India Retail Reforms: A saga of uncertainities
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INDIA RETAIL REFORMS A saga of uncertainties…
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Transcript of India Retail Reforms: A saga of uncertainities
INDIA RETAIL REFORMS
A saga of uncertainties…
Current FDI Policy
India’s current policy does not allow FDI in retail trade except for “Single Brand Retail”
Current FDI Policy
India’s current policy does not allow FDI in retail trade except for “Single Brand Retail”
FDI up to 51% is allowed in Single Brand Retail with prior government approval
Current FDI Policy
India’s current policy does not allow FDI in retail trade except for “Single Brand Retail”
FDI up to 51% is allowed in Single Brand Retail with prior government approval
100% FDI is allowed in wholesale cash-and-carry format
Current FDI Policy
India’s current policy does not allow FDI in retail trade except for “Single Brand Retail”
FDI up to 51% is allowed in Single Brand Retail with prior government approval
100% FDI is allowed in wholesale cash-and-carry format
Franchisee arrangements are allowed in retail format
Current FDI Policy
Particulars FDI % Route Conditions
Retail Trading (except single brand)
Nil
Single Brand product retailing
51% FIPB* Products to be sold of a single brand only Products should be sold under the same brand
internationally Single brand product retailing to cover only products
which are branded during manufacturing
Wholesale / cash and carry trading
100% Automatic
Trading for exports 100% Automatic
Trading of items sourced from small scale sector
100% FIPB Subject to the condition that the test marketing approval will be for a period of two years and investment in setting up manufacturing facilities commences simultaneously with test marketing
Test marketing of such items for which a company has approval for manufacture
100% FIPB
*FIPB: Foreign Investment Promotion Board
Current FDI Policy
International retailers are fast expanding their business in India to tap the immense consumer base
Current FDI Policy
International retailers are fast expanding their business in India to tap the immense consumer base
Reebok has set up its largest store in the world in Hyderabad
Current FDI Policy
International retailers are fast expanding their business in India to tap the immense consumer base
Reebok has set up its largest store in the world in Hyderabad
Tommy Hilfiger and Levis have over 20,000 square feet of retail space and stand-alone stores across major metros
Current FDI Policy
International retailers are fast expanding their business in India to tap the immense consumer base
Reebok has set up its largest store in the world in Hyderabad
Tommy Hilfiger and Levis have over 20,000 square feet of retail space and stand-alone stores across major metros
Fast-food giants Pizza Hut, McDonalds, Subway etc. are expanding at a fast pace with their expansion into the Tier II and Tier III cities
Retail Entry OptionsStrategic License
Agreements
• Foreign company enter into a licensing agreement with a domestic retailer or partnering with Indian promoter owned companies
Cash & Carry Wholesale Retailing
• 100 % FDI allowed in wholesale trading which involves building a large distribution network
Distribution
• An international company can set up a distribution office in India and supply products to the local retailers. Franchise outlets can also be set up in this route
Franchisee Route
• The entry route which includes the master franchisee route is widely used, with a number of international brands to set up presence in India
Manufacturing
• A company can setup manufacturing units in India along with standalone retailing outlets
Joint Venture
• International firms can enter into agreements with domestic players and set-up base in India. Share of MNCs is restricted to 49% in this route
Retail Entry OptionsStrategic License
Agreements
• Foreign company enter into a licensing agreement with a domestic retailer or partnering with Indian promoter owned companies
Cash & Carry Wholesale Retailing
• 100 % FDI allowed in wholesale trading which involves building a large distribution network
Distribution
• An international company can set up a distribution office in India and supply products to the local retailers. Franchise outlets can also be set up in this route
Franchisee Route
• The entry route which includes the master franchisee route is widely used, with a number of international brands to set up presence in India
Manufacturing
• A company can setup manufacturing units in India along with standalone retailing outlets
Joint Venture
• International firms can enter into agreements with domestic players and set-up base in India. Share of MNCs is restricted to 49% in this route
Retail Entry OptionsStrategic License
Agreements
• Foreign company enter into a licensing agreement with a domestic retailer or partnering with Indian promoter owned companies
Cash & Carry Wholesale Retailing
• 100 % FDI allowed in wholesale trading which involves building a large distribution network
Distribution
• An international company can set up a distribution office in India and supply products to the local retailers. Franchise outlets can also be set up in this route
Franchisee Route
• The entry route which includes the master franchisee route is widely used, with a number of international brands to set up presence in India
Manufacturing
• A company can setup manufacturing units in India along with standalone retailing outlets
Joint Venture
• International firms can enter into agreements with domestic players and set-up base in India. Share of MNCs is restricted to 49% in this route
Retail Entry OptionsStrategic License
Agreements
• Foreign company enter into a licensing agreement with a domestic retailer or partnering with Indian promoter owned companies
Cash & Carry Wholesale Retailing
• 100 % FDI allowed in wholesale trading which involves building a large distribution network
Distribution
• An international company can set up a distribution office in India and supply products to the local retailers. Franchise outlets can also be set up in this route
Franchisee Route
• The entry route which includes the master franchisee route is widely used, with a number of international brands to set up presence in India
Manufacturing
• A company can setup manufacturing units in India along with standalone retailing outlets
Joint Venture
• International firms can enter into agreements with domestic players and set-up base in India. Share of MNCs is restricted to 49% in this route
Retail Hurdles
Retail Trade Estimated to Grow 13% annually
US$ 322 bn
US$ 590 bn
2006-07 2011-2012
Retail Hurdles
Retail Trade Estimated to Grow 13% annually
Share of organised retail growing very fast
US$ 322 bn
US$ 590 bn
2006-07 2011-2012
Retail Hurdles
Retail Trade Estimated to Grow 13% annually
Share of organised retail growing very fast
An attractive destination for global retailers
US$ 322 bn
US$ 590 bn
2006-07 2011-2012
Retail Hurdles
Retail Trade Estimated to Grow 13% annually
Share of organised retail growing very fast
An attractive destination for global retailers
Democratic country with high growth rate
US$ 322 bn
US$ 590 bn
2006-07 2011-2012
Retail Hurdles
Retail Trade Estimated to Grow 13% annually
Share of organised retail growing very fast
An attractive destination for global retailers
Democratic country with high growth rate
Youth population with growing disposable income
US$ 322 bn
US$ 590 bn
2006-07 2011-2012
Retail Hurdles
Retail Trade Estimated to Grow 13% annually
Share of organised retail growing very fast
An attractive destination for global retailers
Democratic country with high growth rate
Youth population with growing disposable income
Existing investment cap an entry hurdle
US$ 322 bn
US$ 590 bn
2006-07 2011-2012
Retail Reforms: Dilemma
Second coming of UPA government was seen as a positive sign
Retail Reforms: Dilemma
Second coming of UPA government was seen as a positive sign
The Congress party, reasonably stronger, after the elections, to dictate its agenda can push further the retail reforms agenda it had persuaded
Retail Reforms: Dilemma
Second coming of UPA government was seen as a positive sign
The Congress party, reasonably stronger, after the elections, to dictate its agenda can push further the retail reforms agenda it had persuaded
Government’s recent views presents a different picture
Retail Reforms: Dilemma
Second coming of UPA government was seen as a positive sign
The Congress party, reasonably stronger, after the elections, to dictate its agenda can push further the retail reforms agenda it had persuaded
Government’s recent views presents a different picture
“The government will continue to deliberate on the proposals for opening of sectors like multi brand retail. These sectors require wider consultation within the Cabinet.”
Anand Sharma, Union Commerce Minister
Retail Reforms: Dilemma
June ‘09 - A parliamentary panel asks government to ban foreign firms and big domestic corporates from retailing groceries, fruits and vegetables, and stop issuing licences for wholesale operations*
* http://www.livemint.com/2009/06/08185249/Parliamentary-panel-recommends.html
Retail Reforms: Dilemma
June ‘09 - A parliamentary panel asks government to ban foreign firms and big domestic corporates from retailing groceries, fruits and vegetables, and stop issuing licences for wholesale operations*
July ’09 - The Economic Survey 2009-10 released by the Ministry of Finance generated some hopes by proposing opening up of FDI in multi-format retail, starting with food retailing.
* http://www.livemint.com/2009/06/08185249/Parliamentary-panel-recommends.html** http://www.thehindu.com/2009/07/03/stories/2009070358300100.htm
Retail Reforms: Dilemma
July ‘09 - On a written reply to the Lok Sabha (the lower house of parliament) on July 13, 2009 the Minister of State for Commerce announced that the government has no proposal to change the current policy on retail trade *
* http://www.livemint.com/2009/07/13161538/No-plans-to-change-retail-FDI.html
"Government also fully recognises the need to ensure that small retailers are not adversely affected by the growing organised retail and that there is no adverse effect on employment.”
Jyotiraditya Scindia, the Minister of State for Commerce and Industry
Retail Reforms: Dilemma
December ‘09 - government has released a draft document aimed at simplifying overseas investments in India called “FDI Regulatory Framework. The new policy framework clarifies that while FDI is not allowed in retail, FII is permitted ” *
* http://www.livemint.com/2009/12/24230435/India-to-review-FDI-rules-ever.html
"This document keeps retail out of the prohibited sector list of foreign investment while retaining it in the prohibited sector list of FDI.”
What scares policymakers?
Retail business is the second largest employer after agriculture
* http://finance.yahoo.com/news/Is-WalMart-Killing-Your-inc-1332006942.html?x=0&.v=56
What scares policymakers?
Retail business is the second largest employer after agriculture
The government does not want to antagonise the labour-intensive sector
* http://finance.yahoo.com/news/Is-WalMart-Killing-Your-inc-1332006942.html?x=0&.v=56
What scares policymakers?
Retail business is the second largest employer after agriculture
The government does not want to antagonise the labour-intensive sector
Numerous studies indicated, entry of a retailing gians like Wal-Mart does significantly impact sales at other local establishments*
* http://finance.yahoo.com/news/Is-WalMart-Killing-Your-inc-1332006942.html?x=0&.v=56
What scares policymakers?
Retail business is the second largest employer after agriculture
The government does not want to antagonise the labour-intensive sector
Numerous studies indicated, entry of a retailing gians like Wal-Mart does significantly impact sales at other local establishments*
The government seeks to safeguard small retailers from adverse impact of growing organised retail
* http://finance.yahoo.com/news/Is-WalMart-Killing-Your-inc-1332006942.html?x=0&.v=56
