FOREIGN DIRECT INVESTMENT IN RETAIL IN INDIA

Shivani Mahajan B.TECH (CSE), MBA (INSURANCE & FINANCE) Lecturer, Dronacharya College of Education, Rait (Kangra), (H.P) Contact no: 9459022509 Email id: shivanimahajan007@gmail.com

FOREIGN DIRECT INVESTMENT IN RETAIL IN INDIA

ABSTRACT Retailing in India is one of the pillars of its economy and accounts for 14 to 15 percent of its GDP. India is one of the fastest growing retail market in the world, with 1.2 billion people.. On 20 September 2012, the Government of India formally notified the FDI reforms for single and multi brand retail, thereby making it effective under Indian law. Organised retailing, in India, refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the publicly traded supermarkets, corporatebacked hypermarkets and retail chains, and also the privately owned large retail businesses. Unorganised retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the local mom and pop store, owner manned general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc. Now the question arises whether this new policy of 51% FDI in multi brand retail will create problems or will bring opportunities. KEYWORDS: FDI, Single brand retailing, multi brand retailing, Advantages, Disadvantages

INTRODUCTION FDI The Foreign Direct Investment (FDI) in any country abroad is the net inflow of investment (capital or other), in order to acquire management control and profit sharing (10% or more voting stock) or the whole ownership of an accredited company operating in the country receiving investment. The foreign direct investment generally encompasses the transfer of technology and expertise, and participation in the joint venture and management. SINGLE BRAND RETAILING: Single brand implies that foreign companies would be allowed to sell goods sold internationally under a single brand, viz., Reebok, Nokia and Adidas. FDI in Single brand retail implies that a retail store with foreign investment can only sell one brand. For example, if Adidas were to obtain permission to retail its flagship brand in India, those retail outlets could only sell products under the Adidas brand and not the Reebok brand, for which separate permission is required. If granted permission, Adidas could sell products under the Reebok brand in separate outlets MULTI BRAND RETAILING FDI in Multi Brand retail implies that a retail store with a foreign investment can sell multiple brands under one roof. Opening up FDI in multi-brand retail will mean that global retailers including Wal-Mart, Carrefour and Tesco can open stores offering a range of household items and grocery directly to consumers in the same way as the ubiquitous kirana store. LITERATURE REVIEW: FDI in Retail Industry FDI in retail industry means that foreign companies in certain categories can sell products through their own retail shop in the country. Indias retail industry is estimated to be worth approximately US$411.28 billion and is still growing, expected to reach US$804.06 billion in 2015. As part of the economic liberalization process set in place by the Industrial Policy of 1991, the Indian government has opened the retail sector to FDI slowly through a series of steps: 1995 : World Trade Organizations General Agreement on Trade in Services, Which includes 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 percent investment in a single-brand retail outlet permitted. 2011 : 100% FDI in single brand retail permitted. The Indian government removed the 51 percent cap on FDI into single-brand retail outlets in December 2011, and opened the market fully to foreign investors by permitting 100 percent foreign investment in this area. 2012: 51% FDI in multi brand retail permitted GLOBAL RETAILING SCENARIO: Retail has played a major role in improving the productivity of the whole economy at large. The positive impact of organized retailing could be seen in USA, UK, and Mexico and also in China. Retail is the second largest industry in US. It is also one of the largest employment generators. It is also important to understand that Argentina, China, Brazil, Chile, Indonesia, Malaysia, Russia, Singapore and Thailand

have allowed 100% FDI in multi brand retail. These countries benefited immensely from it. Also small retailers co-exist. The quality of the services has increased. China permitted FDI in retail in 1992 and has seen huge investment flowing into the sector. It has not affected the small or domestic retail chains on the contrary small retailers have increased since 2004 from 1.9 million to over 2.5 million. Take for example Indonesia where still 90% of the business still remains in the hand of small traders. Present scenario in india India is Asias third largest retail market after China and Japan. Organized retailing is very virgin space in India. It provides immense growth opportunity. Only 5% of the total sales are being done by organized retailer. 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. Purchasing power of Indian urban consumer is growing and branded merchandise in categories like Apparels, Cosmetics, Shoes, Watches, Beverages, Food and even Jewellery, are slowly becoming lifestyle products that are widely accepted by the urban Indian consumer. Considering all such factors, the government in September, 2012 approved 51 per cent foreign direct investment (FDI) in multibrand retail. Accordingly, the following proposals have been approved: (i) Retail sales outlets may be set up in those States which have agreed or agree in future to allow FDI in MBRT under this policy. The establishment of the retail sales outlets will be in compliance of applicable State laws/ regulations, such as the Shops and Establishments Act etc.

(ii) Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per 2011 Census (including an area of 10 kms around the municipal/urban agglomeration limits of such cities). On the other hand, States/ Union Terrritories, which do not have any city with a population exceeding 10 lakhs, but are desirous of implementing the policy, would have the flexibility to do so. (iii) At least 50 per cent of total FDI brought in shall be invested in 'backend infrastructure' within three years of the induction of FDI, where 'back-end infrastructure' will include capital expenditure on all activities, excluding that on front-end units; for instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, warehouse, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if any, will not be counted for purposes of backend infrastructure. OBJECTIVES: The objectives of paper are: To study the effect of FDI in multi brand over economy. To find out how people of Kangra region of Himachal Pradesh are reacting to the new policy of FDI in multi brand Retail in India. RESEARCH METHODOLOGY: Sample Size: 100, Sampling Technique: Random Sampling, Population: Finite, Data Collection Instrument: Observation, Interview and Questionnaire, Demographic: 55% were males & 45% were females. The sample profile was all the sections of society. Geographic Location: KANGRA, H.P. INDIA. DATA ANALYSIS Graph 1: Awareness of current FDI policy in retail

Awareness of current FDI policy in retail

100 80 60 40 20 0 YES NO

no. of persons think that foreign big retails will reduce the purchase from local stores can't say
5% yes 32% no 63%

Above graph shows that 80% of the people of Kangra are aware of the current FDI policy in Retail. Its been a month that government impemented the new policy but still 20% of the population is not aware of the policy. Graph 2: No. of persons happy with the Government decision to permit 51% FDI in multibrand retail NO. Of persons happy with the Government decision to permit 51% FDI in multibrand retail

Above graph shows that 63% of the people are of the view that this policy will not reduce the purchase from local stores because they believe that they can buy any little amount from such stores and moreover there is a feel of personalisation but 32% of the population feels that this may reduce the sales of local stores because of the switch over of people from indian brands to foreign brands. Graph 4: no. of persons who think that stricter Government reforms should made to support domestic retailers no. of persons who think that more strict Government reforms be made to support domestic retailers
no 19%

NO 31% YES 69%

Above graph shows that 69% of the total population of Kangra region is happy with the government decision to permit 51% FDI in Multibrand retail. This means that they are welcoming the decision of government and like foreign brands. 31% of the population is not supporting because of the fear that their sales may come down and some of them think that this policy may repeats the history and will bring east India company back to India. Graph 3: no. of persons think that foreign big retails will reduce the purchase from local stores

yes 81%

Above graph shows that 81% of the population believes that stricter government reforms should made to support domestic retailers because with the coming up of the foreign brands in India, large amount of the population will switch over to foreign brands Graph 5: no. of persons think this new policy of FDI in retailing allow more

investment, technical skills and consumer choice no. of persons thinks this new policy of FDI in retailing allow more investment, technical skills and consumer choice
can't say 14% no 10% yes 76%

population feel that it will not give any benefit to farmers and they will be in more troubles. Reat 6% of the population is of the view that farmers may get benefitted in short term but in long term there will be no benefits. So they cant say anything. Graph 7: no. of person think new multi brand FDI policy will benefit unorganized retail sector in India no. of person think new FDI policy will benefit un-organized retail sector in India
73% 20%
will benefit will not benefit

80 60

Above graph shows that 76% population of the Kangra region think that FDI in retailing will bring more investment, technical skills and customer choice. They are of the view that there will good storage and production facilities. They believe that India will be highly benefitted with this policy. But 10% of the population feels that India will not be benefitted because they are highly satisfied with the Indian technical skills and Indian products. Graph 6: no. of persons think new FDI policy in Multi brand retail will benefit farmers

40 20 0

7%
can't say

Above graph shows that only 20% of the population feels that new FDI policy will benefit un- organized sector and 73% population believes that organized sector will take over the un-organized sector. 7% of the population is not sure of the results. Graph 8: no. of persons think new FDI policy will benefit other Indian industries no. of persons think new FDI policy benefit other Indian industries
60 40

80 60 40 20 0

no. of persons think new FDI policy in retail will benefit farmers

69% 25%
will benefit will not benefit

6%
can't say

20 0

37%
will benefit

23%
will not benefit

40%
can't say

Above graph shows that 69% of the population feels that new multi brand FDI policy will benefit farmers because now they will get more prices for their products because now there will be no middle man. This policy will also helps in improving supply chain efficiency. 25% of the

Above graph shows that 37% of population believes that new FDI policy will benefit the other Indian industries but 23% of the population is of the view that it will not help the Indian companies. Rest 40% are not sure of the results. SUMMARIZED RESULT: From the above findings it is clear that maximum

population of the Kangra region are in support of the government policy of 51% in FDI multi brand retail and very few are against this policy because of their own selfish thoughts. CONCLUSION: the advanges of FDI in Retail outweigh the disadvantages. Indian retail is considered to be the fastest growing retail market but the future of the Indian retail market is uncertain and the time will tell whether this policy will benefit India or will create problems to domestic retailers and Farmers. REFERENCES: 1. Bisaria Gaurav. foreign direct investment in retail in india. International Journal of Engineering and Management Research 2.1 (2012): 31-36.Web. Jan,2012. 2. Singh Arun, and Agarwal P.K.Foreign Direct Investment:The Big Bang in Retail. VSRD International Journal of Business & Management Research 2.7 (2012) : 327-337. Web.2012 3. Anonymous. All India Retail : An All India Research Report.Web. http://www.packagingconnections.co m/sites/default/files/FDI%20in%20I ndian%20Retail.pdf 4. Vinay. The disadvantages of Big Brand retail shops. Web. 24 nov,2012http://expresthoughts.blogs pot.in/2011/11/disadvantages-of-bigbrand-retail-shops.html 5. http://www.scribd.com/doc/6493471 8/Disadvantages-of-FDI-in-Retail 6. http://news.estatelister.com/report/thr ee-advantages-and-disadvantages-offdi-in-retail-/479 7. http://www.quora.com/India/Whatare-the-pros-and-cons-of-bringingFDI-in-the-retail-sector-to-India# 8. http://ibnlive.in.com/news/full-textgovt-approves-fdi-in-multibrandretail/291503-7.html

http://www.sharetipsinfo.com/fdiretail.html 10. http://www.sharetipsinfo.com/fdiretail.html 11. http://www.businessdictionary.com/d efinition/multi-brand-strategy.html

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