Impact of Foreign Direct Investment on Employment and Growth:

A Brief Study on the Indian Retail Sector

Abstract: Foreign Direct Investment (FDI) plays an important role in the economic growth of the emerging market economies like India. FDI in the retail sector can expand markets through adoption of advanced supply chain and benefit consumers and suppliers. This can result in employment at the aggregate level. The present study analyses the trend of Foreign Direct Investment in India so far, studies the Indian Retail scenario and attempts to understand the impact of FDI on growth and employment in India.

Keywords: FDI in India, retail sector growth, impact on employment, challenges of the organized retail sector.

Introduction:

Foreign investment is investment in an enterprise by a Non-Resident irrespective of whether

this involves new equity capital or re-investment of earnings. Foreign investment is of two

kinds – (i) Foreign Direct Investment (FDI) and (ii) Foreign Portfolio Investment.(FPI).

Foreign Direct Investment, or FDI, involves foreign investors taking a controlling and

permanent stake in productive enterprises such as factories, land and organizations. Foreign

direct investments have become the major economic driver of globalization, accounting for

over half of all cross-border investments. It is an investment involving the setting up of new

overseas operation (Greenfield Investment –creation of new production facility abroad ) or

acquisition of controlling interests in an already existing foreign company through the

purchase of shares. It brings private funds from overseas into products or services.

Growth Pattern of FDI in India

Foreign investments provide a great impetus for growth to Indian economy. The

continuous upsurge in foreign direct investments (FDI), allowed across the industries and

sectors, has proven that foreign investors have faith in the resilience of Indian markets. A wise

Page | 1

policy regime and positive business environment have also played catalytic role to ensure the

continuous inflow of foreign capital in the Indian markets

Table 1:FDI inflows in India(From April 2000 to October 2013)

Financial Year FDI inflows in India (in US $ Million)

%age growth over previous year (in US$ terms)

2000-01 4,029 -2001-02 6,130 + 52 %2002-03 5,035 -18%2003-04 4,322 - 14%2004-05 6,051 + 40%2005-06 8,961 + 48%2006-07 22,826 +146%2007-08 34,843 +53%2008-09 41,873 +20%2009-10 37,745 -10%2010-11 34,847 -8%2011-12 46,556 +34%2012-13 36,860 -21%2013-14 18,934 -Source: Department of Industrial Policy and Promotion. Government of India. Ministry of Commerce

Fig 1:FDI inflows in India (April 2000 to October 2013)

2000-2001

2002-2003

2004-2005

2006-2007

2008-2009

2010-2011

2012-20130

5000100001500020000250003000035000400004500050000

FDI flows in India (in US $ Million)

FDI flows in India (in US $ Mil-lion)

Axis Title

Page | 2

Table-1: Explains that FDI inflow from the year 2000-01 to 2013-14 in India.The data of

Department of Industrial Policy and Promotion (DIPP) illustrates that FDI was US$ 4029 million

in the year 2000-01 that increased to US$ 6130 million with growth rate of 52 % in the year

2001-02.With the investment amounted to US$ 5035 million and US$ 4322 million with

negative growth rate of 18 % and 14 % respectively as it was noticed the downward trend in

years i.e. 2002-03 and 2003-04. The reason behind the negativity was the unfortunate 9/11 attack

in US leading to effect on almost all the countries worldwide. In most of the economies

including India the stock market went into bearish mode. Then the recovery in stock market

began from 2004-2005 and 2005-2006 with increasing rate of 40% and 48% and investment

amounted to US$ 6051 million and US$ 8961 million respectively. In the year 2006-2007, FDI

registered dynamic growth rate of 146 % with investment amounting to US $ 22826 million.

During that period tremendous growth can be ascertained in Indian economy. This trend in the

rate of growth goes continued with investment amounting to US$ 34843 with growth rate of 53%

in the year 2007-2008. In the succeeding year 2008-2009, the growth rate declined to the level of

20%. That is all because of global financial recession but it is satisfactory for India as compare to

other countries at least it is positive. Very Strong economic fundamentals of Indian economy and

controlled privatization are able to maintain positive growth rate. The impact of financial crises

adversely affect the Indian economy as it is noticed that in the year 2009-2010 and 2010-2011,

the growth rate goes negative at -10% and -08% with investment amount of US $ 37745million

and US $ 34847 million respectively. But in the year 2011-12 it has seen again bounced back

with a growth rate 34% and with investment amount of US $ 46556 million. FDI inflows during

the financial year 2012-13 declined to a two year low, it had a negative growth rate 21% due to

Page | 3

recession in India, economic slowdown due to the devaluation of Indian currency and global

economic scenario.

Sector Wise FDI inflow in India

Sector-wise classification of FDI is essential to understand better structure and direction of

foreign investment in the country. Service sector has been the highest contributor of FDI inflow

to India (19%) followed by construction activities housing and real estate (11%),

telecommunications, computer software and hardware and drugs and pharmaceuticals each

contributing (6%).

Table-2: Sector Wise FDI Inflow In India (From April 2000 To October 2013)

Sector FDI inflows in India % share of sectorsService Sectors 38,595 19%Construction, Developments, townships, housing built up, infrastructure

22,779 11%

Telecommunications 12,889 6%Computer software and hardware 12,179 6%Drugs and Pharmaceuticals 11,400 6%Chemicals(other than Fertilizers) 9,314 5%Automobile Industries 9,079 4%Power 8,155 4%Metallurgical Industries 7,752 4%Hotel and Tourism 6,800 3%Other Sectors 65,384 32%

Source: Department of Industrial Policy and Promotion. Government of India. Ministry of Commerce

Page | 4

Fig 2: Sector wise FDI inflows in India (April 2000 to October 2013)

19%

11%

6%

6%6%5%4%

4%4%

3%

32%

Fdi Inflows in India( From April 2000 to October 2013)Service SectorConstructions Developments Townships,Housing Built up InfrastructureTelecomunicationsComputer Software and HarwareDrugs and PharmaceuticalsChemical( other than Fertilisers)Automobile IndustriesPowerMetallurgical IndustriesHotel and TourismOther Sectors

Table-2: Explains that the Sector wise Analysis of FDI in India reveals that maximum FDI has

attracted in the service sector followed by the real estate, telecommunications, information

technology, drugs and pharmaceuticals and many others. Chemical other than fertilizers,

Automobile Industry, power and metallurgical industries have average investment in terms of

foreign direct investment. The cumulative FDI inflows reveal that service sector attracts

maximum FDI Inflows followed by the construction development in India. These both sectors

attract more than 30% of the total FDI Inflows in India. The Real Estate, Housing and

Construction industry are among the new attracting large share of FDI in India. Thus the Sector

wise Inflows of FDI in India shows varying trends but act as a catalyst for growth, development

of Indian Industries. In this paper we analyze the growth of retail sector which is one of uprising

industries in India it is one of the largest private industry in India and second largest employer

Page | 5

after agriculture. FDI inflows in single brand retail amounted 97.60(In US $ Million) from April

2000 to November 2013 which is only 0.05% of the total FDI inflows in India.

Objectives

The present study has been undertaken to study the role of FDI in retail sector. Thus, the

objectives of the study are as follows:

a) To review FDI policy in Indian Retail sector.

b) Impact of FDI in the Indian Retail market, its impact in growth and employment.

The paper is divided into following sections; section 2 gives brief review of literature followed

by the data used in the analysis in Section II. Section III gives the details of analysis of FDI in

Indian Retail Sector. Followed by conclusion and recommendations entailed in the Section VI.

I. Literature Review:

FDI and retailing are the current burning issues and several researches were conducted in

this area. It is an interesting subject for research scholars and policy makers. Studies suggests

that India’s success owes largely to the cumulative investments made by the government over the

past five years in building what is now termed as national innovation systems including higher

education and centres of excellence, among other initiatives. In light of all this ,it is of critical

importance for the host governments to preserve policy flexibility to pursue selective policy or

impose performance requirements on FDI if necessary. Some of the performance requirements

have already been outlawed by the World Trade Organization(WTO)’s Trade related Investment

Measures(TRIMs) Agreement as discussed by ,Nagesh Kumar 2010 in his paper.

Page | 6

According to A T Kearney Global Retail Development Index 2013 India’s growth fell

down from a 10year average of 7.8%.Same stores sales volume growth slowed in 2012 across

retail particularly for lifestyle and value-based formats. India fell nine spots in the GRDI to 14 th

its previous low ranking was 6th place in the inaugural index in 2002 and it was 1st as recently as

2009.

Nizamuddin,2013 discusses the need of opening up the route of FDI in multi brand retail

sector, the main aim of his study was to analyse the role of FDI in employment generation in

Indian retail sector he had assumed FDI as an independent variable whereas employment as

dependent variable. By using time series data from 2001-02 to 2009-10 and applying ordinary

least square (OLS) method he found that FDI will have a negative impact on employment

generation in retail sector in India , the result showed that 10% increase in FDI inflow in retail

sector will decrease approximately 1% jobs. His study was subjected to limitations as it could

not be generalised for all developing countries because all countries have their own local

changing aspects.

Sarkar, 2013 has argued both for and against for allowing FDI in retail. He explains the

trade off in the long and the short run. He analysed that in the short run, the net outcome on

aggregate employment is still likely to be negative, or ambiguous. But in the longer run, as

profits are reinvested and organised retail keeps on expanding, and as newer avenues open up for

the underprivileged, the policy would pay off which had happened during the industrial

revolution which had also happened more recently when computers came into our lives in a big

way. He emphasized that government should take up protective measures like the public

distribution system to protect the rural poor from a possible rise in the prices of grains and

Page | 7

vegetables, tariffs and quantitative restrictions to counterbalance the effects of more easy

international trade through multinational retailers.

Rao and Prashant, 2012 in their paper quarreled that the potential benefits from allowing

large retailers to enter the Indian retail market may balance the costs, they also tried to outline

impact on country and State-wise Number of Workers Engaged in Retail Trade by Type of

Enterprises in India. Studies suggested that FDI in organized retail begin inflation in US,

particularly with wholesale prices. It is also expected that technical know-how from foreign

firms, such as warehousing technologies and distribution systems, for example, will lend itself to

improving the supply chain in India, especially for agricultural produce. India’s experience

between 1990-2010, particularly in the telecommunications and IT industries, reveals the various

benefits of opening the door to large-scale investments in these sectors

Rajib Bhattacharya, 2012 investigates the controversial views of the various stakeholders

through various case studies comparing retail scenario in China, PepsiCo India Helping Farmers

Improve Yield and Income ,Bharti Walmart initiative through Direct Farm Project ,etc and

evaluate the likely challenges and threats of FDI in both single and multi- brand retail in India.

II. Data and Methodology:

The data on FDI in Indian Retail sector is very scarce. The information collected is from

secondary sources like online data bases, research papers and the websites of Department of

Industrial Policy and Promotion(G.O.I). The data for retail in this paper is dependent on the

estimates of secondary data collected from Delloite , IBEF and Dart Consulting. The collected

data has been presented by simple statistical tools i.e tables, bar diagrams and pie charts.

Page | 8

III. Analytical Framework:

FDI in Retail Sector in India

Retail sector is one of the biggest supports of the Indian economy providing 9 %

employment and accounts for 15 percent of its GDP. The Indian retail industry is estimated to be

worth around US$ 500 billion currently. Home to one of the top five retail markets in the world,

The industry is experiencing exponential growth, with retail development taking place not just in

major cities and metros, but also in Tier-II and Tier-III cities1⁰.India offers immense scope of

growth and opportunities in this arena, it is one of the fastest emerging retail markets in the

world, with 1.2 billion people.

Retailing is making the final product directly available to the final consumers of the

product or a sale to the ultimate consumer. Retail can also be defined as a link or interface

between bulk producers and individual consumers who purchase for final consumption. It is the

last step in the process of distribution of merchandise.

Manufacturer → Agent → Wholesaler → Retailer → Consumer

The retail industry is mainly divided into two parts which are as follows:

1. The Organized retailing - Trading activities which are undertaken by licensed retailers,

i.e, those who are registered for sales tax, income tax, etc. are referred to as organized

retailing. Corporate backed hypermarkets and retail chains, and also the privately owned

large retail businesses are included in this

A. FDI in Single Brand Retailing

1 ⁰(Tier 1 cities includes Delhi NCR, Mumbai, Bangalore, Chennai & Kolkata ,Tier 2 cities includes Hyderabad, Pune, Ahmedabad , Chandigarh, Jaipur & Luckhnow, Tier 3 cities includes cities like Agra, Allahabad, Ludhiana, Kanpur etc. )

Page | 9

It implies that foreign companies would be allowed to sell goods internationally

under a single brand, viz., Reebok, Nokia, Adidas etc. 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.

B. FDI in Multi Brand Retailing

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(i), Carrefour(ii) and Tesco(iii)2

can open up stores offering a range of household items and grocery directly to customers.

2. Unorganized Retailing - Traditional formats of low cost retailing, for example the local kirana

shops,general stores, paan/ beedi shops, convenience stores,etc is known as unorganized

retailing.

As of now, almost 90 per cent of the Indian retail sector is controlled by tiny family-run

shops i.e. the unorganized segment. Thus, organized retailers have a lot of room for further

penetration in this flourishing economy. In 2010, larger format convenience stores and

supermarkets accounted for about 4 per cent of the industry, and these were present only in large

2 (i),(ii),(iii) See Appendix

Page | 10

urban centers. Now the trend is changing, and such concepts are mushrooming in smaller cities

and towns as well. Organized retail segment is expanding at 20 per cent a year, driven by the

emergence of shopping centers and malls and growing middle class. India allowed overseas

investment in its supermarket sector in September 2012. Since then, the retail landscape is

witnessing a flurry of foreign investments.

The organized retail market is growing at a higher rate compared to the un-organized

market. The organized retail industry is just 10% of the total retail industry in India currently ,

and it is expected to reach 15% of the total market by 2015. Fig 3 shown below depicts this

scenario.

Fig 3: Growth of Organized and Unorganized Retailing in India

2010 2011 2012 2013 2014 20150%

20%

40%

60%

80%

100%

5% 6% 8% 10% 12% 15%

95% 94% 92% 90% 88% 85%

Organized Vs Unorganized Retailing

% share of Organized Retailing % share of Unorganized RetailingYear

Source: Online survey- Dart Consulting.

Page | 11

Objective of permitting FDI in Indian Retail Sector

The Government of India ( Central Government ) is opening the retail sector to foreign

direct investment (FDI ) to provide a boost to the retail trade, which has the potential of being a

major growth engine for the country’s economy. FDI in single brand retail trade primarily caters

to the needs of brand conscious consumers with a pre-disposition for high-end products and

focuses on front–end retailing. FDI in multi brand retail trade, on the other hand, will serve the

needs of vast and varied consumers across India and would bring the investment and

international expertise necessary to develop the back-end infrastructure and supply chain

management.

Policy Framework of FDI in Retail

Wholesale Trading : In the year 1997, the Central Government permitted 100% FDI under the

approval route in ‘Cash & Carry Wholesale Trading / Wholesale Trading’ which was

subsequently changed to 100% FDI under the automatic route(31). The policy defined ‘wholesale

trading’ as sales for the purpose of trade, business and profession as opposed to sales for the

purpose of personal consumption (2)

Single Brand Retail Trading (SBRT ): In the year 2006, the Central Government permitted upto

51% FDI under the approval route in SBRT which was subsequently in the year 2012 changed to

51% FDI under the automatic route. Further in the year 2012, the Central Government, permitted

upto 100% FDI under the approval route in SBRT subject to certain conditions(3).

3 (1) Press Note No. 2 (1997 Series); Press Note No. 4 (2006 Series) issued by Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry. (2) Carrefour and Wal-Mart commenced operations in India under the ‘Cash & Carry/Wholesale Trading’. (3) Press Note No. 3 & 4 (2006 Series), Press Note 1 & 4 (2012 Series) issued by DIPP.

Page | 12

As of September 2013, FDI policy on SBRT was that FDI upto 51% is under automatic route,

beyond 51% and upto 100% requires prior approval of the Central Government(4).Products to be

sold should be of ‘Single Brand’ only and should be branded during manufacturing and must be

under the same brand international. Foreign investor in respect of a specific brand can either be

the owner of the brand or a licensee or franchisee. Entities with FDI beyond 51% need to

mandatorily source at least 30% of the value of goods purchased from India, preferably from

micro small and medium enterprises, village and cottage industries and artisans, craftsmen.

Retail trading by means of e-commerce by companies with FDI is prohibited.

Multi Brand Retail Trading (MBRT ): Keeping up with its international commitments(45),

September 2012, the Central Government permitted upto 51% FDI in MBRT under the approval

route (6). It was expected that billions in dollars and euros would flow into India through this

‘major’ reform’, the Central Government only received requests for clarifications on various

aspects and has recently issued clarifications and amendments(7) .As of September 2013, the

FDI policy on MBRT was that FDI upto 51% requires prior approval of Central Government(8).

Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry,

fishery and meat products, may be unbranded. Minimum amount of foreign investment has to be

US$ 100 million.

4(4) A foreign entity desiring to enter SBRT in India with FDI beyond 51% and up to 100% will have to make an application stating its proposal to the Foreign Investment Promotion Board (FIPB), Ministry of Finance ,(5) India is a member of the World Trade Organisation and signatory of GATT 1994 and TRIMs. (6) Press Note No. 5 (2012 Series) issued by DIPP.(7) Clarifications issued by DIPP in (June 2013 series); Press Note No. 5 (2013 Series) issued by DIPP. (8)A foreign entity desiring to enter the MBRT in India with FDI upto 51% will have to make an application stating its proposal to the FIPB

Page | 13

At least 50% of the total foreign investment brought in the first tranche of US$ 100 million is to

be invested in back-end infrastructure(95) within 3 years excluding that on front-end unit.

Mandatory sourcing of at least 30% of manufactured/processed product from micro small and

medium enterprises (MSME).(10),farmers co-operative and agricultural cooperatives. Retail

stores may be set up only in cities with a population more than 10 lakhs and cover an area of

10km around cities it should be set up in those States/Union Territories which have agreed in

future to allow FDI in MBRT under this policy .The list of States/Union Territories which have

conveyed their agreement are given below in the note.(11)

Many international European and American brands like Marks & Spencer’s, Zara, Canali ,

Massimo Dutti , Louis Vuitton , Damiani , Promod , Brooks Brother have entered Indian retail

‘single brand product’ market through the joint venture route.Post the amended policy permitting

upto 100% FDI in SBRT, brands like Celio International, Fossil, Le Crueset have set up

operations in India through wholly owned subsidiaries after obtaining Central Government

approval. Brands like IKEA are expected to foray soon into the Indian single brand retail

market.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.

5 .(9) Press Note no 5(2013 Series) issued by DIPP. (10) MSME are enterprises which have a total investment in plant and machinery not exceeding US $ 2 million.(11) DIPP Consolidated FDI policy effective from April 2013 [1.Andhra Pradesh 2. Assam 3. Delhi 4. Haryana 5. Jammu & Kashmir 6. Maharashtra 7. Manipur 8. Rajasthan 9. Uttarakhand 10. Daman & Diu and Dadra and Nagar Haveli (Union Territories)]

Page | 14

The Indian Scenario of the Retail sector

Growth in the Retail Market:-

The recent wave of reforms by the Government to liberalise FDI in various sectors is

bringing a new zeal to the investment climate in India. One of the most debated reforms is the

policy for allowing 51 per cent FDI in multi-brand retail.

India ranked fourth in Global Retail Development Index and ranked sixth in Global

Apparel Index in 2011. This robust growth picture also is painted by AT Kearney, whose 2012

Global Retail Development Index (GRDI) puts India as the fifth most favourable destination for

global retailers. In 2011, India’s retail industry accounted for 22% of India’s GDP and employed

close to 9.4% of the labour force .Rapid emergence of organised retail outlets like mega malls

and hypermarkets are augmenting the growth of organised retail in the country.

The retail sector in India is emerging as one of the largest sectors in the economy

marking a compound annual growth rate (CAGR) of 5.9 per cent since 1998 as depicted in the

following table.

Table 3: Growth of the Retail Market Size over the past few years

Year FDI inflows (in USD billion)1998 2012000 2042002 2382004 2782006 3212008 3682010 4252012 450

Source: Indian Brand Equity Foundation (March 2013).

Page | 15

Fig 4: Growth of the Retail Market over the past few years

1998 2000 2002 2004 2006 2008 2010 20120

100

200

300

400

500

201 204238

278321

368425 450

Market size over the last few years

FDI inflows (in USD billion)

The total market size of the sector was expected to grow from US$ 450 billion in

2012.The Indian retail industry has expanded by 10.6 per cent between 2010 and 2012 and is

expected to increase to US$ 750-850 billion by 2015, according to a report by Deloitte. The

following table(Table 4) shows that Food and Grocery is the largest category within the retail

sector with 60 per cent share followed by Apparel and Mobile segment.

Table 4: Retail Market in India

Retail Segments % share in the total sectorFood and Grocery 60%Apparel 8%Mobile and Telecom 6%Food Service 5%Jewellery 4%Consumer Electronics 3%Pharmacy 3%Others 11%

Source: Delloite(January 2013).

Page | 16

Fig 5: Composition of Retail Market in India

60%8%6%

5%4%

3%3%11%

% share in the retail sectorFood and Grocery Apparel Mobile and TelecomFood Service Jewellery Consumer ElectronicsPharmacy Others

Employment in the Retail Market:

It was expected that opening up FDI in the Retail sector would use labour

intensive production methods would absorb many of the youths, through either direct

employments or indirect employments. The relationship between FDI and employment

creation of host country are mixed.(Table 5) attempts to create a better understanding of

the relationship between foreign direct investment inflows and their effects on

employment creation in India. Through FDI in Multi Brand retail sector, the Government

wants to create 10 million new jobs opportunities.

Page | 17

Table 5: percentage growth of total employment generation in organized retail sector in India.

Year Total employment in Public and Private Sector

Total employment in Retail Sector

% of total employment in Retail sector

2000-01 2,79,60,000 4,93,000 -2001-02 2,77,90,000 5,02,000 +2%2002-03 2,72,05,000 4,92,000 -2%%2003-04 2,70,01,000 5,42,000 +10%2004-05 2,64,43,000 5,32,000 -2%2005-06 2,64,59,000 5,59,000 +5%2006-07 2,69,59,000 5,69,000 +2%2007-08 2,72,42,000 5,88,000 +3%2008-09 2,75,12,000 4,37,000 -26%2009-10 2,80,86,000 6,46,000 +48%

Source: MRPA. Mohammad Nizamuddin.20 April 2013.(Original Source: Ministry of Labour & Employment, Director General of Employment and Training, Economic Survey 2011-2012)

Fig 6: Comparitive analysis of growth of total employment in Public and Private Sector and Retail Sector in India

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

250000002550000026000000265000002700000027500000280000002850000029000000

Percentage growth of total employment generation in retail sector in India

Total employment in Re-tail Sector

Total employment in Pub-lic and Private Sector

Year

Tota

l em

ploy

men

t in

Publ

ic, p

rivat

e an

d Re

tail

Sect

or

Page | 18

Table 6: Reveals that the overall employment generation in retail sector in India with

respect to total employment generation in India. The total employment in retail sector in

India increased except in the year 2002-03, 2004-05 it decline with 2% each respectively.

Further it increases in the year 2005-06, 2006-07 and 2007-08 with overall 5%, 2% and

3% respectively. It has been clearly shown by the table, here we also found the recession

and financial crises effect in year 2008-09 with a decline of 26% in the total generation of

employment opportunities in India. In the succeeding year 2009-10 it is also clear from

the above data that the employment in retail sector grow with recognizable rate of 48

percent. Growth of employment in the retail sector has a little impact in the total

employment i.e there is still a lot of scope for employment to grow in the retail sector.

Advantages of FDI in Retailing in India:-

It helps in inflow of investment and funds, improves the quality of products,

lifestyle and employment opportunities, generates more employment, increases local

sourcing, provides better value to end consumers, improves the supply chains and

warehousing, reduces food inflation, welcomes franchising opportunities for local

entrepreneurs, enhances growth of infrastructure, increases efficiency, reduces cost,

implements IT in retail, stimulates infant industries and other supporting industries,

contributes to government revenue

Page | 19

Disadvantages of FDI in Retailing in India:-

It would give rise to cut-throat competition rather than promoting incremental business,

would promote cartels and create monopoly, increases the real estate prices, marginalizes

domestic entrepreneurs , the financial strength of foreign players would displace the

unorganized players, absence of proper regulatory guidelines would induce unfair trade

practices like predatory pricing, would distort culture.

Challenges faced by the Organized Retailing:-

The advent of FDI policy of September 2012 can pave the way for modernization

of the Indian retail sector, however, the journey ahead is challenging. Even well- heeled

MNC retailers will have to pay heed to the Indian political, social and competitive

landscape, if they want to succeed in the Indian retail sector, there is unavailability of

Retail Space, the rental cost and real estate prices in India are high, the government

should clarify certain policy features. The policy note does not specify whether

investment in back end infrastructure needs to be a fresh investment or if foreign

companies can buy stakes in already established backend infrastructure, entry of a multi-

brand MNC retailer in the retail sector would fall under the approval route. This implies

that the MNC retailer would have to go through different layers of Government

departments before getting the go ahead, there is high political risk in investing in India.

The largest opposition party in India has opposed FDI in retail and some of its leaders

have indicated that they will scrap the policy if their party comes to power, one of the

major challenges faced by the existing players is the availability of skilled manpower, the

poor infrastructure increases the operational cost of the retail chain, the ongoing currency

Page | 20

fluctuation may put currency risk on any foreign investment in India, the fragmented

supply chain leads to high wastage and high product cost, multiple legislative laws hinder

fast expansion and increases overall cost, cumbersome labor laws limits organized retail

business.

IV Conclusion and Policy Recommendations:

FDI in Retail in India is a prickly issue. There have being several policies for liberalizing

FDI in retail investment in India. Despite the relaxation in the rules, foreign retailers still haven’t

made a beeline for what is one of the biggest consumer markets in the world. FDI in retail has

not proceeded the way it was projected. Main reasons for the same are ambiguity in policy

framework, lack of any retail model, unpopularity of organized retail, low purchasing power and

slowing economic growth in India. Loss of jobs in retail trade which is the main argument

against FDI in MBRT is unlikely to express itself in the next 4-5 years because the investors

have become cautious and are following the policy of wait and watch. The purpose of the study

was discussing the role of FDI in Indian Retail . But the main aim of this study was to analyse

the policy of FDI in Retail and its role in growth and employment and the various challenges

faced by the industry. In the Indian aspect we see the market size is continuously expanding in

the recent years but it has a little impact on employment so far. FDI is advantageous and

disadvantageous both but it depends only on the way we implement it in our country so that FDI

does not have a bad impact on India's Business. Government must make some rules so that it is

beneficial for Indian markets.

Governments should not prevent anybody, Indian or foreign, from setting up any business,

unless it can be shown that FDI in retail will do more harm than good for the economy, it should

be allowed.

Page | 21

A major argument given by opponents of FDI in retail is that there will be major job

losses. The reality is that any kind of innovation is going to replace traditional industry,

and the kiranas are no different. The question is how long does it take. And the longer it

takes, the more time the kiranas will have to readjust themselves into new better

performing occupations. In a growing economy, there are many jobs getting lost and

created.

The organized sector gives better lifestyle and better pays. In the short-run if everybody

has to shut down the kiranas , it leads to a huge social unrest.So, in the short run, there

will be joblessness. Eventually, there's likely to be a redistribution of jobs with some

drying up (like that of middlemen) and some new ones sprouting up.

Fears of small shopkeepers getting displaced are vastly exaggerated. Recently

government in its economic survey 2013 has announced that “Traditional retailers are

giving a strong competition to organised retailers and the decision to permit foreign

retailers to open stores in the country will not affect small players in India”. This proves

that both organized retailers can coexist with unorganized retailers it is thus not a zero

sum game.

It is argued that, the entry of foreign investors is likely to hot up competition, giving

consumers a better deal, both in prices and choices. If the Mega retail chains keep price

points low and attractive by smart procurement and inventory management then Indian

retail can also learn from these good practices.

The only one way to go is expecting it will grow. The pace of growth may be slow but it

will grow. Considering the changing tastes and patterns of the consumers the growing

population will tend to prefer to the more organized format. A strong retail sector which

Page | 22

makes it easy and accessible for people to consume goods is good for the country. There

is no reason to prevent people from being able to consume it. Ultimately in the interests

of the efficiency of the country, modern retail has to grow. So the speed is an issue.

The future of foreign retail depends a little bit on policy. Government must make some

rules so that it is beneficial for Indian market, retailers and the customers get the required benefit

from this. May be by this Indian economy may rise which is helpful in the employment field.

The experience of successful countries (like China) amply demonstrates how FDI can play a

leading role in bringing about rapid, export-led growth. In the retail sector changes are very

frequent therefore survival in retail will depend upon the ability to adapt to change. The Indian

retailers need to develop proper systems and processes keeping the unique nature of the country

in mind. FDI would lead to a more comprehensive integration of India into the worldwide market

and thus, it is imperative for the government to promote this sector for the overall economic

development and social welfare of the country. So FDI should be implemented in a limited and a

phased way so that it releases a good impact on India market. If done in the right manner, it can

prove to be a boon and not a curse. If our domestic retailers became very successful, that would

be a good outcome. But there is value in having foreign retailers in India because having them in

the competitive space in India accelerates the diffusion of those technologies into our country,

which really helps everyone. Because once those technologies are available with one retailer, it

will diffuse through other retailers through shared employees and employees switching and so

on. It is shortsighted to think that shutting down foreign retailers is good for our country , it is

actually bad in the long-term.

V. References

Page | 23

Bhattacharyya, Rajib. “The Opportunities and Challenges of FDI in Retail in India”. IOSR Journal Of Humanities And Social Science (JHSS) ISSN: 2279-0837, ISBN: 2279-0845. Volume 5, Issue 5 (Nov. - Dec. 2012), PP 99-109 from www.Iosrjournals.Org

Kumar, Nagesh “Foreign Direct Investment” in K Basu & A Maertens (ed),The Concise Oxford Companion to Economics in India , Oxford University Press, New Delhi, 2010, pp 305-307

Nizamuddin, Mohammad.“FDI in Multi Brand Retail and Employment Generation in India.”.20 April 2013.MPRA Paper No. 47622,posted on 16. June 2013 04:22

Rao, G.Shashidhar and CH.Prashant. “Foreign Direct Investment in Indian Retail Industry”. IRACST – International Journal of Commerce, Business and Management (IJCBM),Vol. 1, No.1, 2012

Sarkar, Abhirup. “Understanding FDI in Retail What Can Economic Principles Teach Us?” Economic & Political Weekly posted on January 5, 2013 VOl XLVIII No 1

Websites :

Benefits of FDI in Indian Retail Industry – Foreign Direct Investment in India’s Single and Multi-Brand Retail Sector, an Analysis by DART Consulting DART Blogs accessed on 27/11/2013 10 59 pm

Clarification on queries of Prospective Investors/Stakeholders on FDI Policy on TRADING - 6.2.16.1 -Cash & Carry Wholesale Trading/ Wholesale Trading (including sourcing from MSEs), 6.2.16.2 E-commerce activities , 6.2.16.4 Single Brand product retail trading , 6.2.16.5 Multi Brand Retail Trading of Circular 1 of 2013-Consolidated FDI Policy on dipp.nic.in/English / pdf accessed on December 7 , 2013 12:13:57 p.m

FDI in retail, small shops giving competition to big retailers - Financial Express accessed on, December 7,2013 12:53:50 a.m

FDI in multi-brand retail. Hope In Abeyance, India Infoline News Service. JLL. accessed on January 13, 2014, 12:44:54 p.m.

http://www.ibef.org/industry/retail-india.aspx accessed on, December 6, 2013, 6:36:41 p.m, January 24, 2014, 12:40:45 p.m

http://www.deloitte.com/assets accessed on January 22, 2014, 7:29:09 PM

http://en.wikipedia.org/wiki/Retailing_in_India accessed on November 27, 2013, 9:51:25 p.m

www.ibef.org.Retail March 2013 pdf accessed on January 24, 2014, 11:36:59 a.m

2013 Global Retail Development Index-Full Report AT Kearney http://www.atkearney.com/images/global/2013_Global_Retail_Development_Index.accessed on January 31, 2014, 12.04.52 p.m

2013 FDI Statistics, Ministry of Commerce & Industry, Department of Industrial Policy and Promotion, Government of India (GOI) accessed on January 31,2014,10.20.19 p.m

Page | 24

Appendix:

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 2012. It is also the world’s biggest

private employer with over two million employees and is the largest retailer in the world.

Wall-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.

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).

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 m2, this

store located east of New Delhi in the Shahadra neighbourhood will offer food and non-food to

professional businesses, institutions, restaurants and local retailers. This opening is in line with

Page | 25

the Group’s strategy to be present in major emerging markets that offer significant expansion and

medium and long term growth opportunities.

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 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. the privately owned large

retail businesses are included in this.

Page | 26