Dept of Commerce and Management studiesAndhra University

UGC Seminar On “ new trends in business

education”4th Dec, 2012

Session on Experience sharing with retail Focus

A paper on

“FDI in Retail”Under the Esteemed

Guidance of Prof. B. Mohan Venkat Ram

By:

Sobha Rani Peddini

Definition: A business or person that sells

goods to the consumer, as opposed to a

wholesaler or supplier, who normally sell their

goods to another business.

Retail consists of the sale of goods or

merchandise for final consumption by the user

and not for further sale or processing.

Retail Basics

Organized Retailing – trading activities

undertaken by licensed retailers those who are

registered for sales tax, income tax, etc., these

include the corporate-backed hypermarkets and retail

chains, and also the privately owned large retail

businesses.

Unorganised retailing – traditional formats of

low-cost retailing, for example, the local kirana shops,

owner manned general stores, etc

Major global RetailersRetailer Home Country

Wal-Mart StoresCarrefour GroupThe Home Depot, IncThe Kroger Co.Royal AholdMetro AGTarget CorporationAlbertson’s,Inc.Sears, Roebuck and Co.Kmart Corporation

USAFrance

USAUSA

NetherlandsGermany

USAUSAUSAUSA

Major Domestic PlayersRetail Group StoreFuture Group PantaloonK.Raheja group Shopper’s stopTata group West sideRPG SpencersLandmark Group LifestyleBharati-walmart WalmartReliance group Reliance retail A V Birla Group Louis Phillipe, Van Heusen

Metro Metro cash and carryViveks Ltd Viveks

Retail Formats

Other classification of retail formats

Mom-and-pop Stores – Family owned

businesses

Department stores – Karachiwala

Category Killers – best buy, sports

authority

Malls – Forum mall, Spencer Plaza

Discount Stores – Brand factory

Supermarkets – Trinethra

Hypermarkets -- Big bazaar

Indian Retail Scenario At A Glance

• The contribution of retail industry to India’s GDP is

more than 13%.

• Spreads over more than 6 million outlets (2.4 million

urban and 3.6 million in rural).

• There is no supply chain management perspective.

• Over 8 per cent of India’s population is engaged in

retail

Indian Retail Scenario At A Glance

• India’s per capita retailing space is the lowest in the

world. (2 square feet).

• In India still, more than 60% sales in retail comes from

food items only

• No role model for Indian suppliers and retails to adapt

or expand in the Indian context. Hence Indian

retailers have to find a suitable model and adopt it to

the Indian context.

• India’s first true shopping mall was inaugurated in

1999 in Mumbai. (This mall is called “Crossroads”).

• An FDI Confidence Index survey showed that the

retail industry is one of the most attractive sectors

for FDI (foreign direct investment) in India.

Indian Retail Scenario At A Glance

Issues in International Retailing

• Legislation and Regulation -- FDI• Taxation and Cross Border Shopping• Variations in Retailing Practice and

Customs

Introduction to fdi

FDI refers to the capital inflows from abroad that is

invested in or to enhance the production capacity of the

economyMethods:

The foreign direct investor may acquire voting power of

an enterprise in an economy through any of the

following methods:

• by incorporating

• by acquiring shares

• through a merger or an acquisition of an unrelated

enterprise

• joint venture with another investor or enterprise

FDI in IndiaName of the sector Increase in FDi

Insurance 49%Broadcast sector 74%

Retail and consumer products(Multi brand)

51%

Retail and consumer products (single brand)

100%

Aviation 49%

Scope of FDI in retail sector

After agriculture, retail sector is the

highest employer, employing 7% of

the total work force in the country.

Retailing in India accounts for more

than 13% of its GDP

Better cold storages prevent loss of

fruits and vegetables

Opening up of large retail houses

will upgrade systems, supply chain,

upgrade people and their abilities and

skills.

Consumers will be benefited first

Scope of FDI in retail sector

On September 14th 2012, Government of India

allowed FDI in Multi-brand retail up to 51% and in

single brand retail up to 100%

The choice of allowing FDI has been left to state

governments.

The Chief Ministers of Delhi, Assam, Maharashtra,

Andhra Pradesh, Rajasthan, Uttarakhand, Haryana

and Governments of the State of Manipur and the

Union Territory of Daman & Diu and Dadra and

Nagar Haveli, have expressed support for the

policy in writing.

FDI in Retail

Some Regulations of FDI

The establishment of the retail sales outlets will

be in compliance of applicable State laws/

regulations, such as the Shops and

Establishments Act etc.

Retail sales outlets may be set up only in cities

with a population of more than 10 lakh as per

2011 Census

In States/ Union Territories not having cities with

population of more than 10 lakh as per 2011

Census, retail sales outlets may be set up in the

cities of their choice, preferably the largest city

1} Minimum investment of US $100 million

2} At least 50% of total FDI brought in shall

be invested in 'backend infrastructure'

•within three years of the induction of FDI•back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc.

FDI proposed conditions

3} Expenditure on land cost and rentals, if any,

will not be counted for purposes of backend

infrastructure

4} There is a conditionality requiring at least

30% procurement from Indian small industries

5} State Governments are also responsible for

aspects ancillary to MBRT, such as zoning

regulations, warehousing requirements, access,

traffic, parking and other logistics

FDI proposed conditions

Safeguards A three year timeframe has been fixed for

setting up the back-end infrastructure

This condition will bind the foreign investors

to invest in critical back-end infrastructure, which

is a felt need across the country

It would also make the foreign investors

accountable for proper implementation of the

condition.

Farmers stand to benefit from the significant

reduction in post-harvest losses

There is a conditionality requiring at least 30%

procurement from Indian small industries

This would enable them to get integrated

with global retail chains. This, in turn, will

enhance their capacity to export products from

India

The final decision will be taken by the state

governments

This gives a control on approvals for

number, size, format and type of retailer, based

on the favorable conditions of that concerned

state

Benefits

Global experience indicates that organized

and unorganized retail co-exists and grow

Consumers stand to gain the most..

• firstly, from the lowering of prices that

would result from supply chain

efficiencies

• secondly, through improvement in

product quality

The young people joining the workforce will

benefit from the creation of employment

opportunities

The policy will facilitate greater FDI inflows,

additional and quality employment, global

best practices and benefit consumers and

farmers in the long run

Benefits

FDI- Vizagites’ perspective

Male44%

Female56%

Sample distribution

Upto 20 8%

21-3060%

31-4022%

41-508%

51 & above2%

Age of the individuals

business employes Student H.W Others

6%

43.5%37%

9%4.5%

Occupation of individuals

Strongly agree Agree Disagree Strongly disagree0

5

10

15

20

25

30

35

40

16% 15.3%

10%

3%

21.5% 21.7%

12%

0.5%

Growth of Shopping malls in recent years is beneficiary to the customers

Female

Male

37.5% 37%

22%

3.5%

Strongly agree Agree Disagree Strongly Disagree

0

5

10

15

20

25

30

35

40

45

50

8%

17.2% 15.3%

3.5%

13%

28.3%

14.7%

Central Government’s recent decision on FDI helps for the growth of retailing in India

FemaleMale

45.5%

30%

21%

Kirana Shops Shopping mall0

10

20

30

40

50

60

22.3% 22%

25.7%30%

Where do you prefer to shop?

FemaleMale

48%52%

Yes No0

10

20

30

40

50

60

70

80

90

33%

11.4%

49%

6.6%

Do you think foreign retailers intervention will effect small scale retailers business

FemaleMale

82%

18%

Yes No0

10

20

30

40

50

60

70

80

29.6%

14.3%

38.4%

17.7%

Do you think foreign retailers offer products at cheaper rates

FemaleMale

68%

32%

Conclusion

Entry of foreign investors into the country will

improve the GDP of the nation. It creates efficient

storage facilities, infrastructures, improve supply

chain matrix, upgrades the existing technology ,

creates millions of jobs and consumers are

benefited more The studies shows that FDI

approval is more beneficial to the nation in the

long run, but with some conditions in order to

safeguard the interests of small and middle

intermediaries.

The small scale intermediaries are however given

priority by the foreign players as they need local

networking for their business activities. But still

few will be endangered because of their low supply

capabilities.

Majority of Vizagites opined that they will get

quality products at a cheaper rates. They also

opined that the small scale retailers will be

effected by the intervention of big players. Majority

of the sample agreed with the Central

Government’s recent decision.

Conclusion

Thank YouUnder the Esteemed

Guidance of Prof. B.Mohan Venkat Ram