FDI IN RETAIL

“FDI in Indian Retail:

Beneficial or Detrimental With Pantaloon Retail Industry”

INDIAN RETAIL INDUSTRY: OVERVIEW India is without doubt a 'growth' economy and

many consider it an attractive country to invest in, particularly in its rapidly growing and changing retail market.

This division of the retail sector, which has a very heavy weighting towards, unorganized, is just one of the issues causal to the sensitive debate on FDI in India at the moment.

The Indian retail industry is divided into organized and unorganized sectors.

Organized retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc.

Unorganized retailing, on the other hand, refers to the traditional formats of low-cost retailing.

Retail Trade – India, US and China

CountryTrade (US$ billions)

Employment (%)

Shops (millions)

Organized Sector Share (%)

India 180-394 7 12 2-3

China 360 12 2.7 20

US 3800 12.6-16 15.3 80

The last few years witnessed immense growth by this segment, the key points being changing consumer profile, economic implications of the Government increasing urbanization, credit availability, improvement in the infrastructure, increasing investments in technology and real estate building a world class shopping environment for the consumers.

MAIN RETAIL PLAYERS OF THE INDUSTRY

Retailer Formats available

Name of brandNumbers of

Stores

Area Space

(‘000 sq ft)

Pantaloon Retail Indian

Ltd

Department store

Pantaloon 13 1,948

Hypermarket Big Bazaar 450 5000Seamless

MallsCentral 12 1200

RPG Retail

Hyper markets Spencer’s 400 6000

Music Stores Music world 225 230

books StoresBooks and Beyonds

Shopper’s Stop Ltd.

Department stores

Shopper’s Stop 20 1000

Books & Music Stores

Crosswords 33 N/A

Home furnishing

Home Stop N/A N/A

Landmark Group (Based

in Dubai)

Department Stores

Lifestyle 8 370

Trent India Ltd

Department Stores

West side 19 350

HypermarketsStar India

Bazaar1 N/A

Books & Music Stores

Land Mark 4 N/A

Vishal Group Hyper marketsVishal Mega

Mart183 13,45

FDI IN INDIAN RETAIL The government has created a specific Board to deal

with promotion of FDI in India and to be the sole agency to handle matters related to FDI. The 'Foreign Investment Promotion Board' (FIPB) as it is known, is chaired by the Secretary Industry (Department of Industrial Policy &Promotion or DIPP) within the office of the Prime Minister.

Its key objectives are to promote FDI in India with investment promotion activities both domestically and internationally by facilitate investment in the country via international companies, NRIs (non-resident Indians) and other forms of foreign investors.

The FIPB should review policy and puts appropriate institutional schedule in place with transparent rules, guidelines, and procedures for investment promotion and approval.

INVESTMENT POLICY

1995 – World Trade Organization‟s general agreement on trade in services, which include both wholesale and retailing services, came into effect

1997 – FDI in cash and carry (wholesale) with 100% rights allowed under the government approval route

2006 – FDI in cash and carry (wholesale) brought under the automatic route

Up-to 51% investment in a single- brand retail outlet permitted

2011 – 100% FDI in single –brand retail permitted 2012, Sep – 51% FDI in multi- brand retail permitted The Indian government removed the 51% cap on FDI into

single-brand retail outlets in December 2011, and opened the market fully to foreign investors by permitting 100% foreign investment in this area.It also made drastic progress in allowing multi-brand retailing, which had so far had been prohibited in India.Impact of FDI on Retail Sector in India

CONT.. Foreign investment in single brand retail

stores is now 100% and 100% FDI in wholesale cash and carry 51% FDI in multi-brand retailing is allowed

now Foreign investments are freely regulated

under the Foreign Exchange Management Act (1999) (FEMA), administered by the Reserve Bank of India's Exchange Control Department. Ernst& Young in their report on behalf of the India Brand Equity Foundation .

Current Entry Options for Foreign Players

Franchise

Agreements

Most widely used entry route by multinational

retailers.

Fast food retailer Domino’s entered India

through master franchise route while Pizza Hut

entered through regional franchisee.

Cash and Carry

Wholesale Trading

100% FDI is allowed in wholesale trading which

involves building of a large distribution

infrastructure to assist local manufacturers.

The wholesaler deals only with smaller retailers

and not consumers.

Metro AG of Germany was the first significant

global player to enter India through this route.

Strategic Licensing

Agreements

Foreign company enters into a licensing

agreement with a domestic retailer.

Mango, the Spanish apparel brand has entered

India through this route with an agreement with

Piramyd, Mumbai.

SPAR entered into a similar agreement with

Radha Krishna Food lands Pvt. Ltd.

Spotlighting today's buoyant youth, Pantaloons, India's premium lifestyle apparel company offers chic and trendy fashion to meet their ever-changing needs. Pantaloons reflects the ideology of always keeping alive the 'newness factor' through fashion apparel and accessories that are visually appealing and fashionably upbeat.

Pantaloons, the newly acquired business by The Aditya

Birla Group, one of India’s leading multinational conglomerates, are a powerhouse of fresh fashion and innovation. While weaving its magic across lifestyle segments, Pantaloons caters to the discerning and trendy Indian consumer.

cont…. Pantaloon is one of the biggest retailers in India with more than 450

stores across the country. Headquartered in Mumbai, it has more than 5 million sq. ft retail

space located across the country. It's growing at an enviable pace and is expected to reach 30 million

sq. ft by the year 2010. In 2001, Pantaloon launched country's first hypermarket ‘Big

Bazaar’. Pantaloon shares fell 12.86 per cent — or Rs 27.50 — to Rs 186.40

on the Bombay Stock Exchange (BSE). The stocks fell amid reports that the Centre had put the proposed

opening of retail to FDI in cold storage, said Amar Ambani, head of research at Mumbai-based IIFL.

On November 24, the Union cabinet had cleared 51 per cent foreign direct investment (FDI) in the multi-brand retail sector and had raised the cap on foreign investment in single-brand retailing to 100 per cent from 51 per cent.

However, the decision met with strong resistance from the Opposition, as well as United Progressive Alliance (UPA) allies

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Strengths and Opportunities Brand Leadership Pan India Footprint: Unparalleled reach Diversified geographical presence Management Strength Strong ParentageRisks and Threats: Changing Consumer Preferences Attracting and retaining talent High fixed cost structure Slowdown in Indian Economy

Impact of FDI Benefit to farmers: 7-10% higher price to farmers than what they get from Mandi 3-4% incentive for the quality of the produce farmers deliver

to Bharti Wal-Mart based on customer requirement Expert advice on better crop planning and management Efficient crop calendar management aimed at catching early

and late seasons for better prices Opportunity to maximize and improve income by offering

better quality

Benefit to stores & customers: Fresh produce Local source Consistent quality Safer food Value for money Lower cost compared to open market buys

RESEARCH TYPE

Primary research in the form of an internet based survey was used to collect data of qualitative open-ended nature, using a descriptive approach so that the report can analyze and interpret the Indian domestic retail market's opinion towards FDI and how many people are in favour of various aspects, as well as ask what changes to policy and the sector they believe are necessary and why.

RESEARCH DESIGN OBSERVATIONAL DESIGN This relates to the conditions, under which, the

observations are to be made and the data gathered are to be analyzed.

STATISTICAL DESIGN It is concerned with how many items are to be observed

and how the information and data are evaluated.

DATA COLLECTION METHODS Research Methods: 1. SURVEY METHOD2. OBSERVATION METHOD

› Analysis of primary data gathered› Analysis of historical records› Analysis of documents

3. STATISTICAL METHOD› Comparison of reports› Analysis of consumer responses› Analysis and Interpretation of different

numeric figures & tables

1. Are you aware of the current FDI in Retail Regulation & Policy?

No. of Respondents Opinion % Share

237 Yes 79 %

63 No 21%

Yes No0

50

100

150

200

250

237

63 No. of Respondents

Interpretation:

The first question revealed that 79% of respondents were aware of current FDI in retail policy, with 21% not being aware. This data shows that a significant amount of people within the domestic market place are paying an interest in the current policies

2. Whether the Government decision to permit 51% FDI in multiband retail?

No of

respondents

Opinion %share

207 Will support 69%

93 Will not support 31%

Interpretation: This question revealed that 69% of respondents will support government decision while 31% not supported. This data shows people welcome FDI & They thought it is beneficial.

3. Whether Foreign big retails will reduce the purchase from local stores?

No.Of

Respondents

Opinion %share

99 Yes 33%

189 No 63%

12 Can’t say 4%

Interpretation:This question revealed that 33% of respondents were favour of it reduce the purchase from local stores.63% of respondents were oppose this decision, while 4% can’t say. so we can say that most of people think not reduce the purchase from local store because they think local store give less price goods.

4. What is the Impact on farmers over FDI in retail?No. Of respondents Opinion %share

204 Will benefit 68%

84 Will not benefit 28%

12 Can’t say 4%

Interpretation: This question revealed that 68% respondents says FDI is beneficial to farmers. While 28% respondents says will not benefit, 4% can’t says. Most of respondents thought that with the help of FDI they can use latest technology.

5. What is the Impact on consumers over FDI in retail?No. Of respondents Opinion %share



6 Can’t say 2%

Interpretation:This question revealed that 88% of respondents said it will benefit to consumers. While 10% said will not benefit, 2% can’t say. So we can say that most of people said it will benefit to consumer because of FDI consumer can get more choices and best quality goods.

What is the Impact on other Indian industries over FDI in retail?No. Of respondents Opinion %share



123 Can’t say 41%

Interpretation:This question revealed that 35% of respondents said it will benefit Indian industries. While 24% said not benefit, 41% can’t say, .most of people can’t say because it will create negative impact on Indian industries growth rate.

What is the Impact on un-organized retail sector over FDI in retail?

No. Of

respondents

Opinion %share

48 Will benefit 16%


18 Can’t say 6%

Interpretation:From this question revealed that 16% of respondent said it will benefit un-organised sector. While 78% of respondents said it is not beneficial, 6% can’t say. Most of people said will not benefit because of it create bad impact on un-organized sector.

Do you think the Indian Government should open up Foreign Direct Investment (FDI) restrictions in the Retail Sector?


251 Yes 84%

49 No 16%

Yes No0

50

100

150

200

250

300251

49No. of Respondents

These results show a strong amount of support for the concept of opening up FDI, although the data analysis also highlights that there is still a small but significant (16%) group of people within the domestic industry who oppose the idea of opening up FDI.

Would competition from modern format stores benefit the customers?


270 Yes 90 %

30 No 10%

90%

10%

YesNo

Interpretation:Here, the consumers are of the opinion that the healthy competition between modern stores will benefit them. The major benefits will be in form of competitive prices, good quality, improved customer services and efficient supply chain management facilities to the consumers.

Do you support introduction of FDI in multi-brand retail?No. of Respondents Opinion % Share

252 Yes 84%

48 No 16%

84%

16%

Yes

No

Interpretation:Consumer’s views are in positive direction (84 % answered in ‘Yes’) towards the

introduction of FDI in Multiband Retailing. Permitting FDI (foreign direct investment) in multi brand retail in a

phased manner beginning with metros and incentivizing the existing retail shops to modernize could help address the concerns of farmers and consumers.

Do you support the proposal to allow FDI in multi-brand retail compulsion of 50% of jobs reserved for rural people?


216 Yes 72%

84 No 28%

72%

28%Yes

No

72% answered 'Yes'. This means that a number of respondents said yes' believe that FDI in Multi-brand should be opened up; clearly acknowledge that it would bring benefits (in terms of investment &employment) to the economy/industry and to society.

Should there be a minimum threshold limit for investment in storage facility for foreign retailers?No. of Respondents Opinion % Share

222 Yes 74%

78 No 26%

74%

26%

Interpretation: The result here shows that the government should impose minimum threshold limit for investment in back–end infrastructure for foreign retailers.

Should there be compulsory sourcing of manufactured products from India?


240 Yes 80%

60 No 20%

80%

20%

YesNo

Interpretation:The data collected from Question 8 revealed that 80% of respondents felt that compulsion to source manufactured products from India should be made by the government to ensure that the domestic retailers are supported

Do you think that the proposed obligation on foreign investors in retail for minimum amount of sourcing from rural market would help farmers getting competitive prices for their products?


255 Yes 85%

45 No 15%

85%

15%

Yes

No

Interpretation:Definitely, it is going to support rural market of India. The foreign investor will compulsorily buy the

products from the farmers in the rural areas and in turn, the farmers will also get the best competitive price for their products.

Do you support setting up a regulator for retail business in India?


252 Yes 84%

48 No 16%

84%

16%

YesNo

Interpretation:84% consumer’s demand is to make a regulatory body which can put

a cap upon foreign investors.

FINDINGS

Impact on the Consumers1. FDI in retail sector will increase the rivalry, leading to

the improvement of the quality of goods and services offered to Indian customers. It will also give benefits of increased variety and decline prices to the customers.

2. Presently adulteration is increasing and corruption is widespread. Induction of foreign players will help in reducing this and keeping check on the food standards are bound to improve.

3. Stiff competition will ensure healthy practices among different players and thus prices and price inflation will be held in check.

4. Awareness among customers will increase. Thus it will control the harmful practices of corruption and black marketing.

Impact on the Retailers

The organized retailers will benefit from the increased rivalry and may achieve an efficiency level in a much shorter span of time. If the foreign retailers focus on support the back end (which is essential for the success of retail business), the domestic retailers also stand to gain.

So far the quality of products and services provided by the domestic organized retail needs a lot of improvement.

The benchmark created by the foreign retailers due to their

experience abroad will force our domestic players to quickly develop as world class retailers.

The domestic retailers will be under pressure on the credit accessibility, as the foreign retailers have deep pockets. Moreover, the foreign retailers will leverage on their global sourcing capability to provide superior products, thus putting Indian retailers at a loss.

LIMITATIONS OF THE STUDY

The data and information about the Retail Industry is much more in amount therefore there is a possibility of having any faulty interpretation.

The information taken is not of present year and it is of recent past years, so the picture regarding current situation of Industry does not gets clear. (Since unavailability of current year reports)

The sources in form of money and time for gathering data were limited, which may leads to exclusion of any important factor or topic.

The area of survey is limited to Vadodara City only. The whole Retail Industry is divided into various segments and there

are various interrelated activities of its all segments so it is difficult to differentiate them.

There may be any wrong interpretation done because of lack of knowledge and manual errors.

CONCLUSION A number of points needed to be kept into concern when opening up FDI:

The opening up of FDI should be phased, over a 5-10 year time frame so as to permit time for domestic retailers to adjust.

FDI in multi-brand retailing should be kept constrained in the near future, as Indian retailers would not be able to face this competition immediately.

It is not currently attractive for FDI to be above 51%, even in single brand retailing. This will allow checking and control of foreign retailer's business operations, and will help to protect the interests of domestic retailers. However, the sector cap (equity limit) could be better in due course as it has been in the telecom, banking and insurance markets.

Certain products that are responsive should not be allowed, for example, arms/ammunition and military equipment. The excluded products should be expressly stated in policy.

THANK

YOU

Economy & Finance

FDI IN RETAIL