Retail Sector

EXCEL International Journal of Multidisciplinary Management Studies
Vol.2 Issue 5, May 2012, ISSN 2249 8834 Online available at http://zenithresearch.org.in/
100% FDI IN SINGLE-BRAND RETAIL OF INDIA- A BOON OR A BANE?

J.J.SOUNDARARAJ*
*Assistant Professor, PG & Research Department of Commerce, Loyola College, Chennai- 600034.
ABSTRACT One of the most important developments during the last two decades is the notable growth of FDI in the global economic landscape. This unprecedented growth of global FDI from 1990 around the world make FDI an important and vital component of development strategy in both developed and developing nations and the policies are designed in order to stimulate inflows of FDI. Perhaps, FDI provides a win-win situation to both host and home countries as well. The home countries take the advantage of vast market potential accelerated by industrial growth, whereas host / targeted countries want to acquire technical know-how and managerial skills and supplement domestic savings and foreign exchange. According to AT Kearneys Annual Global Retail development Index for the year 2010, it is found in the annual study, made among 30 Countries based on their retail investment attractiveness, India has been placed at third rank which is next to China and Kuwait. It is also mentioned that the Indian retail market is worth $410 billion as of now and only 5% sales are through organised retail whereas, the rest is in the unorganised retail. Such a major unorganised segment of Indian retail could be perceived to be the opportunities for domestic and international Companies. Moreover, it is estimated that the Indian retail will grow very fastly to become worth of $535 billion in 2013, with 10% from organised retail due to the effect of growing middle class which will demand better shopping environment and quality brands. The Indian Government has now allowed 100% FDI in the single-brand retail in addition to 100% FDI in the cash and carry B2B / wholesale segment that already exists. Till today, FDI in Indian multi-brand retail has not been permitted due to the resistance from the opponents and the allies of the central govt. Perhaps, the UPA government might take it up again after the five state assembly elections that are scheduled between January 30, 2012 and March 03, 2012. This paper primarily makes an attempt to critically evaluate whether allowing 100% FDI in Single-brand retail of India is a boon or a bane. KEYWORDS: Retail; Organised Retail; Unorganised Retail; Retailer; Multi-Brand Retail; Single-Brand Retail. ______________________________________________________________________________ INTRODUCTION The High Court of Delhi in 2004 defined the term retail, as a sale for final consumption in contrast to a sale for further sale or processing (i.e. wholesale). It is a sale to the ultimate consumer. Thus, retailing can be said to be the interface between the producer and the individual consumer buying for personal consumption. This excludes direct interface between the manufacturer and institutional buyers such as the government and other bulk customers. Retailing is the last link that connects the individual consumer with the manufacturing and www.zenithresearch.org.in
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distribution chain. A retailer is involved in the act of selling goods to the individual consumer at a margin of profit. The marketers can very well take efforts to create demand for their market offer, but eventually it is only the retailers who meet out the demand appropriately. In case, the retailers do not stock the brands, demanded by the customers, all the efforts of the marketers go waste. Such an important last link in the supply chain is occupied by the traders called Retailers. There are two sectors in Indian retailing namely, organised sector and unorganised sector. As far as the Indian consumer market is concerned, 95% of the retailing is in the form of Informal / Unorganised. It is the situation that primarily creates an opportunity for the giant domestic and Multi-national companies to enter into the retailing in India. Entry of RIL (Reliance Industries Ltd) into the retail industry of India is an apt example and evidence for the previous point. It is obvious that retailing is the largest private sector industry in the world economy and as per the survey by AT Kearney, it is found that India is the third most attractive Country next to China and Kuwait in the world from the view point of the multi-national corporations which are interested in making investment in the retailing of India. The Indian Government has already opened up the gateway for 100% FDI in single-brand retailing and cash and carry wholesale. In relation to the most important segment of retailing, namely multi-brand retailing, the government is seeking FDI options in such a way it is permitted without affecting the existing social framework. The above discussed aspects motivated the researcher to do a critical evaluation of the choice and consequences of 100% FDI in single-brand Retail. INDIAN RETAILING- AN OVERVIEW Retailing is considered to be the largest private sector in India and moreover, it is second to agriculture in terms of provision of employment. Indian retailing provides employment to more than 4 crore people. The retail industry is divided into two sectors namely, organised or formal and unorganised or informal. In simple terms, it could be said that Organised retailing is one in which the trading or merchandising is carried out by licensed or authorized retailers who are registered for sales tax and other taxes. The companies owned super markets, hyper markets, retail chains and other privately owned retail stores or departmental stores come under this organised retailing. The revenue, generated by these enterprises is accounted for by the Government. It is worth to mention few brands and companies that are presently marching in the Indian Organised Retailing. They are, namely Foodworld, Spencers daily, More super markets, Big Bazaar, Hypercity, Shoppers stop, Khadims, Lifestyle, Pantaloons, Westside, Trent, Reliance super, Reliance trends, Reliance footprints, and entertainment chains like, Adlabs, Fame, PVR, Inox and Fun Republic. To spell out few Indian companies that have invested a big money in Indian Organised Retailing are namely, Reliance, Future Group, Aditya Birla Group, TATA, and Bharti etc. Regarding the Unorganised retailing, it stands for 95% of the Indian retailing and is occupied by the sole-owner managed general provision stores, paan shops, convenient stores, hand cart and pavement vendors etc. In relation to the provision of employment, the Organised sector has employed 50 lakh people whereas, the unorganised has employed 3.5 crore people in India. It is found that India has highest density of shops in the world (AC Nielson and KSA Technopark, India). It is also estimated that the retail contributes about 10-11% to the GDP of India. The value of the Organised retail is Rs. 35,000 crores and of the Unorganised is Rs. 9,00,000 crores approximately. The Organised retailing is growing at a rate more than 30%. It
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implies that slowly the unorganised segment is being converted into Organised. Regarding the investment, made by some of the Indian giants, it is learnt that Reliance has already invested $3.4 billion and emerging as the largest contemporary Indian conglomerate; Hypercity Retail of K.Raheja group plans to open up 55 hypermarkets before 2015; Bharti enterprises plans to spend $5 billion by 2015 in their retail business. The present state and future plans of companies in this Indian retail industry will certainly ensure an abnormal growth rate than the present. According to AT Kearneys Annual Global Retail Development Index for 2010, it is found in the annual study, made among 30 Countries based on their retail investment attractiveness, India has been placed at third rank which is ahead of Brazil, Saudi Arabia and others. TABLE-1 TOP FIVE RETAIL INVESTMENT COUNTRIES 2010 Rank 1 2 3 4 5 China Kuwait India Saudi Arabia Brazil Country Market Attractiveness (25%) 50.6 75.4 35.4 65.3 73.5 Country Risk (25%) 85.8 94.3 51.3 86.5 74.3 Market Saturation (25%) 32.9 56.2 62.2 50.7 46.6 Time Pressure (25%) 86.6 24.5 97.8 31.0 36.9 GRDI Score 64.0 62.6 61.7 58.4 57.8
Source: GRDI (Global Retail Development Index) 2010, AT Kearney Analysis It is also learnt from the analysis of AT Kearney that the Indian retail market is worth $410 billion as of now and only 5% sales are through organised retail whereas, the rest is in the unorganised retail. Such a major informal segment of Indian retail could be perceived to be the potential opportunities for domestic and international Companies. Moreover, it is estimated that the Indian retail will grow very fastly to become worth of $535 billion in 2013, with 10% from organised retail due to the effect of growing middle class which will demand better shopping environment and quality brands.
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CHART-1
Source: GRDI (Global Retail Development Index) 2010, AT Kearney Analysis The companies which have entered into the retailing in India have started introducing innovative formats in stores. Future group has set up community family shopping centre in Bangalore city. Wedding malls have been developed to offer every aspect of wedding requirements. Wal-Mart is working innovatively to change the agricultural supply chain model in India in order to improve the productivity and quality of goods by launching direct farm produce sourcing method. Foreign companies, established in the global retail continue to show greater interest in India to open hyper markets and Malls. In apparel, Zara from Spain opened its first store in India in 2010. Polo Lauren and Diesel brands are expanding their retail business in India fastly. Though the real estate is cheaper in India comparing many developed nations, the companies are unable to find suitable locations in Tier-1 Cities. Therefore, they have started opening shopping centers in Tier-2 Cities of India. For example, More, Spencers, Mega Mart and Shoppers stop have already opened up their stores inTier-2 cities. SOURCES OF FDI IN INDIA India has broadened the sources of FDI in the period of reforms. There were more than 130 countries investing in India in 2011 as compared to 15 countries in 1991. Thus, the number of countries investing in India has been increased after reforms. After India adopted liberalization of economy, Mauritius, South Korea, Malaysia, Cayman Islands and many more countries predominantly appears on the list of major investors apart from U.S, U.K, Germany, Japan, Italy, and France which are not only the major investor now but during pre-liberalisation era also.
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TABLE-2 MAJOR SOURCES OF FDI (IN %) IN INDIA (FROM APRIL 2000 TO APRIL 2011) Mauritiu Singapor U.S.A U s e K Netherlan ds Japa n Cypru s German y Franc e UAE
41.56 %
9.84%
7.17 %
5 %
4.32%
4.15 %
3.75%
2.30%
1.87 %
1.44 %
Source: Complied & computed from the various issues of Economic Survey, RBI Bulletin, Ministry of Commerce The data in table-2 presents the major investing countries in India during 2000-2011. Mauritius is the largest investor in India with 41.56% of total FDI during the period. This dominance of Mauritius is because of the Double Taxation Treaty i.e, DTAA- Double Taxation Avoidance Agreement between the two countries, which favours routing of investment through this country. This DTAA has been made out with Singapore also. Singapore is the second largest investing country in India. While comparing the investment made by both Mauritius and Singapore, one interesting fact comes up which shows that there is a huge difference between FDI inflows to India from Mauritius and Singapore. The other major countries are U.S.A with a relative share of 7.17% followed by UK, Netherlands, Japan, Cyprus, Germany, France and UAE. CHART-2
SHARE OF TOP 10 COUNTRIES IN FDI INFLOWS ( 2000-2011)
FDI CONTRIBUTION IN %
50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Mauritius Series1 41.56% Singapor e 9.84% Netherlan ds 4.32%
USA 7.17%
UK 5%
Japan 4.15%
Cyprus 3.75%
Germany 2.30%
France 1.87%
UAE 1.44%
COUNTRIES
Source: Complied & computed from the various issues of Economic Survey, RBI Bulletin, Ministry of Commerce
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Thus, it is understood that only these ten countries account for 81.4% of the total FDI inflows in India during 2000-2011. India needs enormous amount of financial resources to carry forward the agenda of transformation from the planned economy to the opened economy, to tackle imbalance in BOP, to accelerate the rate of economic growth and to have a sustained economic growth. DISTRIBUTION OF FDI WITHIN INDIA FDI inflows in India are concentrated around five cities namely, Mumbai, New Delhi, Bangalore, Ahmedabad, and Chennai. Mumbai received heavy investment from Mauritius (29%), apart from U.K. (17%), USA (10%), Singapore (9%), and Germany (4%). The key sectors attracting FDI inflows to Mumbai are services (30%), Computer software and hardware (12%), power (7%), metallurgical industry (5%) and automobile industry (4%). Delhi received maximum investment from Mauritius (58%), apart from Japan (10%), Netherlands (9%), and UK (3%). While the key industries attracting FDI inflows to Delhi region are telecommunications (19%), services (18%), housing and real estate (11%), automobile industry (8%) and computer software and hardware (6%). CHART-3
DISTRIBUTION OF FDI WITHIN INDIA (2000-2008)
30000
Amt IN MILLION (US$)
25000 20000 15000 10000 5000 0 Mumbai New Delhi Bangalore REGIONS Ahmedabad Chennai
Source: Compiled and computed from the various issues of SIA Bulletin, Ministry of Commerce, GOI Heavy investment in Bangalore came from Mauritius (40%) alone. The other major investing countries in Bangalore are USA (15%), Netherlands (10%), Germany (6%), and UK (5%). Top sectors reported the FDI inflows are computer software and hardware (22%), services (11%), housing and real estate (10%), telecommunications (5%), and fermentation industries (4%). Chennai received FDI inflows from Mauritius (37%), Bermuda (14%), USA (13%), Singapore (9%) and Germany (4%). The key sectors attracting FDI inflows are construction activities (21%), telecommunications (10%), services (10%), computer software and hardware
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(7%), automobile industry (7%). As far as technical collaborations are concerned, Chennai received 660 numbers of technical collaborations during 1991-2008. FDI IN INDIAN RETAILING It is good to look at the present state of FDI in Indian Retailing. The Indian Government has so far permitted 100% FDI in cash and carry B2B format business and single-Brand Retail. Cash and carry form of trade allows sale of goods to the member Institutions like, offices, hotels and retailers. The consumers who buy goods for personal consumption are not permitted to be served by the enterprises that are funded by FDI in cash and carry business format. Regarding, single brand retailing, FDI to the tune of 100% has been permitted in India from 10 th January 2012 with certain conditions. However, the initiative of the Central Govt. to allow FDI in multibrand retail segment has not yet been materialised. Presently, the central government is looking at the ways and modality of allowing FDI in the multi-brand retail segment. According to the Finance Minister Mr. Pranab, who delivered his address at the 106 th annual session of PHD Chamber of Commerce and Industry in New Delhi on 23 rd December 2012, FDI in multi-brand retail is still in the mind of the government and it would be pursued once consensus emerged among political parties and other stakeholders. It is the general perception of the business people and also majority of the public that the central Govt. is holding up the proposal of FDI in multi-brand retail of India till the state assembly elections of five states Uttar Pradesh, Punjab, Uttarakhand, Goa and Manipur that shall be completed by March 3, 2012. HOW DO FEW TOP RETAILERS OF THE WORLD LOOK AT INDIAN CONSUMER MARKET? It is certain that Indian consumer market is perceived to be an attractive and profitable destination for many foreign companies. However, it is more appropriate to look at the details of the fact. Among the many multi-nationals that are interested in Indian retail, few companies such as, Wal-Mart, USA; Carrefour, France; Metro, Germany; Tesco, UK; and Costco, USA show greater interest. Wal-Mart, USA with the retail sales of $ 256.33 Billion as of 2003 is very particular to enter India. In fact, it has already entered in B2B format of India in collaboration with Bharti enterprises. Carrefour, France which is a global retailer with the sales of $79.80 Billion in 2003 shows interest in entering India. Metro, Germany which has already entered into India in the cash and carry format, now much interested in getting into the Indian multi-brand retail segment. Tesco, UK is already in touch with the Indian Government to enter into India. Similarly, Costco of USA is also in touch with the government to get an entry into India. ENTRY STRATEGIES, USED BY THE FOREIGN FIRMS TO ENTER INTO INDIA This part of the paper analyses the entry strategies that have been already utilised by the foreign companies to enter into India. Franchising:- In this mode, the international companies give the right of using the name and technology to their local partners in the foreign markets and in return, they collect the consideration of Royalty. Nike, Pizza Hut, Tommy Hilfiger, Mark & Spencer and Mango are few brands which have utilised this mode. Manufacturing:- If a foreign company sets up its own production and also has the permission to establish retail counters in
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India, it has utilised Manufacturing mode of entry. Bata India, Coca Cola India, Pepsi India and Perfetti India are few examples for this mode of entry. Wholesale Trading:- entry permitted to involve in cash and carry business in B2B market. Wal-Mart and Metro are good examples here. Distribution:- In this case, the multi-national companies establish local distribution centres through which they supply products to Indian retailers. CONDITIONS ON 100% FDI IN SINGLE-BRAND RETAIL Unlike FDI in Multi-brand retail, which faced a lot of resistance from the opponents and some of the allies of the UPA Govt, FDI in Single-brand retail has been approved easily. According to the amendment made in Circular 2 of 2011 Consolidated FDI Policy, FDI in Single-brand retail trading would be subject to the following conditions: 1. 2. 3. 4. 5. Products to be sold should be of a Single-brand only. Products should be sold under the same brand internationally i.e. products should be sold under the same brand outside India as well. Single-brand product retail trading would cover only products which are branded during manufacturing. The foreign investor should be the owner of the brand. For any FDI beyond 51%, mandatory sourcing of at least 30% of the value of products sold would have to be done from Indian small industries / village and cottage industries, artisans and craftsman. Small Industries would be defined as industries which have a total investment in plant & machinery not exceeding US $ 1.00 million. The application seeking permission from the government for FDI in retail trade of singlebrand should be submitted to the Secretariat for Industrial Assistance in the Department of Industrial Policy and Promotion. The application will specifically indicate the product / product categories which are proposed to be sold under single-brand. Any addition to the product / product categories to be sold under single-brand would require fresh approval from the government. www.zenithresearch.org.in Applications would be processed in the Department of Industrial Policy and promotion to determine whether the products proposed to be sold satisfy the notified guidelines, before being considered by the FIPB for government approval.
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This is a great announcement for many foreign brands which have already entered into India as well as those who desire to enter (Like IKEA, GUCCI etc). BENEFITS OF ALLOWING 100% FDI IN SINGLE-BRAND CATEGORY There are certain benefits, identified by the researcher on allowing FDI in Indian singlebrand retailing. They have been detailed as follows:
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SUPPORTS THE GROWTH OF INDIAN SMALL INDUSTRIES: If the consumers in India buy goods at foreign single-brand outlets, established in India and enjoy the shopping experience, in reality, they would be actively contributing towards significant money transfer to a multinational based out of the USA, which after retaining profits, would end up sending majority of this money to China, where most goods are being manufactured. The government appears to be cognizant of this very issue, which is why they proposed that at least 30 per cent of the procurement of manufactured / processed products shall be from "small industries" (presumably this refers to "small industries" in India). This aspect will lead to support the growth of the small industries in the country. SUPPORTS IMPROVED STANDARD OF LIVING: Allowing FDI in Indian Single-Brand Retail will certainly bring in more sophisticated and luxurious goods and services to the country. Availability of such goods backed with good promotional support will definitely motivate / induce the Indian buyers to buy and consume them. It will be certain that the standard of living of the consumers will be improved. In addition to the above, the people who shall be employed in the multi-national retail enterprises will be paid attractive salaries and wages that will also stand for their increased affordability. The organised retail also provides other add-on services along with the products sold. All these new changes, that shall be resulted by allowing FDI in single-brand retail will surely support improved standard of living. ENHANCED COMPETITION AND REDUCED PRICES: Entry of the many other multinational corporations will obviously promise intensive competition between the different companies offering their brands in a particular product market. When the manufacturing companies will take efforts to increase their market share or to accomplish their other marketing objectives, competition among them will be activated. Such a competition will result in the availability of many varieties, reduced prices, and convenient distribution of the marketing offers. ENHANCED SHOPPING ENVIRONMENT AND EXPERIENCE: Consumers in India mostly suffer from unhygienic experiences, erratic price and irregular availability in daily food and FMCG products. Many established foreign retail giants that are known for low pricing, creation of pleasant shopping environment, maintenance of hygienity, better customer care, effective inventory management and storage facilities shall efficiently contribute for eradicating the said problems and make the shopping very productive and a happy experience to the customers in India. EXPLOITATION BY THE MIDDLEMEN SHALL BE STOPPED: Small farmers are suffering from the middlemen who are depriving them a fair price. The foreign retail giants shall involve in direct manufacturing and sourcing of their market offer from Indian small industries as well. These activities that shall result by allowing 100% FDI in single-brand retail of India will certainly control the exploitation by middlemen. AN OPPORTUNITY FOR INDIAN COMPANIES / RETAILERS TO LEARN ABOUT NEW STRATEGIES: Countries like China, Vietnam and Chile that initially hesitated but have since opened 100 per cent FDI in retail are today enjoying the investments, job creation, introduction of technology and infrastructure. Consumers are benefiting from better pricing and better quality of products. As per Chinese analysts, entry of Walmart and Carrefour has changed
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the way Chinese companies manage business. Local Chinese retailers like Shanghai Bailian group, Suning, Gome and Dashang still dominate the retail market as they have quickly learnt how to set up new supply chain systems. In fact, small retail outlets have risen in China from 1.9 million to 2.5+ million since 2004. US market researcher RNCOS has projected that Vietnams retail market sales will increase from $39 billion in 2008 to $85+ billion by 2012. In 2009 alone, FDI in Chile was $6.21 billion. Similarly Argentina, Brazil, Indonesia, Malaysia, Russia, Singapore, and Thailand have allowed 100 per cent FDI in multi-brand retail since 1990s. According to a Columbia University study, 10 years after Indonesia opened FDI, small traders continue to retain 90 per cent of the business. Therefore, the similar progress could be expected in India also after 100% FDI in single-brand is allowed. INTEREST OF THE SMALL TRADERS IS NOT AFFECTED BY THE FDI POLICY OF THE GOVT. The loudest and most vocal opponents of FDI in retail are small traders who say they will go bust. They staged similar, violent protests when the first Indian retail chains, opened. There have been many surveys over the years of the impact of organised retail on the small trader with varying conclusions. Generally they agree that in the initial few months, small traders in the vicinity of modern stores took a hit but once the novelty wore off, things went back to earlier. In a quick straw poll, conducted by an organization in 4 major cities of the country, it was found that the Indian Dukaandaar after almost a decade of organised retail is largely unruffled. Therefore, the new FDI policy for single-brand retail shall not affect the small retailers in a large scale. CONTROLLING INFLATION: It could be understood that the large organised retailers could directly purchase their merchandise from the producers at most competitive prices. The absence of middle men will help the organised retailers to set competitive but yet profitable prices for their market offer. This is one way by which inflation could be controlled efficiently. ENCOURAGE THE MOBILISATION OF FOREIGNERS INTO INDIA: Allowing FDI in Indian retailing will obviously encourage the mobilisation of foreigners into India. The foreigners who come to India may prefer to buy the offers of both the domestic and multinational companies. Moreover, the availability of the global brands and better quality products shall encourage many foreigners to come into India for the purpose of employment or doing business in manufacturing and other sectors. BOON TO HOSPITALITY AND TOURISM INDUSTRIES IN THE COUNTRY: The foreign companies will bring to India all the products and services they market in their countries, provided they are permitted. Such a situation will be a boon to the Indian tourism and hospitality industries that helps them to attract many foreigners to visit India. Since all the usual products and services what they consume in their home countries are made available here in India, visiting India will not be a problem for them. Therefore, it could be well said that the availability of the global brands is a boon to the Indian hospitality and Tourism Industries. INCREASE IN EXPORTS FROM THE COUNTRY: When the foreign companies are permitted in Indian retail market, they will contribute for increase in exports. Those foreign companies may find sourcing in India. It is evidenced that Wal-Mart in 2006, sourced operations
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worth $600 Million in India. In 2010, it sourced goods worth $125 Million from the State of Punjab alone. If similar sourcing of various other products, done in India by even few other world giant retailers, the export from India will surely contribute for trade surplus. It is what has happened in China after 1994. EFFICIENT ENFORCEMENT OF LAWS: The presence of International companies in Indian Retail will facilitate effective enforcement of Tax Laws and increase in tax revenue. Tax evasion could be stopped when more of the retail is in organised format. OVERALL GROWTH OF THE COUNTRY: FDI in Indian retail will obviously result in the growth and expansion of the market and change in consumer spending pattern and also increase in their spending that eventually lead to higher GDP in the country. CREATION OF MORE AND BETTER EMPLOYMENT OPPORTUNITIES: The entry of foreign companies into Indian Retailing will not only create many employment opportunities but, will also ensure quality in them. This helps the Indian human resource to find better quality jobs and to improve their standard of living and life styles on par with that of the citizens of developed nations. THREATS OF ALLOWING 100% FDI IN SINGLE-BRAND CATEGORY While on one hand, India can enjoy a good number of benefits by allowing FDI in Indian single-Brand retail, on the other hand it is a fact to be accepted that there are few threats also arise. This part of the paper shall identify and detail such threats. DOMINATION OF ORGANISED RETAILERS: FDI in single-brand retail will strengthen organised retail in the country. These organised retailers will tend to dominate the entire consumer market. Much organised retailers might even easily involve in syndication among them on certain activities which will be against the interest of consumers and government as well. This is another threat of FDI in multi-brand Retail in India. INDIRECTLY LEADS TO INCREASE IN REAL ESTATE COST: It is obvious that the foreign companies which enter into India to open up their malls and stores will certainly look for places in the vantage points of the cities. There shall be a war for place, initiated among such companies. It will result in increase in the cost of real estate in the cities that will eventually affect the interest of the ordinary people who desire to own their houses within the limit of the cities. DISTORTION OF CULTURE: Though FDI in Indian retail will indirectly or directly contribute for the enhancement of Tourism, Hospitality and few other Industries, the culture of the people in India will slowly be changed that is not for good. The youth of India shall easily and more interestingly imbibe certain aspects and lifestyles from the foreigners who would in high number come into India. So, there is a danger of negative changes in the rich Indian culture. PROMOTION OF UNHEALTHY COMPETITION AMONG THE ORGANISED RETAIL PLAYERS: Since there will be tremendous growth of organised form of retail especially through FDI in retail, it will definitely lead to stiff competition among the domestic
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and other companies. The resources that will be spent by the companies to compete with one another will be eventually charged on the heads of the final consumers. This will make the products costlier. CREATION OF MONOPOLY IN THE LONG-TERM: The foreign companies, which shall be permitted through FDI in retail, will initially spend huge sum of money to chase the domestic companies out of business. It will not be affordable to any domestic company to face the competition from the multi-nationals in the retail market. The foreign giants will offer the products in the beginning at subsidized rates in order to capture a large market share. They can sustain for a longer period even in loss, but the same is not possible for domestic companies in retail. Once, the domestic companies are suppressed fully and sent out of the market, the foreign companies will play like Monopoly in different locations of the Indian consumer market. This will only result in the exploitation of the interest of final consumers. NEGATIVE INFLUENCE ON THE TRADE BALANCE: As many foreign companies which will involve in Indian Retail will source majority of their products globally and show interest in investment in much profitable countries, it will only affect the trade of India negatively in the long term. DISTORTION OF URBAN DEVELOPMENT: The present slow and steady urban development will be affected much by the entry of foreign companies in Indian retail. Those companies will be interested in locating their stores and malls only within the limits of the cities. They will never contribute for the structured development of the cities. Rather, they will contribute for polluting the environment of the cities. This has been evidenced by allowing FDI in automobile sector of India. SUGGESTIONS Many foreign companies have already entered into Indian market through the available modes such as, Franchising and Exporting. They are much eager to change their entry to FDI that would strengthen their operations in India. What is really needed for the growth of any country is the promotion of consumption. Effective consumption will lead to greater economic growth of a country. It is also not fair to deny the Indian consumers preferring better and modern products. It is the belief of the researcher that allowing FDI in Indian single-brand retail by considering the following suggestions will bring in more of benefits than threats to the country. FDI should be initially allowed in less sensitive sectors and also in the sectors wherein the domestic companies are established strongly. In order to facilitate the establishment of infrastructure, FDI should be initially permitted in Tier-II Cities of the country. The new shopping centers, to be opened by the foreign companies should not add to the congestion of the cities. Since countries like Thailand and Malaysia have suffered badly out of the sourcing done by Multi-nationals, permitted in the retail of their market, India should take a note of
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certain lessons from those countries while framing policies for allowing FDI in singlebrand retail. Try to emphasise on more sourcing of products locally. In order to avoid the foreign companies to make use of predatory practices, allow the companies to first set up stores in the form of super markets or departmental stores. The government should take initiatives to improve the manufacturing sector that grows at a very lesser rate of 3.7%. If the manufacturing is strengthened, the displaced employees of the retail industry could be well accommodated there. Indian government should bring out another condition by which the foreign retail giants should require to spend a portion of their profit to take care of certain social welfare activities such as, controlling pollution, generation and conservation of energy, etc., The conditions for allowing FDI in single-brand retail should also emphasise upon the provision of employment opportunities to Indians that would enable India to reduce the crucial unemployment problem. CONCLUSION It is obvious that India, being a member in WTO, it has to allow FDI in multi-brand retail also. India could only delay the permission to FDI but not to disallow it. In this juncture, India Should find out suitable ways as suggested in this paper to allow FDI so that it can enjoy more of the benefits than threats. Even the threats of FDI could be handled properly if allowing FDI is planned out very strategically. Since, many people involved in Indian retail traditionally shall be displaced by the entry of foreign giants, the government should take efforts to strengthen the industries like manufacturing which will accommodate those displaced employees. The advent of FDI in retail sector is bound to pull up the quality standards and cost-competitiveness of Indian producers in all these segments. It will benefit not only the Indian consumer but also open the door for Indian products to enter the wider global market. Moreover, as any decision that affects the consumption of the consumers will only stop the economic growth of a country, it is concluded that the decision, taken by the Government to allow 100% FDI single-brand retail of India is a boon to its economy. REFERENCES 1. 2. 3. 4. Annual Report, 2004, Wal-Mart Corp., www.walmart.com Association of Traders of Maharashtra V Union of India, 2005 (79) DRJ 426 A.T.Kearneys (2007): Global Services Locations Index, www.atkearney.com AT Kearney (2010): Expanding Opportunities for Global retailers-2010 Global retail development Index, viewed on March 31, 2011 www.zenithresearch.org.in
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