integrated cold-chain

infrastructure, with only 5386 stand-alone cold storages, having a total capacity of

23.6 million MT. , 80% of this is used only for potatoes. The chain is highly

fragmented and hence, perishable horticultural commodities find it difficult to link to

distant markets, including overseas markets, round the year. Storage infrastructure is

necessary for carrying over the agricultural produce from production periods to the

rest of the year and to prevent distress sales. Lack of adequate storage facilities cause

heavy losses to farmers in terms of wastage in quality and quantity of produce in

general. Though FDI is permitted in cold-chain to the extent of 100%, through the

automatic route, in the absence of FDI in retailing; FDI flow to the sector has not

been significant.

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2. Intermediaries dominate the value chain:

Intermediaries often flout mandi norms and their pricing lacks transparency.

Wholesale regulated markets, governed by State APMC Acts, have developed a

monopolistic and non-transparent character. According to some reports, Indian

farmers realize only 1/3rd of the total price paid by the final consumer, as against

2/3rd by farmers in nations with a higher share of organized retail.

3. Improper Public Distribution System (“PDS”):

There is a big question mark on the efficacy of the public procurement and PDS

setup and the bill on food subsidies is rising. In spite of such heavy subsidies, overall

food based inflation has been a matter of great concern. The absence of a ‘farm-

tofork’ retail supply system has led to the ultimate customers paying a premium for

shortages and a charge for wastages.

4. No Global Reach:

The Micro Small & Medium Enterprises (MSME‖) sector has also suffered due to

lack of branding and lack of avenues to reach out to the vast world markets. While

India has continued to provide emphasis on the development of MSME sector, the

share of unorganized sector in overall manufacturing has declined from34.5 percent

in 1999-2000 to 30.3 percent in 2007-08. This has largely been due to the inability of

this sector to access latest technology and improve its marketing interface.

Thus the rationale behind allowing FDI in Indian retail sector comes

from the fact, that it will act as a powerful catalyst to spur competition in retail

22

industry, due to current scenario of above listed limitations, low completion and poor

productivity. 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 farmer income & agricultural growth

and assist in lowering consumer prices inflation.

Apart from this, by allowing FDI in retail trade, India will

significantly flourish in terms of quality standards and consumer expectations, since

the inflow of FDI in retail sector is bound to pull up the quality standards and 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 conclusion that investment of big‘ money (large

corporate and FDI) in the retail sector would in 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 only lead to a substantial surge in the country‘s

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

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(kirana) and other small time retailing shops) have undoubtedly failed to provide to

the masses employed in them.

Industrial organizations such as CII, FICCI, US-India Business Council

(USIBC), the American Chamber of Commerce in India, The Retail Association of

India (RAI) and Shopping Centers Association of India (a 44 member association of

Indian multi brand retailers and shopping malls) favor a phased approach toward

liberalizing FDI in multi-brand retailing, and most of them agree with considering a

cap of 49-51 per cent to start with.

The international retail players such as Wal-Mart, Carrefour, Metro,

IKEA, and TESCO share the same view and insist on a clear path towards 100 per

cent opening up in near future. Large multinational retailers such as US-based Wal-

Mart, Germany‘s Metro AG and Woolworths Ltd, the largest Australian retailer that

operates in wholesale cash-and-carry ventures in India, have been demanding

liberalization of FDI rules on multi-brand retail for some time.

PRESENT SHAPE OF FDI:

The retail industry in India is the second largest employer with an estimated 35

million people engaged by the industry. There has been opening of Indian economy

to foreign organization for foreign direct investment through organized retail. The

union government has sanctioned 51% foreign direct investment in multi-brand like

Wal-Mart, Carrefour, Tesco and up to 100% in single brand retail like Gucci, Nokia

and Reebok. This will make foreign goods and items of daily consumption available

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locally, at a lower price, to Indian consumers. The new policy will allow multi-brand

foreign retailers to set up shop only in cities with a population of more than 10 lakhs

as per the 2011 census. There are 53 such cities. This means that big retailers can

move beyond the metropolises to smaller cities. The final decision will however lies

with the state governments. Foreign retailers will be required to put up 50% of total

FDI in back-end infrastructure excluding that on front-end expenditures. Expenditure

on land cost and rentals will not be counted for the purpose of back-end infra-

structure. Big retailers will need to source at least 30 percent of manufactured or

processed products from small retailers. The government will go for surprise checks

and if found irregularities then the deed will be broken with a second of time. Home

grown retailers have not muscles and the reach to go for the big game like Subiksha

and Vishal Retail. They have expanded their retail chain but did not have the

resources to manage the backend across several cities. If we look rationally at the

FDI in retail sector then it will be a win-win situation for all.

FDI IN RETAIL SECTOR IN INDIA:

FDI is among the burning topics in India and is a politically sensitive issue. In

November 2011, India’s central government announced retail reforms for both multi

brand stores and single brand stores. Policies related to retailing in India are as follows:

FDI up to 100% for cash and carry wholesale trading and export trading allowed

under automatic route.

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51% FDI is allowed in ‘single brand’ retailing but after government approval that

is from Foreign Investment Promotion Board (FIPB).

100% FDI allows investment in power trading, petroleum infrastructure,

processing and warehousing of rubber and coffee, diamond and coal mining. And

the rest of the sectors require prior approval from RBI or FIPB.

Multi Brand Retailing is prohibited in India.

As of 2013, India's retailing industry was essentially owner manned

small shops. Until 2011, Indian central government denied foreign direct investment

(FDI) in multi-brand retail; even single-brand retail was limited to 51% ownership and a

bureaucratic process. In November 2011, India's central government announced retail

reforms for both multi-brand stores and single-brand stores. These market reforms

paved the way for multi-brand retailers such as Wal-Mart, Carrefour and Tesco, as well

single brand majors such as IKEA, Nike, and Apple.

Table3: represents the key changes proposed under the FDI Limits are as follows:

Sector/ Activity

Before the proposal After the proposal

% of FDI /Equity Entry Route% of FDI / Equity

Entry Route

26

Defense Sector 26% Government Route No Change

Higher limits of foreign investment in "state of-the-art" manufacturing would be considered by the CCS

Insurance Sector

26% Automatic Route 49% Automatic Route

Telecom Services

74%

Automatic up to 49% Government route beyond 49% and up to 74%

100%


Tea Plantation 100%Government Route

100%


Asset Reconstruction Company

74% of paid-up capital of ARC (FDI+FII)

Government Route 100%


Petroleum & Natural Gas 49% Government Route 49%

Automatic Route

Sector/ Activity

Before the proposal After the proposal

% of FDI /Equity Entry Route% of FDI / Equity

Entry Route

Commodity Exchanges

49% (FDI & FII) + [Investment by Registered FII under Portfolio Investment Scheme (PIS) will be limited to 23% and Investment under FDI Scheme limited to 26%]

Government Route (For FDI)

49% Automatic Route

Power Exchanges

49% (FDI &FII) FDI limit of 26 per cent and an FII limit of 23 per cent of the paid up capital

Government Route (For FDI)

49% Automatic Route

27

Continued...

Stock Exchanges/ Clearing Corporations

49% (FDI &FII) FDI limit of 26 per cent and an FII limit of 23 per cent of the paid-up capital

Government Route(For FDI)

49% Automatic Route

Credit Information Companies

49% (FDI & FII)Government Route

74% Automatic Route

Courier Services

100%Government Route

100% Automatic Route

Single Brand product retail trading

100%Government Route

100%


Before opening the FDI policy in India the percentage of FDI under

defense sector is 26, after FDI proposal has made there is no change in FDI

percentage because it has under government control. In insurance sector the

percentage of FDI before the proposal is 26 and after the proposal has been made it

was increased to 49% through automated route. Under telecom sector the % of FDI

is up to 49% through automatic route and government route is beyond 49% and up to

74%. After the proposal has been made the % of FDI through automatic route is upto

49% and through government route it is beyond 49% and up to 100%.

Under Tea plantation sector the percentage of FDI is 100 through

government route, after the proposal it has been made upto 49% through automatic

route and beyond 49% and upto 100% through government route. Under petroleum

and gas sector FDI is 49% through government route, after the proposal there is no

change in percentage but it is routed through automatic.

28

Under Credit information companies before the FDI proposal has made the

percentage of FDI is 49 through government route and after the FDI proposal it is

increased to 74% through automatic route.

Under Single brand product retail trading sector the percentage of FDI is

100 through government route before the FDI proposal has been made, after proposal

made upto 49% through automatic route and beyond 49% and upto 100% through

government route.

POSITIVES OF FDI IN RETAIL:

With the intention of signaling a strong commitment to reforms, the

UPA government has announced a hike in the price of diesel and liberalization of

foreign direct investment (FDI) in multi-brand retail, justifying the measures as

growth-enhancing and inflation-dampening. They have been termed bold by India’s

corporate sector and burdensome by an Opposition united across the ideological

spectrum. In his speech to the nation on September 20, the Prime Minister stated that

the government’s move is motivated by concern for the ordinary Indian.

1) Strengthen infrastructure:

One of the pre-requisites of the success of FDI in any sector is

infrastructure. Poor condition of infrastructure in terms of power, road, logistics etc.

hampers the growth opportunities. It increases operating costs which in turn results

in reduced profit margin. This aspect is surely worth considering before coming to

any conclusion as such.

29

In December 2011, over 300 million Indian citizens had no access to

electricity. Over one third of India's rural population lacked electricity, as did 6% of

the urban population. Of those who did have access to electricity in India, the supply

was intermittent and unreliable. In 2010, blackouts and power shedding interrupted

irrigation and manufacturing across the country. The per capita average annual

domestic electricity consumption in India in 2009 was 96 kWh in rural areas and 288

kWh in urban areas for those with access to electricity, in contrast to the worldwide

per capita annual average of 2600 kWh and 6200 kWh in the European Union. India

has a road network of over 4,245,429 kilometers (2,637,987 mi) in 2012, the third

largest road network in the world. At 0.66 km of roads per square kilometer of land.

Adjusted for its large population, India has less than 4 kilometers of roads per 1000

people, including all its paved and unpaved roads. In terms of quality, all season, 4 or

more lane highways, India has less than 0.07 kilometers of highways per 1000

people, as of 2010. These are some of the lowest road and highway densities in the

world. For context, United States has 21 kilometers of roads per 1000 people, while

France about 15 kilometers per 1000 people - predominantly paved and high quality

in both cases. In terms of all season, 4 or more lane highways, developed countries

such as United States and France have a highway density per 1000 people that is

over 15 times as India.

Having the statistics with us, we can say that FDI in Retail may

improve the condition of the basic infrastructure by the way of investment from the

government or the private side. From the past experience we can say that opening up

30

FDIs in sectors like construction, tourism etc. resulted in better growth and

efficiency in those sectors.

2) Improve supply chain :

India is the world’s largest producer of fruits and vegetables,

has the largest area under wheat, rice and cotton and is the second-largest producer

of rice and wheat. That is the good news. But, at the other end of the spectrum, India

loses about Rs 50,000 crore annually just on account of frail post-harvest

infrastructure. A major scoop of these farm losses can be traced to a feeble supply

chain system that includes storage, transportation and distribution. Inadequate

warehouses and cold storages and poor road and rail transportation are some of the

red flags in the Indian logistics landscape.

Experts indicate that this could beef up the existing logistics

infrastructure to a significant extent, which could translate into better prices for

farmers and consumers. However, there is one rider. Retailers feel that unless there is

a seamless implementation of this programme across states, robust supply chain

architecture cannot be built. If some states chose not to open up FDI in their retail

sectors, there would be a break in the chain.

Organised food retailing in India still accounts for less than two per

cent of the total food market, according to a recent study by Nabard. Estimates

indicate that the size of this segment is Rs 19,400 crore, as against the total food

market of Rs 12,45,000 crore. By 2020, this segment is estimated to grow to Rs

62,000 crore, the study points out. Indeed, direct procurement by retailers in the new

31

format is seen to deliver better deals, both for the farmers and producers, especially

due to improvements in supply chain operations. In a paper presented during a recent

Confederation of Indian Industries (CII) seminar, Sunitha Raju from the Indian

Institute of Foreign Trade, points out that direct procurement format resulted in an

increase in farmers’ net income by eight per cent, while consumers paid six per cent

less and transportation wastage fell by seven per cent. This could further improve if

supply chain logistics is strengthened.

3) Better warehousing :

Inadequate warehousing is one of the biggest bottlenecks in the

entire supply chain structure. Statistics show that at 108 million tonnes (MT), the

present agriculture warehousing capacity is short of the requirement by about 25 MT.

A major portion of this is with Food Corporation of India (32 MT), Central

Warehousing Corporation (10 MT) and State Warehousing Corporation (21.30 MT).

The fact that the Government needs to further incentivize this sector to attract private

players is indicated by the fact that in the last ten years hardly 35 million tonnes

capacity has been created by the private sector.

In this context, the Andhra Pradesh Government has taken an

initiative to bring out a separate agri-warehousing policy. “The new policy is part of

the State Government’s initiative to have an additional 50 lakh million tonnes of

warehousing capacity in the next three to four years through public-private

participation. We expect to finalize it in the next one or two months,” I.Y.R Krishna

Rao, Special Chief Secretary (Agriculture Marketing), said.

32

CII estimates that the shortfall in warehousing capacity for the next five

years is expected to be about 40 million tonnes at current rate of production.

However, the government is targeting to create about 35 million tonnes of new

capacity in the next five years, involving an investment of Rs. 14,390 crore. The

shortfall is even more acute for cold storage facilities. There are an estimated 5,400

cold storages with a total capacity of about 25 million tonnes. Nearly 80 per cent of

this is used for potatoes. Further, these are available in only nine per cent of the

markets. It is estimated that to expand cold chain facilities to handle 40 per cent of

the food and vegetables in the next five to six years would require an investment of a

whopping Rs. 55,000 crore.

4) Greater employment opportunities:

Though this argument was refuted many times, by many

economists, in many countries including USA, the Government of India claims

otherwise. One of the rationale it gave behind allowing FDI in Retail was better

employment opportunities especially in the organized sector. India’s unorganized

sector is highly penetrated and complex. Labor is mostly human and accountability is

minimal. The poor segment of the retail sector is very difficult to bring under the

radar. Moreover, the minimum wage rates set by the government is often tinkered

with, resulting in poor living condition. Bringing in FDI will effect in more

employment and better human indexes.

33

5) FDI in multi-brand retail to boost food processing industry:

The Government of India said FDI in multi-brand retail would

boost the growth of the food processing industries and invited private players to

invest in this sector to tap the huge potential. "The steady emergence of the

organized food retail and the decision to allow FDI in multi-brand retail will surely

take the Indian food processing industry to greater heights," Minister of State for

Agriculture and Food Processing Tariq Anwar said at the Third International Potato

Expo 2012 organized by Indian Chamber of Commerce.

6) Potato and potato-based products, which contributes 85 per cent of the USD 3

billion Indian snack market, would be a major contributor to the growth in the food

processing sector, he added. "I would urge the Indian Chamber of Commerce to rope

in investors and entrepreneurs interested to set up processing units for potato and

also other food items," Anwar said, adding that Food processing Ministry is

providing fiscal incentives for setting up projects. The Minister said that the

government is targeting to increase the level of processing of perishable items from 6

per cent to 20 per cent, value-addition from 20 per cent to 35 per cent and share in

global food trade from 1.5 per cent to 3 percent by 2015.

7) Small farmers will not benefit by FDI policy

8) The rural India will remain deprived of the services of foreign players.

NEGATIVES OF FDI IN RETAIL SECTOR:

34

1. FDI will lead to job losses. Small retailers and other small ‘Kirana store owners’

will suffer a large loss. Giant retailers and Supermarkets like Wal-Mart,

Carrefour, etc. will displace small retailers.

2. Supermarkets will establish their monopoly in the Indian market. Because of

supermarket’s fine tuning, they will get goods on low price and they will sell it

on low price than small retailers, it will decrease the sell of small retailers.

3. Jobs in the manufacturing sector will be lost because foreign giants will purchase

their goods from the international market and not from domestic sources. This

has been the experience of most countries which have allowed FDI in retail.

Although, our country had made a condition that they must source a minimum of

30% of their goods from Indian micro and small industries, we can’t stop them

from purchasing goods from international markets as per WTO law. So after

coming to India, they can reduce this 30% by litigating at the WTO.

ADVANTAGES OF FDI IN RETAIL SECTOR IN INDIA:

Government has encouraged by the economic policy 1991, has adopted

retail reforms mainly as 100% FDI in the retail sector in India. It may benefit by

bringing investment in complete backend infrastructure and helps rural and

agricultural sectors with a better go to market scenario. They also safeguard the

health of the Indian retail sector against competition from the player of global

economy. India is ranked as the third most attractive nation for retail investment

35

among 30 emerging markets with domestic companies like the Future Group, Tata’s

Westside, Reliance Fresh, Raheja Group and Bharti Retail competing for market

share. Market liberalization sowing the seeds for a retail transformation that will

bring more MNCs players and big Indian retail players which are looking to expand

their operations which include Pantaloon, Reliance, Lifestyle, Food world,

Raymond, Titan, Bata etc. Global player’s access India market through the

licensee/franchisee route includes McDonald’s, Pizza Hut, Dominos, Levis, Lee,

Nike, Adidas etc. There are so many advantages of FDI in retail sector.

1) Boost Economic Life: Due to foreign companies entering into retail sector, new

infrastructure will be built thereby bolstering the jagging real estate sector. In turn,

banking sector will also grow as the funds needed to build infrastructure will be

provided by banks. A remarkable inflow of FDI in various industrial units in India

has boosted the economic life of country.

2) Job Opportunities: It has been estimated according to government, that

approximately ten million jobs will be created mostly in retail and real estate sectors.

3) Beneficial for Farmers: By FDI, farmers might get contract farming, where they

will be able to supply an organized retailer based upon demand and will get a better

price; easy credit availability will help to tackle the problem of farmer suicides.

4) Beneficial for consumers: Consumers will get variety of good quality products at

low prices compared to market rates and will be able to choose from various

international brands at one place.

36

5) Increase level of competition: FDI increases level of competition in market. They

have to improve quality of products and service in order to stay in market. They

enter into Indian market through Joint venture and collaboration.

6) Infrastructure facilities: Allowing FDI might help India have better logistics and

storage technologies resulting in avoiding wastage. Due to FDI foreign companies

will invest around $ 100 million in India. Thereby, infrastructure facilities,

refrigeration technology, transportation sector will get a boost.

7) Cheaper Production facilities: FDI will assure operations in production cycle and

distribution. Due to economies of operation, production facilities will be available at

a cheaper rate and thus resulting in availability of variety products to the ultimate

consumers at a reasonable and cheaper price.

8) Availability of new technology: FDI allows transfer of skills and technology from

abroad. Improved technology in the area of processing, grading, handling and

packaging of goods and further developments in areas like electronic weighing,

billing, barcode scanning etc.

9) Maximum Opportunity: FDI norms will open up strategic investment opportunity

for global retailers, who have been waiting to invest in India. This may have a

significant impact on the current arrangement of foreign players. Employees are

well-versed with globally valued skills.

10) Other benefits:

Inflation is controlled.

Tax revenue collected by the government can be used for infrastructure

development.

37

India will become more integrated with regional and global economies in

terms of quality standards and consumer expectations.

Increased efficiency

Cost reduction

Implementation of IT in retail.

DISADVANTAGES OF FDI IN RETAIL IN INDIA:

FDI feels that liberalization would endanger retail sector and mainly

affect the small retailers, farmers and consumer and give rise to monopolies

adversely affect the pricing and availability of goods. The entry of large global

retailers such as Wal-Mart wipes out local shops and millions of jobs. There are so

many disadvantages of FDI in retail sector.

1) Impact on the Kirana shops: The unorganized market provides the second largest

employment opportunities to 3.95 million people. It is argued that opening FDI in

retail sector will have an impact on sales in the unorganized sector. As a result of

this, employment provided by the unorganized sector will be affected. Small retailers

and other ‘Kirana Stores’ may close down.

2) Limited Employment opportunities: It is said that FDI might provide employment

opportunities, but it is argued that it cannot provide employment opportunities to

semi-illiterate people. This argument gains more importance because in India, large

number of semi-illiterate people is present.

3) Fear of lowering of prices: There is a fear that allowing FDI in retail would result in

lowering of prices, as FDI will bring in good technology, supply chain etc. If prices

are lowered, then it will lower the margin of unorganized players also. As a result of

38

this, the unorganized market will be affected. This in turn will have an impact on the

employment opportunities provided by the unorganized market.

4) FDI in retail will drain out the country’s share of revenue to foreign countries, which

may cause negative impact on India’s economy.

5) Fears that domestic organized retail sector might not be competitive enough to tackle

international players might not only result in loss of market share for them but in

closure of their units.

6) There is a possibility of small business owners and workers from other functional

areas, as lot of people are involved in unorganized retail business, may lose their

jobs.

7) Supermarkets will establish their monopoly in the Indian market. Due to

supermarkets fine tuning and higher accessibility they will be able to buy goods at

lower prices and therefore will be able to sell at lower prices to consumers. This will

result in closing of many small retailers.

8) Other disadvantages:

Giving rise to cut throat competition rather than promoting incremental business.

Promoting cartels and creating monopoly.

Increase in real estate prices.

Profit distribution, investment ratios are not fixed.

It can expand only by destroying traditional retail sector.

It is true that it is in the consumer’s best interest to obtain his goods and services at

the lowest possible price. But collective well being should take preced.

39

CURRENT STATUS OF FDI REFORMS:

As of September 2012, the Government of India allowed FDI in the following sectors:

Up to 100% in Single Brand Retail Trading

By only one non-resident entity whether owner or the brand or otherwise

30% domestic sourcing requirement eased to preferable sourcing rather

compulsory

30% domestic sourcing computation further clarified

Further clarification on FDI companies that cannot engage in B2C e-

commerce

Up to 51% in Multi-Brand Retail Trading

At least US$100m as equity into Indian company

At least 50% of the total FDI is to be invested in back end infrastructure

within 3 years

At least 30% of the value of procurement of processed product shall be

sourced from Indian “Small Industries”

Fresh agricultural produce is permitted to be sold unbranded

Indian states have been given the discretion to accept or refuse to implement

FDI. More than 8 states have already given their consent

Retail outlets can be set up in cities having a population of at least 1 million

Application needs to be approved by two levels at Department of Industrial

Policy (DIPP) and Foreign Investment Promotion Board (FIPB).

40

The India Retail Industry is the largest among all the industries, accounting for

over 10 per cent of the country’s GDP and around 8 per cent of the employment. The

Retail Industry in India has come forth as one of the most dynamic and fast paced

industries with several players entering the market. But all of them have not yet

tasted success because of the heavy initial investments that are required to break

even with other companies and compete with them. The India Retail Industry is

gradually inching its way towards becoming the next boom industry. The total

concept and idea of shopping has undergone an attention drawing change in terms of

format and consumer buying behavior, ushering in a revolution in shopping in India.

41

Modern retailing has entered into the Retail market in India as is observed in the

form of bustling shopping centers, multi-storied malls and the huge complexes that

offer shopping, entertainment and food all under one roof. A large young working

population with median age of 24 years, nuclear families in urban areas, along with

increasing workingwomen population and emerging opportunities in the services

sector are going to be the key factors in the growth of the organized Retail sector in

India. The growth pattern in organized retailing and in the consumption made by the

Indian population will follow a rising graph helping the newer businessmen to enter

the India Retail Industry. In India the vast middle class and its almost untapped retail

industry are the key attractive forces for global retail giants wanting to enter into

newer markets, which in turn will help the India Retail Industry to grow faster.

Indian retail is expected to grow 25 percent annually. Modern retail in India could be

worth US$ 175-200 billion by 2016. The Food Retail Industry in India dominates the

shopping basket. The Mobile phone Retail Industry in India is already a US$ 16.7

billion business, growing at over 20 per cent per year. The future of the India Retail

Industry looks promising with the growing of the market, with the government

policies becoming more favorable and the emerging technologies facilitating

operations.

India is the country having the most unorganized retail market.

Traditionally it is a family’s livelihood, with their shop in the front and house at the

back, while they run the retail business. More than 99% retailer’s function in less

than 500 square feet of shopping space. Global retail consultants KSA Technopak

have estimated that organized retailing in India is expected to touch Rs 35,000 crore

42

in the year 2005-06. The Indian retail sector is estimated at around Rs 900,000 crore,

of which the organized sector accounts for a mere 2 percent indicating a huge

potential market opportunity that is lying in the waiting for the consumer-savvy

organized retailer. Purchasing power of Indian urban consumer is growing and

branded merchandise in categories like Apparels, Cosmetics, Shoes, Watches,

Beverages, Food and even Jewellery, are slowly becoming lifestyle products that are

widely accepted by the urban Indian consumer. Indian retailers need to advantage of

this growth and aiming to grow, diversify and introduce new formats have to pay

more attention to the brand building process. The emphasis here is on retail as a

brand rather than retailers selling brands. The focus should be on branding the retail

business itself. In their preparation to face fierce competitive pressure, Indian

retailers must come to recognize the value of building their own stores as brands to

reinforce their marketing positioning, to communicate quality as well as value for

money. Sustainable competitive advantage will be dependent on translating core

values combining products, image and reputation into a coherent retail brand

strategy. There is no doubt that the Indian retail scene is booming. A number of large

corporate houses Raheja’s, Piramal’s, Goenka’s have already made their foray into

this arena, with beauty and health stores, supermarkets, self-service music stores,

new age book stores, every-day-low-price stores, computers and peripherals stores,

office equipment stores and home/building construction stores. Today the organized

players have attacked every retail category. The Indian retail scene has witnessed too

many players in too short a time, crowding several categories without looking at

their core competencies, or having a well thought out branding strategy.

43

Retailing in India is gradually inching its way toward becoming the

next boom industry. The whole concept of shopping has altered in terms of format

and consumer buying behavior, ushering in a revolution in shopping in India.

Modern retail has entered India as seen in sprawling shopping centers, multi-storied

malls and huge complexes offer shopping, entertainment and food all under one roof.

The Indian retailing sector is at an inflexion point where the growth of organized

retailing and growth in the consumption by the Indian population is going to take a

higher growth trajectory. The Indian population is witnessing a significant change in

its demographics. A large young working population with median age of 24 years,

nuclear families in urban areas, along with increasing workingwomen population and

emerging opportunities in the services sector are going to be the key growth drivers

of the organized retail sector in India.

retail sector in India is witnessing rejuvenation as traditional markets make way for

new formats such as departmental stores, hypermarkets, supermarkets and specialty

stores.

The retailing configuration in India is fast developing as shopping

malls are increasingly becoming familiar in large cities. When it comes to

development of retail space specially the malls, the Tier II cities are no longer behind

in the race. If development plans till 2007 is studied it shows the projection of 220

shopping malls, with 139 malls in metros and the remaining 81 in the Tier II cities.

The government of states like Delhi and National Capital Region (NCR) are very

upbeat about permitting the use of land for commercial development thus increasing

44

the availability of land for retail space; thus making NCR render to 50% of the malls

in India.

India is being seen as a potential goldmine for retail investors from over

the world and latest research has rated India as the top destination for retailers for an

attractive emerging retail market. India’s vast middle class and its almost untapped

retail industry are key attractions for global retail giants wanting to enter newer

markets. Even though India has well over 5 million retail outlets, the country sorely

lacks anything that can resemble a retailing industry in the modern sense of the term.

This presents international retailing specialists with a great opportunity. The

organized retail sector is expected to grow stronger than GDP growth in the next five

years driven by changing lifestyles, burgeoning income and favorable demographic

outline.

The retail sector has played a phenomenal role throughout the world in

increasing productivity of consumer goods and services. It is also the second largest

industry in US in terms of numbers of employees and establishments. There is no

denying the fact that most of the developed economies are very much relying on

their retail sector as a locomotive of growth. The India Retail Industry is the largest

among all the industries, accounting for over 10 per cent of the country’s GDP and

around 8 per cent of the employment. The Retail Industry in India has come forth as

one of the most dynamic and fast paced industries with several players entering the

market. But all of them have not yet tasted success because of the heavy initial

investments that are required to break even with other companies and compete with

45

them. The India Retail Industry is gradually inching its way towards becoming the

next boom industry.

FDI IN SINGLE BRAND RETAILING IN INDIA:

In January 2012, India approved reforms for single-brand stores

welcoming anyone in the world to innovate in Indian retail market with 100%

ownership, but imposed the requirement that the single brand retailer source 30

percent of its goods from India. The Indian government continues the hold on retail

reforms for multi-brand stores. On September 2012, the Government of India

formally notified the FDI reforms for single and multi brand retail, thereby making it

46

effective under Indian law. On December 2012, the Federal Government of India

allowed 51% FDI in multi-brand retail in India. The government managed to get the

approval of multi-brand retail in the parliament despite intense opposition. Some

states will allow foreign supermarkets like Wal-Mart, Tesco and Carrefour to open

while other states will not.

1) FDI in single brand retail:

The term ‘single brand’ has not been defined by the government in

any of its circulars or notifications. While the phrase has not been defined, it implies

that foreign companies would be allowed to sell goods sold internationally under a

single brand, viz., Reebok, Nokia, Adidas etc. Retailing of goods of multiple brands,

even if such products were produced by the same manufacturer, is not permitted.

Neither any political parties nor local kiranawala shops raised any voice against it

because these are high end luxury items for rich class people and does not hurt a

large population. For e.g. Nike Company opens outlets in Delhi, Ahmadabad,

Bangalore and Mumbai selling nothing but Nike shoes, Nike wrist watches and T-

shirts only.

APPLE STORE:

It is also known as the Apple Retail Store, is a chain of retail stores owned and

operated by Apple Inc., dealing with computers and consumer electronics. The stores

sell Macintosh personal computers, software, iPods, iPads, iPhones, third-party

accessories, and other consumer electronics such as Apple TV. All stores offer

a Genius Bar for technical support and repairs, as well as free workshops available to

47

the public, while some high-profile stores feature a theater for presentations and

workshops and a studio for training with Apple products.

Table 4: Balance sheet of Apple store (in 000’s of $)

48

Ratio analysis:

Current ratio:

Current ratio=current assets/current liabilities

2011: Current ratio= 44,988,000 / 27,970,000

49

Particulars 2011 2012 2013

Assets

Current Assets Cash And Cash Equivalents

9,815,000 10,746,000 14,259,000

Short Term Investments 16,137,000 18,383,000 26,287,000 Net Receivables 13,731,000 21,275,000 24,094,000 Inventory 776,000 791,000 1,764,000 Other Current Assets 4,529,000 6,458,000 6,882,000 Total Current Assets 44,988,000 57,653,000 73,286,000 Long Term Investments 55,618,000 92,122,000 106,215,000 Property Plant and Equipment 7,777,000 15,452,000 16,597,000 Goodwill 896,000 1,135,000 1,577,000 Intangible Assets 3,536,000 4,224,000 4,179,000 Accumulated Amortization - - - Other Assets 3,556,000 5,478,000 5,146,000 Deferred Long Term Asset Charges

- - -

Total Assets 116,371,000 176,064,000 207,000,000 Liabilities Current Liabilities Accounts Payable 23,879,000 32,589,000 36,223,000 Short/Current Long Term Debt

- - -

Other Current Liabilities 4,091,000 5,953,000 7,435,000 Total Current Liabilities 27,970,000 38,542,000 43,658,000 Long Term Debt - - 16,960,000 Other Liabilities 10,100,000 16,664,000 20,208,000 Deferred Long Term Liability Charges

1,686,000 2,648,000 2,625,000

Minority Interest - - - Negative Goodwill - - - Total Liabilities 39,756,000 57,854,000 83,451,000

=1.608

2012: Current ratio=57653000/38542000

=1.496

2013: Current ratio=73286000/43658000

=1.679

Current ratio is current assets divided by current liabilities. The ratio

should be in 2:1. In the year 2011 the ratio is 1.608:1 i.e. the current assets are less

than current liabilities. In 2012 the ratio is 1.496:1 i.e. the current assets are less than

current liabilities. In the year 2013 the ratio is 1.679:1. This shows that it’s not

meeting the standard ratio i.e. 2:1. So that the company should maintain adequate

assets in order to overcome the liabilities.

Liquid ratio:

Liquid ratio= (current assets-stock)/current liabilities

2011: Liquid ratio= (44988000-776000)/27970000

= 1.581

2012: Liquid ratio= (57653000-791000)/38542000

= 1.475

2013: Liquid ratio= (73286000-1764000)/43658000

= 1.638

The liquid ratio should be 1:1. Here in the year 2011 the ratio is 1.581:1

i.e. the current assets are more than current liabilities. In 2012 the ratio is 1.475:1 i.e.

the current assets are more than current liabilities. In 2013 the ratio is 1.638:1 i.e. the

50

current assets are more than current liabilities. This shows that the company is in a

good liquidity position to meet its liabilities.

NIKE:

Nike, Inc. is an American multinational corporation that is engaged in

the design, development, manufacturing and worldwide marketing and selling of

footwear, apparel, equipment, accessories and services. The company is

headquartered near Beaverton, Oregon, in the Portland, and is one of only

two Fortune 500 companies headquartered in Oregon. It is one of the world's largest

suppliers of athletic shoes and apparel and a major manufacturer of sports

equipment, with revenue in excess of US$24.1 billion in its fiscal year 2012.

Table 5: Balance sheet of Nike Company (in 000’s of $)


51

Assets

Current Assets Cash And Cash Equivalents 1,955,000 2,317,000 3,337,000 Short Term Investments 2,583,000 1,440,000 2,628,000 Net Receivables 3,450,000 3,394,000 3,425,000 Inventory 2,715,000 3,222,000 3,434,000 Other Current Assets 594,000 1,472,000 802,000 Total Current Assets 11,297,000 11,845,000 13,626,000 Long Term Investments - - - Property Plant and Equipment 2,115,000 2,209,000 2,452,000 Goodwill 205,000 131,000 131,000 Intangible Assets 487,000 370,000 382,000 Accumulated Amortization - - - Other Assets - - - Deferred Long Term Asset Charges 894,000 910,000 993,000 Total Assets 14,998,000 15,465,000 17,584,000 Liabilities Current Liabilities Accounts Payable 3,571,000 3,555,000 3,730,000 Short/Current Long Term Debt 387,000 157,000 178,000 Other Current Liabilities - 170,000 18,000 Total Current Liabilities 3,958,000 3,882,000 3,926,000 Long Term Debt 276,000 228,000 1,210,000 Other Liabilities - - - Deferred Long Term Liability Charges 921,000 974,000 1,292,000 Minority Interest - - - Negative Goodwill - - - Total Liabilities 5,155,000 5,084,000 6,428,000

Ratio analysis:

Current ratio:

52


2011: Current ratio= 11297000/3958000

= 2.854

2012: Current ratio= 11845000/3882000

= 3.051

2013: Current ratio=13626000/3926000

=3.471

Current ratio is current assets divided by current liabilities. The ratio

should be in 2:1. In the year 2011 the ratio is 2.854:1 i.e. the current assets are more

than current liabilities. In 2012 the ratio is 3.051:1 i.e. the current assets are more

than current liabilities. In the year 2013 the ratio is 3.471:1. This shows that the

company is maintaining adequate assets to overcome the liabilities.

Liquid ratio:

Liquid ratio = (current assets-stock)/current liabilities

2011: Liquid ratio= (11297000-2715000)/3958000

= 2.168

2012: Liquid ratio= (11845000-3222000/3882000

= 2.221

2013: Liquid ratio= (13626000-3434000)/3926000

53

= 2.596

The liquid ratio should be 1:1. Here in the year 2011 the ratio is 2.168:1

i.e. the current assets are more than current liabilities. In 2012 the ratio is 2.221:1 i.e.

the current assets are more than current liabilities. In 2013 the ratio is 2.596:1 i.e. the



PUMA:

Puma SE (officially branded as PUMA) is a major German multinational

company that produces athletic and casual footwear, as well as sportswear,

headquartered in Herzogenaurach, Bavaria, Germany. The company was formed in

1924 as Gebrüder Dassler Schuhfabrik by Adolf and Rudolf Dassler.

Table 6: Balance sheet of PUMA (in ‘000’s of €)

Particulars 2011 2012 2013Assets

54

Current Assets

Cash And Cash Equivalents 448,000 407,000 390,000

Short Term Investments 16,000 25,000 27,000

Net Receivables 652,000 617,000 534,000

Inventory 537,000 553,000 521,000

Other Current Assets 29,000 8,000 12,000

Total Current Assets 1,715,000 1,643,000 1,514,000

Long Term Investments 25,000 24,000 16,000

Property Plant and Equipment - - -

Goodwill 299,000 289,000 243,000

Intangible Assets - - -

Accumulated Amortization - - -

Other Assets - - -

Deferred Long Term Asset Charges 109,000 152,000 164,000

Total Assets 2,582,000 2,530,000 2,309,000

Liabilities

Current Liabilities

Accounts Payable 431,000 376,000 373,000

Short/Current Long Term Debt 35,000 44,000 29,000

Other Current Liabilities 373,000 383,000 293,000

Total Current Liabilities 839,000 804,000 691,000

Long Term Debt - - 4,000

Other Liabilities - - -

Deferred Long Term Liability Charges - - -

Minority Interest - - -

Negative Goodwill - - -

Total Liabilities 977,000 933,000 811,000

Ratio analysis:

Current ratio:


55

2011: current ratio= 1715000/839000

= 2.044

2012: current ratio= 1643000/804000

=2.043

2013: current ratio= 1514000/691000

=2.191

This ratio should be in 2:1. In the year 2011 the ratio is 2.044:1 i.e. the current

assets are more than current liabilities. In 2012 the ratio is 2.043:1 i.e. the current

assets are more than current liabilities. In the year 2013 the ratio is 2.191:1. This

shows that the company is maintaining adequate assets to overcome the liabilities.

Liquid ratio:


2011: Liquid ratio= (1715000-537000)/839000

= 1.404

2012: Liquid ratio= (1643000-553000)/804000

= 1.356

2013: Liquid ratio= (1514000-521000)/691000

= 1.437

The liquid ratio should be 1:1. Here in the year 2011 the ratio is 1.404:1 i.e. the

current assets are more than current liabilities. In 2012 the ratio is 1.356:1 i.e. the

current assets are more than current liabilities. In 2013 the ratio is 1.437:1 i.e. the



56

Table 7: Comparison among Apple, Nike and Puma

Company Ratio 2011 2012 2013

Apple Current ratio 1.608 1.496 1.679

Liquid ratio 1.581 1.475 1.638

Nike Current ratio 2.854 3.051 3.471

Liquid ratio 2.168 2.221 2.596

Puma Current ratio 2.044 2.043 2.191

Liquid ratio 1.404 1.356 1.437

In the year 2011 the current ratio of Apple is 1.608, current ratio of Nike is

2.854 and current ratio of Puma is 2.044 i.e. the performance of Nike is better when

we compare with the other two companies. In the year 2012 the current ratio of

Apple is 1.496, current ratio of Nike is 3.051 and current ratio of Puma is 2.043 i.e.

the performance of Nike is better when we compare with the other two companies. In

the year 2013 the current ratio of Apple is 1.679, current ratio of Nike is 3.471 and

current ratio of Puma is 2.191 i.e. the performance of Nike is better when we

compare with the other two companies. In 2011, 2012 and 2013 Nike has maintained

more assets when compared with other two companies.

In the year 2011 the liquid ratio of Apple is 1.581, liquid ratio of Nike is 2.168

and current ratio of Puma is 1.404 i.e. the performance of Nike is better when we

compare with the other two companies. In the year 2012 the liquid ratio of Apple is

57

1.475, liquid ratio of Nike is 2.221 and liquid ratio of Puma is 1.356 i.e. the

performance of Nike is performing well when compared with other two companies.

In the year 2013 the liquid ratio of Apple is 1.638, liquid ratio of Nike is 2.596 and

liquid ratio of Puma is 1.437 i.e. the performance of Nike is better when we compare

with the other two companies. In 2011, 2012 and 2013 Nike has maintaining good

liquidity position when compared with other two companies.

FDI IN SINGLE BRAND RETAILING IN INDIA:

FDI in Multi Brand means allowing a retail store with a foreign investment

to sell multiple brands under one roof. For e.g. Big Bazaar opens malls in Mumbai,

Kolkata New Delhi and Bangalore: selling t-shirts of multiple brands such Reebok,

Nike, Adidas, Allen Solly, Peter England etc. as well as unbranded t-shirts (those

with discount offers). So, this is multi brand retail when an outlet sells a product of

more than one brand. Opening up FDI in multi-brand retail will mean that global

retailers including Wal-Mart, Carrefour and Tesco can open up stores offering a

range of household items and grocery directly to customers.

WAL-MART:

WAL-MART is an American multi retail corporation that runs chains of

large discount department stores and warehouse stores. The company is the world’s

third largest public corporation according to the FORTUNE GLOBAL 500 list in

58

2012. It is also the world’s biggest private employer with over two million

employees and is the largest retailer in the world.

Wal-mart In India:

Bharti Enterprises is one of India’s leading business groups with

interests in telecom, agri-business, insurance and retail and Wal-Mart, world’s

leading retailer, renowned for its expertise and efficiency in logistics, supply chain

management and sourcing formed a joint venture known as Bharti Wal-Mart Private

Limited. Bharti and Wal-Mart hold 50:50 stakes in Bharti and Wal-Mart Private

Limited. Later Wal-Mart came with its own retail outlet known as Best Price in

India.

Table 8: Balance sheet of Wal-Mart (in ‘000’s of $)

Particulars 2011 2012 2013Assets Current Assets Cash And Cash Equivalents 7,395,000 6,550,000 7,781,000 Short Term Investments - - - Net Receivables 5,089,000 5,937,000 6,768,000

59

Inventory 36,437,000 40,714,000 43,803,000 Other Current Assets 3,091,000 1,774,000 1,588,000Total Current Assets 52,012,000 54,975,000 59,940,000Long Term Investments - - - Property Plant and Equipment 107,878,000 112,324,000 116,681,000Goodwill 16,763,000 20,651,000 20,497,000Intangible Assets - - -Accumulated Amortization - - -Other Assets 4,129,000 5,456,000 5,987,000Deferred Long Term Asset Charges - - -Total Assets 180,782,000 193,406,000 203,105,000

Liabilities

Current Liabilities

Accounts Payable 52,534,000 55,952,000 59,099,000 Short/Current Long Term Debt 6,022,000 6,348,000 12,719,000 Other Current Liabilities 47,000 - -Total Current Liabilities 58,603,000 62,300,000 71,818,000Long Term Debt 43,842,000 47,079,000 41,417,000Other Liabilities - - -Deferred Long Term Liability Charges 6,682,000 7,862,000 7,613,000Minority Interest 2,705,000 4,446,000 5,395,000Negative Goodwill - - -Total Liabilities 111,832,000 121,687,000 126,243,000

Ratio analysis:

Current ratio:


2011: current ratio = 52,012,000/58,603,000

60

= 0.887

2012: current ratio = 54,975,000/62,300,000

= 0.882

2013: current ratio = 59,940,000/71,818,000

= 0.834

In the year 2011 the ratio is 0.887:1 i.e. the current assets are less than

current liabilities. In 2012 the ratio is 0.882:1 i.e. the current assets are less than

current liabilities. In the year 2013 the ratio is 0.834:1 i.e. the current assets are less

than current liabilities. This shows that current assets are less than current liabilities.

So that the company should maintain adequate assets in order to overcome the

liabilities.

Liquid ratio:


2011: liquid ratio = (52,012,000-36,437,000)/58,603,000

= 0.265

2012: liquid ratio = (54,975,000-40,714,000)/62,300,000

= 0.228

2013: liquid ratio = (59,940,000-43,803,000)/71,818,000

= 0.224

61

The liquid ratio should be 1:1. In the year 2011 the ratio is 0.265:1 i.e. the

current assets are less than current liabilities. In 2012 the ratio is 0.228:1 i.e. the


current assets are less than current liabilities. This shows that the company has fewer

assets. The company should maintain adequate assets to avoid liabilities.

CARREFOUR:

International hypermarket chain headquartered in Boulogne Billancourt,

France in greater Paris. It is one of the largest hypermarket chains in the world (with

1,395 hypermarkets at the end of 2009, the second largest retail group in the world in

terms of revenue and third largest in profit after Wal-Mart and Tesco).

62

Carrefour in India:

The Carrefour Group announces the opening of its first cash and carry

store in India in New Delhi under the name “Carrefour Wholesale Cash & carry.” With

a sales area of 5200 mt, this store located east of New Delhi in the Shahadra

neighborhood will offer food and non-food to professional businesses, institutions,

restaurants and local retailers. This opening is in line with the Group’s strategy to be

present in major emerging markets that offer significant expansion and medium and

long term growth opportunities.

Table 9: Balance sheet of Carrefour (in ‘000’s of €)


AssetsCurrent Assets

Cash And Cash Equivalents 3,849,000 6,573,000 4,757,000

Short Term Investments 864,000 306,000 359,000

63

Net Receivables 7,260,000 6,432,000 6,990,000

Inventory 6,848,000 5,658,000 5,738,000

Other Current Assets 90,000 511,000 301,000

Total Current Assets 19,254,000 19,793,000 18,145,000 Long Term Investments 1,423,000 1,508,000 1,642,000 Property Plant and Equipment - - - Goodwill 8,740,000 8,608,000 - Intangible Assets - - - Accumulated Amortization - - -

Other Assets - - - Deferred Long Term Asset Charges 745,000 752,000 931,000

Total Assets 47,931,000 45,844,000 43,564,000 LiabilitiesCurrent Liabilities Accounts Payable 15,362,000 12,925,000 12,854,000 Short/Current Long Term Debt 11,672,000 11,246,000 9,233,000

Other Current Liabilities 6,970,000 5,134,000 6,977,000

Total Current Liabilities 26,106,000 21,955,000 21,514,000 Long Term Debt 9,513,000 8,983,000 7,550,000 Other Liabilities - - - Deferred Long Term Liability Charges - - - Minority Interest - - - Negative Goodwill - - - Total Liabilities 40,304,000 37,483,000 34,966,000

Ratio analysis:

Current ratio:


2011: current ratio = 19,254,000/26,106,000

64

= 0.737

2012: current ratio = 19,793,000/21,955,000

= 0.901

2013: current ratio = 18,145,000/21,514,000

= 0.843






liabilities.

Liquid ratio:


2011: liquid ratio = (19,254,000-6,848,000)/26,106,000

= 0.475

2012: liquid ratio = (19,793,000-5,658,000)/21,955,000

= 0.643

2013: liquid ratio = (18,145,000 -5,738,000)/21,514,000

= 0.576

65

The liquid ratio should be 1:1. In the year 2011 the ratio is 0.475:1 i.e.

the current assets are less than current liabilities. In 2012 the ratio is 0.643:1 i.e. the




TESCO:

It is a British multi grocery and general merchandise retailer

headquartered in Cheshunt UK. It is the third largest retailer in the world in terms of

revenue and third largest in terms of profits earned. It has stores in 14 countries

across Asia, Europe and North America and is the grocery market leader in UK,

Malaysia, the republic of Ireland and Thailand.

TESCO in India:

Tesco has had a limited presence in India with a service E-centre in

Bangalore and outsourcing. In 2008 Tesco announced their intension to invest an

initial $115 to open a wholesale cash and carry business based in Mumbai with the

assistance of the Tata Group.

Table 10: Balance sheet of TESCO (in ‘000’s of £)

Particulars 2011 2012 2013Assets

Current Assets

Cash And Cash Equivalents 1,722,000 1,725,000 1,457,000

Short Term Investments 1,022,000 1,243,000 522,000

Net Receivables 1,947,000 2,244,000 2,118,000

66

Inventory 3,162,000 3,598,000 3,744,000

Other Current Assets 579,000 551,000 689,000 Total Current Assets 12,039,000 12,863,000 13,096,000 Long Term Investments 316,000 423,000 494,000

Property Plant and Equipment - - -

Goodwill 3,316,000 3,449,000 2,954,000 Intangible Assets - - - Accumulated Amortization - - -

Other Assets - - - 3Deferred Long Term Asset Charges 48,000 23,000 58,000

Total Assets 47,206,000 50,781,000 50,129,000 LiabilitiesCurrent Liabilities

Accounts Payable 5,786,000 6,375,000 6,069,000

Short/Current Long Term Debt 11,187,000 11,749,000 10,834,000 Other Current Liabilities 2,967,000 3,363,000 3,860,000

Total Current Liabilities 17,731,000 19,249,000 18,985,000

Long Term Debt 9,595,000 9,777,000 9,946,000 Other Liabilities - - - Deferred Long Term Liability Charges 628,000 677,000 739,000 Minority Interest - - - Negative Goodwill - - -

Total Liabilities 30,583,000 32,980,000 33,468,000

Ratio analysis:

Current ratio:


2011: current ratio = 12,039,000/17,731,000

67

= 0.678

2012: current ratio = 12,863,000 /19,249,000

= 0.668

2013: current ratio = 13,096,000 /18,985,000

= 0.689






liabilities.

Liquid ratio:


2011: liquid ratio = (12,039,000-3,162,000)/17,731,000

= 0.5

2012: liquid ratio = (12,863,000-3,598,000) /19,249,000

= 0.481

2013: liquid ratio = (13,096,000-3,744,000) /18,985,000

= 0.492

68

The liquid ratio should be 1:1. In the year 2011 the ratio is 0.5:1 i.e. the





Table 11: Comparison among Wal-Mart, Carrefour and Tesco

Company Ratio 2011 2012 2013

Wal-mart Current ratio 0.887 0.882 0.834

Liquid ratio 0.265 0.228 0.224

Carrefour Current ratio 0.737 0.901 0.843

Liquid ratio 0.475 0.643 0.576

69

Tesco Current ratio 0.678 0.668 0.689

Liquid ratio 0.492 0.481 0.492

In the year 2011 the current ratio of Wal-Mart is 0.886, current ratio of

Carrefour is 0.737 and current ratio of Tesco is 0.678 i.e. the performance of Wal-

Mart is better when we compare with the other two companies. In the year 2012 the

current ratio of Wal-Mart is 0.882, current ratio of Carrefour is 0.901 and current

ratio of Tesco is 0.668 i.e. the performance of Carrefour is better than the other two

companies. In the year 2013 the current ratio of Wal-Mart is 0.834, current ratio of

Carrefour is 0.843 and current ratio of Tesco is 0.689 i.e. the performance of

Carrefour is better when we compare with the other two companies. In both 2012

and 2013 Carrefour has maintained more assets when compared with other two

companies.

In the year 2011 the liquid ratio of Wal-Mart is 0.265, liquid ratio of carrefour

is 0.475 and liquid ratio of Tesco is 1.492 i.e. the performance of Tesco is better

when we compare with the other two companies. In the year 2012 the liquid ratio of

Wal-Mart is 0.228, liquid ratio of Carrefour is 0.643 and liquid ratio of Tesco is

0.481 i.e. the performance of Carrefour is performing well when compared with

other two companies. In the year 2013 the liquid ratio of Wal-Mart is 0.224, liquid

ratio of Carrefour is 0.576 and liquid ratio of Tesco is 0.492 i.e. the performance of

Carrefour is better when we compare with the other two companies. In 2011, 2012

70

and 2013 Carrefour has maintained good liquidity position when compared with

other two companies

GROWTH OF RETAIL SECTOR IN INDIA:

Retail and real estate are the two booming sectors of India in the

present times. And if industry experts are to be believed, the prospects of both the

sectors are mutually dependent on each other. Retail, one of India’s largest

industries, has presently emerged as one of the most dynamic and fast paced

industries of our times with several players entering the market. Accounting for over

10 per cent of the country’s GDP and around eight per cent of the employment

retailing in India is gradually inching its way toward becoming the next boom

industry.

As the contemporary retail sector in India is reflected in sprawling

shopping centers, multiplex- malls and huge complexes offer shopping,

entertainment and food all under one roof, the concept of shopping has altered in

terms of format and consumer buying behavior, ushering in a revolution in shopping

in India. This has also contributed to large-scale investments in the real estate sector

with major national and global players investing in developing the infrastructure and

construction of the retailing business. The trends that are driving the growth of the

retail sector in India are

Low share of organized retailing

71

Falling real estate prices

Increase in disposable income and customer aspiration

Increase in expenditure for luxury items

Another credible factor in the prospects of the retail sector in

India is the increase in the young working population. In India, hefty pay packets,

nuclear families in urban areas, along with increasing working-women population

and emerging opportunities in the services sector. These key factors have been the

growth drivers of the organized retail sector in India which now boast of retailing

almost all the preferences of life - Apparel & Accessories, Appliances, Electronics,

Cosmetics and Toiletries, Home & Office Products, Travel and Leisure and many

more.

From the above graph it is observed that there continuous growth in the retail

sector in India. There is a slight growth in the retail market for the first year of the

72

period considered. We observed a significant growth in the next year that is the

second year of the period. After that there is uniform growth in the retail market in

India. According to the ICRIER report, the retail business in India has

grown at 13% from $322 billion in 2006-07 to $590 billion in 2011-

12. The unorganized retail sector is grow at about 10% per annum

with rise in sales from $ 309 billion in 2006-07 to $ 496 billion in

2011-12.

SWOT ANALYSIS FOR OPENING THE FDI IN INDIAN

RETAILING:

1. Strengths:

There is a fast growth in the economy of the country and customers also have

large number of branded products to choose. Because of FDI customers are able to

get best products at cheaper rates which serve their requirements and worthy to the

money that they have spend. Employment opportunities also increased in the

country. The retail sector in India is covering around 33-35% of GDP as compared to

around 20% in USA.

73

2. Weaknesses:

FDI in retail sector mainly providing products to the people who are living in

cities and the people those who live in villages are not provided with these products.

In India mostly we find small size retail outlets, so it became one of the weaknesses

in Indian retailing. The retail business in India is not considered as reputed

profession and is mostly carried out by the family members. Such people are not

academically and professionally qualified.

3. Opportunities:

Global retail giant take India as the key market, it rated India as the fifth most

attractive retail market. The organized retail sector is expected to grow at a higher

rate when compared to GDP in the next 5 years. FDI will help in increasing the

efficiency of the retailer’s. FDI also helps in increasing the exports of the country.

Foreign Direct Inflows into India will help in building the new infrastructure for the

growing population.

4. Threats:

Through FDI there is a threat for the survival of the small retailers like Kirana

shops etc. Though FDI helps in developing the economy of the country but major

threat is that work will do by Indians but profits will go to foreigners. There is

another threat for foreign marketers those who enter through FDI is that many of the

Indian consumers are habituated to purchase at the small grocery shops and at the

people who come near houses to sell.

74

PEST ANALYSIS:

PEST stands for Political, Economical, social and technological. Political

factors include government policies, tax policy, trade restrictions, tariffs, and

political effect etc. Economic factors include economic growth, interest rates,

exchange rates and the inflation rates etc. Social factors include the demographic and

cultural aspects of the external macro environment, health consciousness, Population

growth rate, age distribution, career attitudes and emphasis on safety. Technological

factors include R&D, automation, technology incentives and rate of technological

change.

1) Political/Legal Environment:

75

The political environment includes various laws, government agencies that

have influence on different organizations and people in the country. The purpose of

implementing political laws is to reduce the competition to the retailers in the home

country. The changes in the government policies will have an impact on foreign

countries through FDI. The government also implements these rules in order to

enhance the interest of the society against the unfair business practices.

2) Economic Environment:

Economic conditions have an impact in the inflow of FDI as if the income

levels of the country are less, then the foreign countries does not show interest to

invest in that country. The variations in the economic conditions will pose the

challenges to the marketers to convert the challenges into opportunities in order to

invest in that country. Economy of any country is not constant; it fluctuates

according to the boom and depression of that country, whether it is a free economy

or controlled economy. The retail marketing firms are directly related to the

economic conditions. They may be directly or indirectly related. For instance the

cost of all inputs positively responds to growth of economic condition – which will

affect the output price and consequently affect the sales. The effect on consumers

also influences the marketing through changes in consumer habits. This is an indirect

influence. If there is increase in prices then the consumers will postpone their

expenditures conversely if there is decrease in prices, consumers are much less

conscious of small price differences and would buy luxurious products.

3) Social/Cultural Environment:

76

Retail marketers have a keen interest in anticipating cultural shifts in order

to spot new marketing opportunities and threats. In recent years, the concept of social

responsibility has entered into the marketing as an alternative to the marketing

concept. The implication of socially responsible marketing is that retail firms should

be responsible in eliminating socially harmful products such as cigarettes and other

harmful drugs etc. The society that people grow up in shapes their basic beliefs,

values and norms. People live in different parts of the country may have different

cultural values are analyzed by retails business people/firm. This will help them to

restructure their strategies to fulfill the needs and demands of their consumers.

4) Technological Environment:

The most important thing is technology that shapes the lives of people. Many

countries are improving their technology in order to provide good quality products

by which they can enter and capture the foreign markets through FDI.

Through technology the use of man power has been decreasing by which the

unemployment is increasing, but with the help of technology though the employment

decreases the quality products are generated.

77

FINDINGS:

Allowing international retailer such as Wal-Mart and Carrefour, which have

already set up whole sale operations in the country, to set up multi-brand retail

stores will assist in keeping commodity prices under control, will cut waste, as

big players will build backend infrastructure.

FDI in retail trade, if permitted, then more foreign companies will come and

new infrastructure will build.

Lack of infrastructure (e.g., cold storages) in the retailing chain has been one of

the big issues for years which have led the process to an incompetent market

mechanism. FDI might help India over come such issues by channelizing the

resources in the right manner.

78

Permitting FDI in retail trade will open huge job opportunities. Estimate says it

will touch not less than 80 lakh Jobs.

In India we find mostly unorganized retailing i.e., most of the shops are

unlicensed and most of them are small shops.

There is growth in the economy of the country because of flow of FDI.

By doing SWOT analysis we find that there is an increase in the growth, but

there are lack of work professionals and infrastructure and there is opportunities

for opening the business. We also find the threat of heavy cut throat

competition through which Indian retailers may not compete.

By doing PEST analysis we find that political laws are implemented in order to

control the functioning and also to improve the economy of the country. FDI

helps in improving the technology and also the living standards of the people.

We find that, because of FDI many of the Indian small retailers have lost their

business because of the supermarkets through these FDI’s.

By doing Ratio analysis of Wal-Mart, Carrefour and Tesco we find Tesco is

maintaining adequate assets and good liquidity position to meet its liabilities.

By doing Ratio analysis of Apple, Nike and Puma we find Nike is maintaining

adequate assets and good liquidity position to meet its liabilities.

79

SUGGESTIONS:

The following suggestions are made for the benefit of Kirana stores,

farmers, employees and other stakeholders of retail industry.

The traditional the Mom and Pop Kirana stores should change their appearance,

attitude and affairs. They should modernized their shops, store, more branded

goods, provide home delivery service.

Allowing FDI in multi – brand retail trade will benefit consumers and farmers,

and will also aim at bringing down inflation.

These traditional Kirana stores should form a consortium and make bulk

purchases. This measure will help to procure the goods at low cost.

80

The small farming community should undertake joint supply of fruits and

vegetables directly to the small retailers and / or customers. This will benefit all

of them.

There should be a monitoring agency established at the state level to keep

watch on the operations of foreign players in retail sector .This agency should

see that necessary investment is made by the foreign players in cold storages,

transportation & logistics. It should also ensure that the foreign player's

required quota of goods from SME sector.

The possibility of starting mails of small retailers should be explored & a group

of small retailers in a locality should came together & open such mall.

There is also a need to strengthen small farmer organizations and provide them

with technical assistance to increase productivity for the cost competitive

market, provide help to improve the quality of produce, and encourage them to

participate more actively in marketing their produce in order to capture value

added in the supply chain.

Infrastructure should be developed in order to proper utilization of resources

through FDI.

By doing SWOT analysis, the infrastructure in the country should be increased

& rules on FDI should be increased in order to reduce the competition for local

retailers.

By doing PEST analysis, the technology i.e., utilized should be increased in

order to provide good quality products. So that they can compete with

supermarkets through FDI.

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India should motivate to establish the organized retailing i.e., all the retailers

should have license of Government.

By doing Ratio analysis of Wal-Mart and Carrefour, it is suggested that these

companies should maintain the adequate assets in order to avoid liabilities.

By doing Ratio analysis of Apple and Pumait is suggested that these companies

should maintain the adequate assets in order to avoid liabilities.

CONCLUSION:

In order to liberalize Foreign Investment in India and to attract more

number of foreign Investors the Government attempts to maintain a practice to

continuously review the Foreign Investment policy. The acceptance of the

recommendations to increase the Foreign Investment Limits in the respective sectors

will not only attract Foreign Investment in India but will also provide growth

opportunities to Indian Companies who can collaborate with Foreign Companies to

start business in various new sectors.

At this crucial point where the FDI in retail sector is to be permitted or

not, it is important that the Government should take utmost care as the pillars of our

nation i.e., the agricultural and manufacturing sectors are at stake. The important

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thing here is the equal development of our nation socially and economically.

Investments in the single brand retailing are better when compared to multi brand as

the maintenance of assets is good in single brand than multi brand. This helps the

companies and also the countries that allowing FDI to increase their growth rate and

also profits.

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FDI

Documents

Transcript of FDI