NAME: V.KARTHIK VARMA, VERTICAL: VRIDHI , DATE: 20/09/2014

FDI IN RETAIL

FDI : The Foreign Direct Investment means cross border investment made by a resident in one economy in an enterprise in another economy, with the objective of establishing a lasting interest in the investee economy

Types of Retailing in India

• Single Brand- Single brand implies that foreign companies would be allowed to sell goods sold a retail store with foreign investment can only sell one brand .(Adidas, Lee, Nike)

• Multi Brand- FDI in Multi Brand retail implies that a retail store with a foreign investment can sell multiple brands under one roof. (Lifestyle, Walmart etc)

Types of Retail market

• Organized - trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. Eg: Corporate backed hypermarkets.

• Unorganized - 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.

Current Position :

• FDI is permitted only in single brand product retailing – 100%.(from January 2012)

• In multi brand – 51% (from September 2012)

• FDI cap in Broadcasting was raised to 74% from 49%.

Advantages of FDI in Retail

• Improves forex position of the country

• Employment generation and increase in production.

• Help in capital formation by bringing fresh capital

• Helps in transfer of new technologies, management skills, intellectual property

• Increases competition within the local market and this brings higher efficiencies

• Helps in increasing exports.

Disadvantages of FDI in Retail

• Destroy traditional retail sector.

• Limited Employment Generation. It cannot provide employment opportunities to semi-illiterate people.

• FDI in retail will drain out the country’s share of revenue to foreign countries, which may cause negative impact on India’s economy.

Impact of FDI in Retail in India

1. Consumers – access to some of the major global brands.

2. Improved quality and variety of products.

3. Increase competition and expand manufacturing.

4. It gives consumers competitive advantage.

5. Influences the consumers standard of living.

Immense growth opportunities for Retailers

• India is Asia’s third largest retail market after China and Japan. Organized retailing is very virgin space in India.

• Currently Indian Retail sector have sales of around $500 billion.

• Retail sector is expected to have sales of $900 billion by 2014. It still far behind China, whose retail sales by 2014 is expected to cross $4500 billion mark.

lifestyle products that are widely accepted by the urban Indian consumer.(Apparels, Cosmetics, Shoes, Watches, Beverages, Food and even Jewellery

CUMULATIVE FDI FLOWS INTO INDIA (2000-2013): TOTAL FDI INFLOWS (from April, 2000 to October, 2013):

1. CUMULATIVE AMOUNT OF FDI INFLOWS

(Equity inflows + Re-invested earnings +Othercapital)

US$ 309,012 million

2. CUMULATIVE AMOUNT OF FDI EQUITY INFLOWS

(excluding, amount remitted through RBI’s-+NRI Schemes)

US$ 205,885 million

Revised FDI policy:

• The government has notified changes in the FDI policy, paving the way for larger overseas investments in sectors such as multi-brand retail.

• As per the revised FDI guidelines, the government relaxed norms for multi-brand retail trading and eased the mandatory 30 per cent local sourcing norms for companies. As much as 100 per cent FDI in single-brand retail was allowed, of which 49 per cent is through the automatic route.

• The investment cap in defense production was retained at 26 per cent.

• In courier services, FDI of up to 100 per cent was allowed under the automatic route.

FDI proposals approved till May 2013:

• The government approved a total of 18 foreign direct investment proposals worth USD 173 million in May 2013.

• During April 2010 and May 2013, India also attracted FDI worth USD 256.7 million in agriculture services.

• As per extant FDI policy, FDI is not permitted in real estate business. There is no proposal under consideration to amend the said policy.

• In April, Swedish clothing giant Hennes & Mauritz received approval to open 50 stores across the country with a planned investment of Rs700 crore.

• Foreign retailers will now be allowed to open stores in cities that have a population of less than one million.

Recent Trends in FDI:

• FDI in specialty stores: Multi-brand organized retail in specialty stores such as Consumer Electronics, Footwear, Furniture and Furnishing etc. are expected to expand and mature in the next few years.(e-zone, Reliance footprint)

• Dominance of unorganized retail: Flexible credit options and convenient shopping locations may help traditional retail to continue its dominance in retail sector.

• Growth in small cities and towns: Stiff competition and saturation of urban markets is expected to drive domestic retail players to tap the potential in small cities

Current issue about FDI in Multi-Retail:Nirmala Sitharaman (Minister of commerce

and industry) said her party, BJP, has clearly articulated its position on the MBRT and had won the

elections on the basis of the manifesto.The UPA government had opened the multi-brand  retail

sector for foreign investment and allowed up to 51 % FDI in the sector. The BJP had opposed the

policy.The politically sensitive multi-brand retail segment in India employees millions and is

dominated by mom-and-pop stores.While the new government is against FDI in the sector, it has

not yet initiated any move to scrap the policy of allowing FDI in multi-brand retail approved by the

UPA government.