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IMF World Economic Outlook - Growth projections (% change y-o-y)
2010 2011 2012 2013
World output 5.2 3.8 3.3 3.9
Advanced economies 3.2 1.6 1.2 1.9
US 3 1.8 1.8 2.2
Euro Area 1.9 1.6 -0.5 0.8
Japan 4.4 -0.9 1.7 1.6
Emerging & Developing
Economies
7.3 6.2 5.4 5.9
Developing Asia 9.5 7.9 7.3 7.8
China 10.4 9.2 8.2 8.8
India 9.9 7.4 7 7.3
ASEAN-5 6.9 4.8 5.2 5.6
Global Economic Situation
Source: IMF
IMF World Economic Outlook - World Trade Volume projections (% change y-o-y)
2010 2011 2012 2013
World Trade
Volume (goods
& services)
12.7 6.9 3.8 5.4
Imports
Advanced
economies
11.5 4.8 2 3.9
Emerging &
Developing
Economies
15 11.3 7.1 7.7
Exports
Advanced
economies
12.2 5.5 2.4 4.7
Emerging &
Developing
Economies
13.8 9 6.1 7
Global Economic Situation
Source: IMF
2007 2008 2009 2010 2011f 2012f
Portugal 68 72 83 93 106 112
Ireland 25 44 65 95 109 115
Italy 104 106 116 119 121 121
Germany 65 66 74 84 83 82
Greece 105 111 127 143 166 189
Spain 36 40 53 60 67 70
France 64 68 79 82 87 89
United Kingdom 44 52 68 76 81 85
United States 62 72 85 94 100 105
Source: IMF
Global Economic Situation
Government Gross Debt as % of GDP
2011-12 2012-13
BAU
2012-13
Pessimistic
Agriculture 3.3% 3.3%
Industry 3.5-4% 4-4.5%
Services 8.2% 8.1%
Overall 6.9% with downside
risks
7.1% Sub 7% (in event of
a stressed global
environment)
FICCI GDP Forecast
Source: FICCI Research
Contribution to GDP growth: India Vs. China
As % of GDP India (2010) China (2010)
Final consumption
expenditure
68 48
Gross capital formation 35 48
Net exports -3.2 3.9
Source: World Bank
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Gross Domestic Saving 33.5 34.6 36.9 32.2 33.7 32.3
Household savings 11.8 11.2 11.6 10.1 12.9 10
Public sector 2.4 3.6 5 0.9 0.2 1.7
Private corporate sector 7.5 7.9 9.4 7.9 8.1 7.8
Gross Capital Formation
(Investment) 34.7 35.7 38.1 34.3 36.6 35.1
Rate of Savings & Investment in 2010-11
(%age of GDP)
Source: MoSPI
Forex Reserves
(USD Million)
End of
Short-term debt
residual maturity
as % of reserves
Mar-09 37
Jun-09 33.6
Mar-10 38.6
Jun-10 42.1
Mar-11 42.3
Jun-11 43.512
Forex reserves for the week ended Jan27, 2012
294 billionSource: RBI
Foreign Investment Inflows to India
FDI & FII
Between 2006-07 and 2010-11, the total FDI inflows crossed USD 100 billion
April-August 2011 FDI $ 21 bn FII $2.2 bn
April-August 2010 $ 11.4 bn $13.3 bn
FDI is permitted in vast majority of sectors except for a short negative list
Sector Percent of FDI Cap/Equity
Agriculture & Animal Husbandry, Mining, Petroleum &
Natural gas(Exploration Activities), Airports (Green Field
and Existing Projects), Construction Development-
Townships, Housing, Built up Infrastructure, Single
Brand Product Trading
100%
Telecommunication, Banking -Private Sector, Satellites-
Establishments & Operation
74%
Defence, Print Media 26%
Prohibited sectors - Multi brand Retailing, Lottery Business, Gambling & Betting, Chit
funds, Atomic Energy, Railway Transport
Sectoral FDI Caps
Sector wise distribution of FDI Equity Inflows
(Cumulative Percentage, between April 2000 to Feb 2011)
Indian Retail- Current Scenario & Future Projections
A Snapshot
2011 2016 2021 2026
India’ GDP (USD Bn) 1500 3017 4859 7825
Private Consumption (USD Bn) 870 1750 2818 4539
Share of Retail Consumption (USD Bn) 479 962 1550 2496
Modern Retail (USD Bn) 26 86 186 314
Share of Modern Retail to Total Retail (%) 5.4% 8.9% 12% 12.6%
Increase in Modern Retail (USD Bn) 60 100 128
Traditional Retail (USD Bn) 453 876 1364 2182
Share of Traditional Retail to Total Retail (%) 94.6% 91.1% 88% 87.4%
Traditional Retail Stores (Total, Million) 16 21 27 35
Annual Sales/Store (USD) 28281 41554 50557 61511
Increase in Traditional Retail Stores (Million) 5 6 8
Source: Technopak research 2011
Emerging Trends in Retail
• Entry of big corporate houses into the sector viz Reliance, Tata, Aditya Birla
to name few
• Demand of branded goods on a large scale
• Focus shifting from low price to convenience, value and a superior shopping
experience
• Varied window display- Focus on visual merchandising
• E-retailers increasing the presence
Why Global Retailers Look Upto India
• Huge Market Size
• Increasing purchasing power - Consumer spending power increased by
75% in last 3 years.
• Evolution of new consumption class: Consumer class expected to grow
from approx 50 million at present to 583 million by 2025.
• Tax breaks, Import duty exemptions, land & power subsidies and other
incentives
• Affordable labor
• Rich and diversified natural resources
Entry Options for Foreign Players Prior to FDI policy
• Franchise Agreements: Eg: Pizza Hut, Lacoste, Mango, Nike etc. have entered
Indian marketplace by this route
• Strategic Licensing Agreements: SPAR entered into a similar agreement with
Radhakrishna Foodlands Pvt. Ltd
• Cash And Carry Wholesale Trading: Metro AG of Germany
• Manufacturing and Wholly Owned Subsidiaries: The foreign brands such as
Nike, Reebok, Adidas, etc. have wholly-owned subsidiaries in manufacturing
FDI policy in Retail - Milestones
No FDI
100% FDI in cash & carry with prior Government approval
100% in Cash& carry under automatic route; 51% in single brand with prior Govt approval
Years
Government mulled over the idea of allowing FDI in multi-brand retail
1997 2006 2008 2011 - 12
Government proposed 51% FDI in multi-brand retail and notified increase in FDI in single brand to 100% with prior Govt approval
Existing FDI Policy - Summary
• FDI, up to 100%, permitted only in single-brand retail trading, with
Government approval, subject to conditions
• FDI not permitted in Multi-Brand Retail Trading (MBRT)
• FDI, up to 100%, permitted in cash & carry wholesale trading, under the
automatic route
FDI in Single Brand Retail
• FDI, up to 100%, permitted only in single-brand retail trading, with Government
approval, subject to conditions
• Conditions:
- Products should be sold under the same brand internationally
- ‘Single Brand’ would cover only products which are branded during manufacturing
- The foreign investor should be the owner of the brand
- Proposals involving FDI beyond 51 per cent would need to ensure mandatory
sourcing of at least 30 per cent of the value of products sold, to be done from Indian
‘small industries/village and cottage industries, artisans and craftsmen
FDI in Multi Brand Retail – Proposed Conditions
• FDI up to 51% through government approval mode
• Permitted only in cities with a population of more than 10 lakhs as per 2011 census
• Minimum investment of US $ 100 million of which at least 50% to be invested in
backend infrastructure, which would include capital expenditure on the entire
spectrum of related activities
• Mandatory sourcing of a minimum of 30% from Indian small industries with a total
investment in plant and machinery not exceeding US $ one million
• Government to have first right of procurement of agricultural products
Arguments for FDI in Multi-Brand Retail
• Need of Investments in backend infrastructure:
Rationale:
- High rates of food inflation in India
- Estimated losses due to inadequate handling facilities:
food-grains: 6 to 7%
valuable spices:10%
fruits and vegetables: 30 to 40%
- India, second largest producer of fruits and vegetables (214 million MT) , however very limited integrated cold-chain infrastructure- only 5386 stand-alone cold storages
- Estimated investment need for post harvest infrastructure for agricultural produce:
Rs 64,312 crores, during the XI Five Year Plan (2007-2012)-Planning Commission
Nearly 50% would need to come from the private sector
Source: DIPP, Ministry of Commerce
• Insignificant FDI inflow in cold-chains, though there is no restriction on FDI:
in the absence of a policy framework permitting FDI in retailing
• Indian farmers realize only one-third of the total price paid by the final
consumer:
as against two-thirds by farmers in nations with a higher share of organized
retail
• Domination of intermediaries in the value chain:
leading to non-transparent pricing
• Absence of a ‘farm-to-fork’ retail supply system:
Ultimate customers pay a premium for shortages and a charge for wastages
• Not possible for public agencies alone to address investment gaps
LEVERAGING FDI IN MULTI-BRAND RETAIL COULD BE ONE WAY OF ADDRESSING
ALL THESE ISSUES
Other Arguments
• Better choices of products for consumers
• Transfer of new and innovative retail technologies by foreign retailers -
Indian companies can access global best management practices, designs and
technological knowhow.
• Improvement in quality standards - Inflow of FDI in retail sector to pull up the
quality standards and cost-competitiveness of Indian producers in all the
segments.
• More employment opportunities
Concerns Expressed with Regard to FDI in Multi-Brand
Retail
• Indian organized retail sector is underdeveloped and should be allowed to
consolidate first
• Could lead to unfair competition and result in large scale exit of domestic
retailers
• The foreign retailers might use unethical methods to dominate the market –
Predatory pricing etc.
Implications of Recent Policy Change of FDI in
Single Brand Retail
• FDI in single brand retail increased upto 100% from 51% with prior Government
approval
Implications for India:
Consumers
• Gain from improvement in product choices and quality
• Better quality produce, not only for domestic consumers, but also for exports.
Small retailers
• Will incentivize existing traders and retail outlets to upgrade and become more
efficient
• Small retailers would continue to be able to source high quality produce, at
significantly lower prices, from wholesale cash and carry points
Small manufacturers
• Small manufacturers will benefit from the safeguard pertaining to a
minimum of 30% procurement from Indian small industries.
• Would provide the necessary scales to expand capacities in manufacturing,
thereby creating more employment and also strengthening the
manufacturing base of the country.
• Derive the benefits of technology upgradation, leading to increased
productivity and local value-addition.
• Will also enable the small enterprises to get integrated with global retail
chains, thereby enhancing their capacity to export products from India.
Future of FDI in Multi- Brand Retail
FDI in Multi- Brand Retail – Few Roadblocks but ‘Affirmative’
• Absence of political consensus led the Government to hold back
• FICCI with Government working towards garnering support and broad consensus
• FICCI Submitted representations to the Government on the positive impact of FDI in
Multi-Brand Retail on various sectors
• FICCI organized consultations with stakeholders like Farmer associations to gather views
on the subject
• FICCI Retail committee composes of all the leading retailers (physical & online formats)
with 30 member companies actively engaged in various regulations and norms:
a) Redrafting of ‘Shops & establishment act’
b) Draft norms for food safety in retail
c) Development of ‘Trustmark’ for online retailers signifying robust consumer care
processes
• FICCI to organize a mega event on Retail in June 2012 in New Delhi
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