FDI Policies in the Retail Sector in India & its likely

impact

MANAGERIAL ECONOMICS

ContentFDI & its types

FDI in IndiaProcedure for entering in India through FDI

Sector wise presence and analysisFDI policies w.r.t. RETAIL sector by Govt. of India

International Retail Brands/cos. – Present in India through FDICos. In-Process to come in India

The outcomes of the policies – Advantages & DisadvantagesCase Study of Walmart & Tesco- Their challenges and our advantages

Study & Survey of Indian Consumers & Small & Medium Enterprises (SME) –shops and retailers

ConclusionBibliography

Foreign Direct Investment

Direct investment into the production

or business in a country by an individual or

company of another country

It includes:• Mergers and

Acquisitions• Building new

facilities• Reinvesting profits

earned from overseas operations

• Intra company loans

In regard to the GDP equation:

Y= C+I+G+(X-M)

I= Domestic + Foreign InvestmentFDI is the net inflow

of foreign investment i.e. Inflow - Outflow.

FDI TYPES

Horizontal FDI

Vertical FDI

Platform FDI

FDI In India• Foreign direct investment was introduced in India in

1991 under the Foreign Exchange Management Act(FEMA).

• A foreign company entering India through-wholesale cash and carrywholly-owned subsidiary in manufacturing,

licensing and distribution agreements joint ventures for each brand franchising and commission agents

Procedure For Receiving FDI in an Indian Company

• No prior approval of the Government or RBI required.

AUTOMATIC ROUTE

• Prior approval of the Government required by applying to the FIPB.

GOVERNMENT ROUTE

Sector wise PresenceAllowed

• Defence Sector- 26%• Insurance Sector- 49%• Telecom Services- 100%• Tea Plantations- 100%• Asset Reconstruction – 100%• Petroleum and natural gas- 49%• Commodity Exchange- 49%• Power Exchange- 49%• Stock Exchanges- 49%• Credit Information Companies-74%• Courier Services- 100%• Single Brand Retailing- 100%• Multi Brand Retailing- 51%

Prohibited • Atomic Energy• Lottery• Gambling and Betting• Chit fund• Nidhi Company• Agricultural and Plantation

activities(with exceptions)• Housing and Real Estate(with

exceptions)• Trading in Transferrable

Development Rights(TDRs)• Manufacture of cigars and cigarettes

of tobacco and tobacco substitutes

E-COMMERCE companies can engage only in B2B & not retail tradingTest Marketing of such items has approval for manufactures for period of two years

Existing International Retail companies

International Retail companies in-process to enter India

Advantages of FDI in Retail in India

Growth in Economy

Job Opportunities

Benefits to Farmers

Benefits to consumers

Lack of Infrastructure

Cheaper Production facilities

Availability of new technology

Long term cash liquidity

Conducive for the country’s economic growth

FDI opens up a new avenue for Franchising

Proper tax system

Minimum source of 30% of goods from Indian micro &small industries

Foreign countries create supply chain management in Indian market

Avoidance of food wastage and perishables

Disadvantages of FDI in Retail in India

Impact on the organised players

Limited Employment Generation

Fear of lowering of prices

Draining of Revenue to foreign countries

Fear of incompetitiveness

Monopoly of Supermarkets

Dilution of 30% sourcing policy

CASE STUDYWalmart

TESCO

• Largest public corporation by revenue in world with 1.3m employees

• JV with Bharti could give Wal Mart access to 8th largest retail market in world valued $320 billion.

• Plans to extend its cash and carry store presence to smaller cities

• Plans to continue to focus on its backend supply chain to minimize wastage and to improve operational efficiency.

• Plans to leverage the differences in culture, lifestyle, taste, and food preferences amongst the Indian consumers in an effort to penetrate the Indian market effectively.

Their Challenges-• Competitors: Future Group, RPG, Reliance Retails, Aditya Birla Group• Reliability on its own distribution system (30% back-end invt.)• Government policy may slow down growth

• Loss in Germany & South-Korea Next 5yrs- Reliance intends opening more stores (around 6,000) & Wal –Mart has planned 140 stores

• Cap of 25% on sales of cash-and-carry players to front-end retail companies owned by their Indian joint venture partners – Change in JV agreement ; Reduced Investment

Our Advantages-• The winning strategy- selling branded products at low cost.• Non dependence on any single vendor• Boost Employment• They pay producers more and charge consumers less.

• 3rd largest British multinational grocery and general merchandise retailer headquartered in England

• TESCO’s 50 per cent stake in Trent Hypermarket Ltd with$100 million

• Star Bazaar, Star Daily or Star Market in Maharashtra and Karnataka Trent Vice-Chairman Noel Tata

& Tesco CEO Philip Clarke

Their Challenges-• 50-50 partnership proposal to Foreign Investment

Promotion Board• Domestic sourcing norms • Restrictions on Products allowed for sale

Our Advantages-• Trent’s shares closed at Rs 1,066.55, UP 7%, on BSE.• Hypermarkets are to be converted to UK-branded

outlets.

Future of ‘mom and pop’ stores

Future of mom and pop stores

• Objective: To understand the competitive level of our SME retailers & receive general feedback

• Survey of 17 small and medium sized stores • Region: Navi Mumbai, Chembur, Bandra, Andheri

• Respondents: Shop owners & Store Managers

Are you aware about international supermarkets entering Indian retail market?

15

2

YESNO

Are you in favor of FDI in Retail Sector?

4

3.2

YESNO

Do you agree it will contribute to country’s growth?

(employment opportunities, farmers benefits, technological advancements, etc.)

89

YESNO

Do you think it will affect your business? If Yes, How?

YESNO

0

4

8

1212

1

58

What precautionary measures are you taking to maintain your business and keep it competitive?

0

2

4

6

88 8

3

5

Conclusion• Healthy competition for Indian Retail Giants-

Future Group, Aditya Birla, etc.• Cut-throat competition for small & medium

enterprises retailers• No concrete policies to safeguard the small &

medium enterprises retailers• Encouraging facet for regular shoppers

THANK YOU

Bibliography• www.investopedia.com• www.moneycontrol.com• www.livemint.com• www.bloomberg.com• http://articles.economics.indiatimes.com• www.wikipedia.org• The Wal –Mart Way : Don Soderquist• http://www.firstpost.com/business/all-you-need-to-k

now-about-the-tesco-tata-trent-deal-1293267.html?utm_source=ref_article