Project on FDI

FDI in Retail Sector An Appraisal

1.Introduction
Nations are opening up the doors of all the permissible sectors of their
economy, generously, to not just their national players, but also to foreign
nationals, in order to boost the countries economic and social progress and
in due course the Gross Domestic Product (GDP). In other words, the
progression of globalization and liberalization has led to the emergence of
the world as a single giant promising market.
India is not oblivious to the rapid developments taking place in the global
market and has emerged as one of the prime destinations for the investment
of funds from an impressive number of foreign investors.
The advent of FDI in India was witnessed during the end of 1990s when the
Indian national government announced a number of reforms which aimed at
helping in the process of liberalization and deregulation of the Indian
economy.

The Government of India's wise policy regime and a healthy

business environment have also ensured that foreign capital keep flowing
into the country. The government has taken numerous initiatives in recent
years
This write up briefly specifies the policy initiative and benefits from FDI flow
into retail sector. Retail and real estate are the two sectors of India which are
booming at present times. According to the experts, the prospects of both
the sectors are mutually dependent on each other. According to Indian
Retail Industry report retail is Indias largest source of employment after
agriculture.

2. Conceptual Discussion
Retail sector in India
Retail sector in India is reflected in sprawling shopping centers, multiplexmalls and huge complexes which offer shopping, entertainment and food all
under one roof. The concept of shopping has altered in terms of format and
consumer buying behavior, which has ultimately created a revolution in
shopping. The factors that are driving the growth of the organized retail
sector in India are:

Falling real estate prices

Increase in disposable income and customer aspiration

Increase in expenditure for luxury items

The increase in the young working population in India

Hefty pay-packets

Nuclear families in urban areas

Increasing working-women population

Low share of organized retailing

Evolution of India Retail:

S.No
1

2
3

Format
Historic/Rural Reach

Shop types
Weekly Markets

Village Fair

Traditional/Pervasive Reach

Melas
Convenience stores

Government Supported

Mom& Pop Kiranas

PDS Outlets

Khadi Stores

Cooperatives
Exclusive Brand Outlets

Modern Formats/International

Hyper/Super markets

Department Stores

Shopping Malls

FDI (Foreign Direct Investment)

FDI refers to foreign capital investment to enhance the production capacity
of an economy. Recognizing the need to attract foreign funds for the growing
retail sector in India, the Government has liberalized the exchange control
norms to permit foreign direct investment. The Government has put in place
a policy framework on Foreign Direct Investment, which is transparent,
predictable and easily comprehensible. This framework may be updated
every year, to capture and keep pace with the regulatory changes. The
Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce
& Industry, Government of India makes policy pronouncements on FDI
through Press Notes/Press Releases which are notified by the Reserve Bank
of India as amendments to the Foreign Exchange Management.
Forms of Foreign Capital Flowing into India
The various Forms of Foreign Capital Flowing into India has helped to bring in
huge amounts of FDI into the country, which in its turn has given a major
boost to the Indian economy. The government of India made several changes
in the economic policy of the country in the early 1990s.

This led to the

deregulation and liberalization of the Indian economy and also increased the
flow of foreign direct investment into the country.
The Forms of Foreign Capital Flowing into India include:
1. NRI deposits, which are made in profitable foreign currency accounts.
2. Portfolio flow of capital that are made by institutional foreign investors

that make investments in India's debt and stock markets.

3. Investments that are being made by the foreign investors in the

commercial banks of India.

Sectors FDI is allowed in

It is to be noted that FDI in India is liberally allowed in all sectors including
the services sector, except a few sectors where FDI is either absolutely
forbidden on the grounds of national interest, or, other sectors where the
existing and notified sectoral policy does not permit FDI beyond a ceiling.
Moreover, FDI for all the permissible items/activities can be brought in
through the Automatic Route under powers delegated to the Reserve Bank of
India (RBI), and for the remaining items/activities through Government
approval, which is accorded on the recommendation of the Foreign
Investment Promotion Board (FIPB).
Forms of investment
Further, it is to be noted that Indias FDI Policy allows for investment only in
the following form of investments, namely,
1. Through financial alliance
2. Through joint schemes and technical alliance
3. Through capital markets, via Euro issues
4. Through private placements or preferential allotments.
Benefits of Foreign Direct Investment in the retailing sector:
Gradual opening up of the retail segment for FDI will work to the advantage
to government, consumers and existing retailers in the following manner:
1. Generate huge employment for the semi-skilled as well as illiterate
population, which will ultimately increase the per capita income and
increased tax paying population.
2. Indirect employment generation channel by training and employing
people in the transportation and distribution sectors such as drivers,
mechanics etc.

3. Increased investment in technology in the form of cold storage chains,

food processing sector etc. will decrease the wastage to a considerable
amount.
4. Traditional retailers can use this situation in their favor by taking
franchisees of the mega players of this industry.
5. The indirect benefits like better roads, online marketing, expansion of
telecom sector etc. will give a big push to other sectors like
agriculture, small and medium size enterprises.
6. The consumer gains from the wide variety of choices and a more
diversified basket of prices available under one roof.
7. The huge tax revenue generated from these retail giants will gradually
wipe out the ugly looking fiscal and revenue deficits.
8. The transaction in foreign currencies by these MNCs will create a

balance in exchange rate and will bring in stable funds in the economy
as opposed to FIIs

9. 3. Implementation of the existing system

Foreign investment was introduced in 1991 under Foreign Exchange

Management Act (FEMA), driven by then finance minister Manmohan Singh
Government policy
S.n Sector

FDI allowance

o
1.
2.
3.

100%
51%
0

Wholesale cash-and-carry business

Single-brand retailing
Multi-brand retailing

Multtibrand retailing global majors like WalMart, Costco and Carraffour are
only allowed to give logistical support to domestic multi-brand retail
companies. A usual entry mode for foreign players is through the cash and
carry business, either directly (like Metro AG) or through partnerships (like
Wal-Mart with Bharti), and through retail franchise agreements.
The FDI policy also aims to help to reduce wastage of fruit and vegetables,
estimated to cause losses of $12 billion annually.
Procedure for receiving Foreign Direct Investment in an Indian
company
An Indian company may receive Foreign Direct Investment under the two
routes as given under:
1. Automatic Route - FDI is allowed under the automatic route without

prior approval either of the Government or the Reserve Bank of India in

all activities/sectors as specified in the consolidated FDI Policy, issued
by the Government of India from time to time.
2. Government Route - FDI in activities not covered under the automatic

route requires prior approval of the Government which are considered

by the Foreign Investment Promotion Board (FIPB), Department of
Economic Affairs, Ministry of Finance. The Indian company having received FDI

either under the Automatic route or the Government route is required to comply with
provisions of the FDI policy including reporting the FDI to the Reserve Bank.

Initiatives by the Government

The government has taken various steps to further facilitate and augment
the inflow of foreign investment into India.
1. The government would soon remove the compulsory disinvestment
clause on overseas companies in major sectors like food processing
and chemicals, a move aimed at simplifying foreign direct investment
(FDI) rules further. The Finance Ministry is weighing the proposal after
the Department of Industrial Policy and Promotion (DIPP, which
formulates FDI policy) suggested waiving the clause for all companies
that have decided on divestment.
2. The government may allow 49 per cent FDI in segments such as gems
& jewellery and apparel after National Council of Applied Economic
Research (NCAER), which studies the effects of multi-brand retail in
India, submits its report.
3. Restructuring the Foreign Investment Promotion Board (FIPB).
4. The Foreign Direct Investment (FDI) up to 100 per cent is permitted
under the automatic route in most of the sectors.
5. Establishment of the Indian Investment Commission to act as a onestop shop between the investor and the bureaucracy.
6. Progressively raising the FDI cap in other sectors like telecom, aviation,
banking, petroleum and media sectors among others.
7. Removal of the investment cap in the small scale industries (SSI)
sector.
8. Companies will now require only an FIPB approval for investments up
to US$ 231.90 million (Rs 1,000 crore). Clearance from Cabinet
Committee of Economic Affairs (CCEA) will be imperative only for
investments above US$ 231.90 million (Rs 1,000 crore). These
measures will enhance the global communitys confidence in the Indian

economy, and reflect the efforts of the Indian Government to pace up

with the global economy.

FDI Restrictions
FDI Restrictions in Indian Sectors have been imposed on a few sectors by
the Indian government. The various Indian Sectors having restrictions of
foreign direct investment are atomic energy, Nidhi company, betting and
gambling, chit fund business, plantation or agricultural activities, real estate
business, business in transferable development rights, lottery business, retail
trading ,railway transport, mining of chrome, zinc, gold, diamonds, copper,
iron, gypsum, manganese, and sulfur and ammunition and arms.
FDI Restrictions in Indian Sectors have been imposed in order to protect the
interests of the country, as these sectors either relate to national security or
sensitive enough to keep apart the foreign companies. Foreign direct
investment restrictions in Indian sectors have also been imposed in order to
allow the domestic companies to make more profits with less competition,
than that of in the presence of rivalry international firms.
Sectors where FDI is not allowed in India, both under the Automatic
Route as well as under the Government Route
FDI is prohibited under the Government Route as well as the Automatic Route
in the following sectors:
1.

Atomic Energy

2.

Lottery Business

3.

Gambling and Betting

4.

Business of Chit Fund

5.

Nidhi Company

6.

Agricultural (excluding Floriculture, Horticulture, Development of

seeds, Animal Husbandry, Pisciculture and cultivation of vegetables,
mushrooms, etc. under controlled conditions and services related to

agro and allied sectors) and Plantations activities (other than Tea
Plantations)
7.

Housing

and

Real

Estate

business

(except

development

of

townships, construction of residential/commercial premises, roads

or bridges
8.

Trading in Transferable Development Rights (TDRs).

9.

Manufacture of cigars, cheroots, cigarillos and cigarettes, of tobacco

or of tobacco substitutes.

Unorganized Retailing
Needless to say, the Indian retail sector is overwhelmingly swarmed by the
unorganized retailing with the dominance of small and medium enterprises in
contradiction to the presence of few giant corporate retailing outlets. The
trading

sector

is

also

highly

fragmented,

with

large

number

of

intermediaries who operate at a strictly local level and there is no barrier to

entry, given the structure and scale of these operations.
Moreover, the retail sector also acts as an important employment absorber
for the present social system. Thus, when a factory shuts down rendering
workers jobless; or peasants find themselves idle during part of the year or
get evicted from their land; or the stagnant manufacturing sector fails to
absorb the fresh entrants into the job market, the retail sector absorbs them
all.
Unrestrained FDI
The history has witnessed that the concern of allowing unrestrained FDI flows
in

the

retail

sector

has

never

been

free

from

controversies

and

simultaneously has been an issue for unsuccessful deliberation ever since

the advent of FDI in India. Where on one hand there has been a strong outcry
for the unrestricted flow of FDI in the retail trading by the UPA government
and by an overwhelming number of both domestic and as well as foreign
corporate retail giants; to the contrary, the Left wing along with the critics of

unrestrained FDI have always fiercely retorted by highlighting the adverse

impact, the FDI in the retail trading will have on the unorganized retail trade,
which is the source of employment to an enormous amount of the population
of India.
However, it is to be noted that lately there has been an remarkable surge in
the demand for the liberalization of the Indian retail sector both by at the
domestic and as well as at the international front and it seems that the
government is giving the matter a very pensive and careful consideration.
Some of the factors that have contributed to this trend are the evident profits
in the ever growing but conserved Indian retails sector, reduction in tariff,
cheaper real time communications, and cheaper transport. The main reasons
for such an unequivocal demand stems from the realization that
1. While the retail sector requires heavy investment for expansion, there
is hardly any local capital left in the capital markets as a consequence
of global financial meltdown
2. Efficient management of multi-brand, multi-product, multi location
retail, especially in the area of back-end operations, require heavy
dose of technology, which over the years has been developed and
perfected by foreign players.
(PROS of FDI): Relaxation in FDI
In wake of relentless protests for the opening up of the Indian retail market
for the reception of unrestrained FDI, the Investment Commission in July,
2006, suggested that 49% FDI be allowed in the Indian retail sector without
any restrictions on the number of outlets or location of stores. The Indian
retail boom and the Investment Commissions suggestions renewed the
debate on the issue of allowing FDI in the retail sector. The Commission
opined that that foreign investment would help in improving the retail and
supply chain infrastructure, and generate large-scale employment in the
country. In addition, the Indian retailers could absorb some of the best
operational practices of these international retailers and gain in experience.

Ultimately, the consumers would benefit due to the availability of more

product offerings, lower prices, and efficient service.
Steps by Manmohan Government
The recommendations of the Investment Commission proved to be very
promising and paved the way for a positive feedback by then ruling UPA
government and also the BJP government on the issue of liberalization of the
retail sector. It is interesting to note that previous Prime Minister Dr.
Manmohan Singh while speaking on the occasion of the midterm appraisal of
the Tenth Five Year Plan of the Government announced that his Government
has been considering permitting FDI in retail sector ostensibly to attain the
target of employment generation.
Moreover, the Indian Council for Research on International Economic
Relations (ICRIER) drafted a report which suggested that the opening up of
the FDI regime should be gradualover a 3 to 5 year timeframe to give the
domestic industry enough time to adjust to the changes. In the initial stage
FDI up to 49 per cent should be allowed which can be raised to 100 per cent
in 3 to 5 years (depending on the growth of the sector). FDI cap below 49 per
cent (i.e., 26 per cent) would not bring in the desired foreign investment
collaboration
Furthermore, in June, 2009, President Pratibha Patil, had said, Our country
has benefited from large foreign investment flows in recent years. These
flows, especially FDI, need to be encouraged through an appropriate policy
regime.
However, unfortunately the issue remained nebulous; with only evident
positive thinking on part of the government and with no final affirmative or
negative decision on the same whatsoever.

(CONS): The Parliamentary Committees Big Bang Theory

Amidst the hope for the liberalization of the retail sector and the expectation
for a promising decision by the UPA government on the issue of according

unrestrained reception to FDI in retail trading without any restrictions on the

number of brands, outlets or location of stores; the parliamentary standing
committee on commerce on 8th June, 2009, while presenting a picture of
gloom, recommended a blanket ban on domestic corporate and foreign
retailers from entering retail trade and also suggested restrictions to bar
organized retail firms from setting up malls and selling other consumer
products.
The 42 member panel, headed by BJP leader Murli Manohar Joshi, cautioned
that allowing organized players, domestic and as well as foreign, to enter
retail trade would result in the destruction of the economic foundation of the
small retail supply chain. Moreover, the parliamentary committee has also
suggested putting in place a regulation, a National Shopping Mall Regulation
Act, to ensure that cartelization does not take place, and regulate the fiscal
and social aspects of the retail sector.
The committee observed that Consumers welfare would be sidelined, as the
big retail giants by adopting a predatory pricing policy would fix lower price
initially, tempting the consumers. After wiping out competition from local
retailers, the big retailers would be in a monopolistic position and would be
able to dictate prices, the panel said. It also said that procurement centers
constituted by big corporates for making direct bulk purchases would initially
pay attractive prices to farmers and cause gradual extinction of `mandis and
regulated market yards.
The rationale advocated by the panel in shackling the liberalization of the
Indian retail sector is that according to government accounts, the total retail
business is of the order of rupees 12,00,000 crores, which is roughly one
third of the countrys GDP. Of this, 95% is accounted for by the unorganized
sector. Moreover, the panel also harped that retail is the largest manpower
employer in the country after agriculture and unorganized retail accounts for
8% of total employment, i.e., more than 40 million persons. The committee,
therefore, concluded that in allowing the establishment of giant corporate
backed retail stores would result not only in the annihilation of the

unorganized retail sector, but would ultimately result in unemployment of the

masses and simultaneously would also cause serious disruption to the
healthy contributions to GDP .
The panel also contended in order to counter the adverse effects of
corporate retail, there is an urgent need to design a legal and regulatory
framework along with an enforcement mechanism that would ensure that the
large retailers are not able to displace the small retailers by unfair means.
Further, the panel concluded that the provision of FDI retail in single brand is
not strictly adhered to and is in reality flouted. The panel opined that the
shops in malls are selling other branded items along with the brands for
which they got permission.
In addition to the above the committee also criticized the established of the
cash carry stores by foreign corporate retailers like WalMart and METRO
Group and in its report entitled Foreign and Domestic Investment in Retail
Sector, suggested that the government should stop issuing further licenses
for cash and carry, either to transnational retailers or to a combination of
transnational retailers and the Indian partner as it is a camouflage for doing
retail trade through the back door.
It is to be noted that the world leading retailer Wal-Mart was very eager to
open a retail chain throughout India. The retail giant did everything possible
so that the Government of India becomes inclined to liberalize FDI in retail
sector. In February 2002, the worlds largest retailer, Wal-Mart, opened a
global sourcing office in Bangalore. In November 2006, it announced its entry
under a joint venture with the Indian corporation Bharti
However, all attempts proved to be futile and the giant retail MNC finally
settled up with the establishment of a cash carry outlet in Amritsar on June
6, 2009. Such stores dont sell to end-users, but to retailers and middlemen.
This is the only format under which foreign retail chains are allowed in India.
It is submitted that at present, 100% FDI is permitted under automatic route
in the wholesale cash and carry trading.

Critical analysis of the events affecting the future of Indian retail

sector
It is submitted that though the recommendation of the panel were not
binding upon the Government; the same outrageously did the intended
harm. In other words, the direct result of the media hype of the
recommendations of the Panel was the abrupt stoppage of all the progressive
investment plans of various corporate giants all across the globe, who were
desirous of investing an irresistible amount of capital in the Indian markets,
in order to establish their brand name.
Indian retail lost FDI of up to Rs 400 crore (Rs 4 billion) in the fiscal year
because of recommendations by the Parliamentary Panel on Commerce,
which opposed further leeway to the entry of international retail brands in
the country.
The iconic $ 31-billion Scandinavian home products giant, IKEA, put on hold
its plans to set up 25 showrooms across the country foreign investment of
around $ 1 billion. IKEA told its stakeholders that Indian investment rules do
not encourage it to go ahead with its investment plans at least not in the
near future.
Moreover, Carrefour, Cartier, Armani, Tesco and UK-based Currys and Sports
Direct International were also be some of the foreign retail players to cut
down their investment in India following the governments FDI policy on
retail.
The ban even extended to the big domestic corporate heavyweights
retailers like Reliance, Bharti, Aditya Birla Group owned Moreand Pantaloons
Group owned Big Bazaar to trade in grocery, fruits and vegetables.
Even

though

no

decision

was

taken

by

the

government

on

the

recommendations given by the panel; the direct ramifications of the

recommendations have been evident considerable loss of FDI, managerial
expertise, and jobs for the Indian retail industry along with sacrifice of the
consumers interest and welfare.

It is interesting to note here that in contradiction to the recommendations of

the Parliamentary Committees, then ruling UPA government had raised
hopes of all those who were looking for a favorable response of the
government on the subject.
Yearly economic survey
While the Economic Survey has made a strong case for opening up the
FDI for multi-brand retail, it has recommended a gradual opening of the
sector. Improving the investment environment would require FDI in multiformat retail, starting with food retailing, said the Survey, adding that
initially the FDI could be allowed subject to the setting up a modern logistics
system, perhaps jointly with other organised retailers. A condition could also
be put that it must have (for five years say) wholesale outlets where small,
unorganised retailers can also purchase items (to facilitate transition),
added the Survey.
It is to be noted that the recommendations made in the Survey do provide
direction to the governments thinking on the subject. It was perceived a
welcome suggestion that will help the Indian retail sector grow, by leading to
inflow of money from overseas brands. Moreover FDI will ensure a bigger
playing field and sustained competition, resulting in reduction of prices for
the consumer. They recommended fixing a certain threshold investment for
entering into the sector.
Retail chains also view it in favourable light. There is enough room in the
Indian retail sector for everybody to grow and FDI will bring about
competitiveness between Indian and foreign players.
Most modern (organised) retailers, who have been asking for removal of ban
on FDI in retail, were excited with the recommendation made by the Survey
in its report. However, unfortunately the recommendations embodied in the
Economic Survey are not binding on the Parliament and the issue of the
liberalization of the Indian retail market, in terms of unrestrained FDI in the

retail trading, still needs a decisive affirmation by the Parliament in order to

morph as a rule of law.

Modi's Make in India mantra: FDI is First Develop India

Launching his government's ambitious project to make India a manufacturing
hub, Prime Minister Narendra Modi on September 25, 2014 promised
effective and easy governance to help achieve high growth and creation of
jobs.
The ambitious scheme, that also puts in place the logistics and systems to
address in a timely manner queries of potential investors, was unveiled with
the slogan make in India. This was done to prevent scores of Indians/
industrialists leaving the country to seek opportunities elsewhere. People
have lost faith in Indian manufacturing and themselves. A number of steps
have already been taken by the Modi government to make it easier to do
business in India along with the removal or relaxation of foreign equity caps
in several areas.
The processes of applying for licenses has been made online, it is 24/7. The
validity of such licenses has also been extended to three years
We want to make India a global destination for manufacturing. It has a huge
potential to be so is a recent statement given by Nirmala Sitharaman. World
class infrastructure will serve as the impetus from manufacturing. The
government has identified 25 sectors in which India can be world leaders. It
has also created a dedicated team to hand hold investors from across the
world. They are constructing dedicated freight and industrial corridors and
smart cities.
Finance and Defense Minister Arun Jaitley also announced that India would
increase foreign direct investment (FDI) in India's domestic military-industrial
sector from 26% to 49% to boost materiel development and manufacturing

The government has notified the liberalized FDI norms for the Railways,
permitting 100 per cent foreign direct investment through automatic route in
several areas, including high speed trains. The FDI liberalization in the
sector would help in modernization and expansion of railway projects.
However, FDI will not be allowed in train operations and safety.
Latest Initiatives
The Reserve Bank of India (RBI) has allowed overseas investors, including
foreign portfolio investors (FPIs) and non-resident Indians (NRIs), to invest up
to 26 per cent in insurance and related activities via the automatic route.
"Effective from February 4, 2014, foreign investment by way of FDI,
investment by foreign institutional investors (FIIs)/FPIs and NRIs up to 26 per
cent under automatic route shall be permitted in insurance sector," as per
the RBI.
The RBI has allowed a number of foreign investors to invest, on repatriation
basis, in non-convertible/ redeemable preference shares or debentures which
are issued by Indian companies and are listed on established stock
exchanges in the country. The investment will be within the overall limit of
US$ 51 billion allocated for corporate debt. Long-term investors who are
registered with Securities and Exchange Board of India (SEBI) will also be
deemed as eligible investors.
In an effort to bring in more investments into debt and equity markets, the
RBI has established a framework for investments which allowsFPIs to take
part in open offers, buyback of securities and disinvestment of shares by the
Central or State governments. Under a new scheme named 'Foreign Portfolio
Investment', the RBI said portfolio investors, which includes FIIs and qualified
foreign investors (QFIs) registered as per SEBI guidelines, will be called
registered foreign portfolio investors (RFPIs).

4.

Alternative

systems

prevailing

in

other

countries, if any
Difference in retail
The Indian retail sector is very different from that of the developed countries.
In the developed countries, products and services normally reach consumers
from the manufacturer/producers through two different channels:
(a) Via independent retailers (vertical separation)
(b) Directly from the producer (vertical integration)
In the latter case, the producers establish their own chains of retail outlets,
or develop franchises.
On the other hand, Indian retail industry is divided into organized and
unorganized sectors.
Organized Retail penetration level in various contries:

FDI in retail in other countries

Developing world:
A 2010 meta-analysis of the effects of foreign direct investment on local
firms in developing and transition countries suggests that foreign investment
robustly

increases

local

productivity

growth.

The

Commitment

to

Development Index ranks the "development-friendliness" of rich country

investment policies.
China:
FDI in China, also known as RFDI (renminbi foreign direct investment), has
increased considerably in the last decade, reaching $59.1 billion in the first
six months of 2012, making China the largest recipient of foreign direct
investment and topping the United States which had $57.4 billion of FDI. In
2013 the FDI flow into China was $64.1 billion, resulting in a 34.7% market
share of FDI into the Asia-Pacific region. By contrast, FDI out of China in 2013
was $18.97 billion, 10.7% of the Asia-Pacific share.
During the global financial crisis FDI fell by over one-third in 2009 but
rebounded in 2010.
United States:
Broadly speaking, the U.S. has a fundamentally 'open economy' and low
barriers to foreign direct investment.
U.S. FDI totaled $194 billion in 2010. 84% of FDI in the U.S. in 2010 came
from or through eight countries: Switzerland, the United Kingdom, Japan,
France, Germany, Luxembourg, the Netherlands, and Canada. A major source
of investment is the real estate, the foreign investment in this area totaled
$92.2

billion

in

2013,

under

various

forms

of

purchase

structures

(considering the U.S. taxation and residency laws).

A 2008 study by the Federal Reserve Bank of San Francisco indicated that
foreigners hold greater shares of their investment portfolios in the United
States if their own countries have less developed financial markets, an effect
whose magnitude decreases with income per capita. Countries with fewer
capital controls and greater trade with the United States also invest more in
U.S. equity and bond markets.
White House data reported in 2011 found that a total of 5.7 million workers
were employed at facilities highly dependent on foreign direct investors.

Thus, about 13% of the American manufacturing workforce depended on

such investments. The average pay of said jobs was found as around
$70,000 per worker, over 30% higher than the average pay across the entire
U.S. workforce.
President Barack Obama said in 2012, "In a global economy, the United
States faces increasing competition for the jobs and industries of the future.
Taking steps to ensure that we remain the destination of choice for investors
around the world will help us win that competition and bring prosperity to our
people."
In September 2013, the United States House of Representatives voted to
pass the Global Investment in American Jobs Act of 2013 (H.R. 2052; 113th
Congress), a bill which would direct the United States Department of
Commerce to "conduct a review of the global competitiveness of the United
States in attracting foreign direct investment." Supporters of the bill argued
that increased foreign direct investment would help job creation in the United
States.
Canada:
Foreign direct investment by country and by industry are tracked by
Statistics Canada. Foreign direct investment accounted for CAD$634bn in
2012. Canada eclipses the US in this important economic measure. Global
FDI inflows and outflows are tabulated by Statistics Canada.
United Kingdom:
The United Kingdom has a very free market economy and open to foreign
investment.

The

current

Prime

Minister

David

Cameron

has

sought

investment from emerging markets and from the Far East in particular and
some of Britain's largest infrastructure including energy and skyscrapers
such as The Shard have been built with foreign investment. The United
Kingdom has been a nation of free trade and open to global markets and

investment for decades often taking advantage of countries looking to make

investments.
Comparative data of FDI in the last for various companies:

Countries
Australia

Foreign
Direct
Investmen
t
Previous

Highest

52667.00 55596.00 58011.00

Brazil

6840.00

5898.18

15374.35

Canada

2742.00

475.00

3406.00

China

783.40

711.40

1175.86

France

560.00

-144.00

-2158.93 -3564.89 140457.80

India

2390.00

5670.00

Unit

AUD Million
36248.00
-22.15

USD Million

-2013.00 CAD Million

18.32

20881.00 -8809.00

Germany

4753.00

Lowest

USD Hundred
Million
EUR Million

EUR Million
31502.04
-60.00

Indonesia

78000.00 72000.00 78000.00 35400.00

Japan

14226.00 13397.00 18760.00

Mexico

2303917. 7428593. 18907245.

50
30
60
127118.2

USD Million
Billion IDR

1006.00 JPY Hundreds

Million
USD
Thousand

Countries

Foreign
Direct
Investmen
t
Previous

Highest

Lowest

Unit

0
Russia

12229.00 9147.00

South
Korea

5272619. 5061748. 7065714.0

00
00
0

Spain

604.66

2073.13

40147.00

4466.00

Million USD

114.00

USD
Thousand

23218.65 -8235.20

EUR Million

Switzerlan
d

671551.3 606797.6 671551.30 20958.90 CHF million

0
0

Turkey

12387.00 15904.00 22046.00

United
Kingdom

13483.00 6038.00

United
States

75453.00 140759.00
USD Million
117086.0
117086.0
0
0

1800.00

USD Million

70710.00 -7354.00

GBP Million

5. Data Analysis and Interpretation

Current data
India received cumulative FDI inflows (including equity inflows, re-invested
earnings and other capital) of US$ 331,923 million during the period April
2000-May 2014, according to data published by Department of Industrial
Policy and Promotion (DIPP), Government of India.
Total FDI equity inflows in India (including amount remitted through RBI's-NRI
Schemes) during April 2000-May 2014 stood at US$ 222,890 million.
Singapore led the share of top investing countries by FDI equity inflows into
India with US$ 5,985 million during FY 14, followed by Mauritius (US$ 4,859
million), the UK (US$ 3,215 million) and the Netherlands (US$ 2,270 million).
The services sector attracted the highest FDI equity inflows in FY14 with US$
2,225 million, followed by the construction development(US$ 1,226 million)
and telecommunication(US$ 1,307 million) industries.
India's exports in the last three years have been hovering around USD 300
billion. Exports in 2013-14 fell short of the USD 325 billion target but
managed to reach USD 312.35 billion.
Exports stood at USD 300.4 billion in 2012-13 and USD 307 billion in 201112.
A 2012 UNCTAD survey projected India as the second most important FDI
destination (after China) for transnational corporations during 20102012. As
per the data, the sectors that attracted higher inflows were services,
telecommunication, construction activities and computer software and
hardware. Mauritius, Singapore, US and UK were among the leading sources
of FDI. Based on UNCTAD data FDI flows were $10.4 billion, a drop of 43%
from the first half of the last year

Investments
Norway's Telenor Group plans to invest an additional Rs 780 crore (US$
129.79 million) to increase its ownership in Indian subsidiary Uninor to 100
per cent; Telenor currently owns a 74 per cent stake in Uninor. "Continuing its
long-term commitment to India, Telenor Group has filed to take complete
ownership of its Indian business unit. An application has been filed with the
Foreign Investment Promotion Board (FIPB) of the Government of India,
seeking approval for an additional investment of Rs 780 crore (US$ 129.79
million) to raise ownership in Uninor to 100 per cent," as per a company
statement.
Chinese telecom equipment maker ZTE Corporation plans to establish a
Global Network Operating Centre (GNOC) in India. The centre will seek to
manage the networks of multiple telecom carriers in Asia and Africa. "ZTE is
in discussions with several telecom operators in Indonesia, Malaysia and
Nigeria to manage their networks from a future GNOC in India for both fixed
line as well as wireless networks," said MrXu Huijun, Senior Vice-President Wireless Business, ZTE Corporation.

Japan's Suzuki Motor Corporation (SMC), the parent company of Maruti

Suzuki, will spend Rs 18,500 crore (US$ 3.07 billion) to establish a new
factory in Gujarat. SMC plans to establish a 100 per cent subsidiary, Suzuki
Motor Gujarat (SMG), to manufacture cars on a strictly no-loss, no-profit basis
for Maruti Suzuki.
US-based Leapfrog Investment has bought a minority stake in Chennai-based
financial services provider IFMR Capital Finance for US$ 29 million. IFMR aids
small businesses, microfinance firms, commercial vehicle financiers and
affordable housing companies raise money on the debt markets. This marks
Leapfrog's third investment in India, after having earlier backed insurance
distribution firm Mahindra Insurance Brokers and Shriram CCL.

Historic data

2007 saw avery steep increase in FDI in INDIA.

In 2007-08, Indias FDI

touched US$ 25 billion, up 56 per cent against US$ 15.7 billion in 2006-07,
and the countrys foreign exchange reserves had crossed US$ 341 billion as
on May 21, 2008. In 2005-06, the growth was even sharper at 184 per cent,
up from US$ 5.5 billion in 2004-05.

The Commerce & Industry Minister while releasing the IMAGES India Retail
Report 2007 said
that, Organised retail in India has the potential to add over Rs 2,000billion
($45 billion) business by the Year 2010 generating employment for some
12.5 million people in various retail operations and over 10 million additional
workforce in retail support activities including contract production &
processing, supply chain & logistics, retail, real estate development &
management etc. Revealing key figures from the India Retail Report 2007,
The Chief Convenor of India Retail Forum said that the organised sector
accounted for Rs. 55,000 crore ($12.4 billion) business at current prices in
the calendar year 2006 increasing its share to 4.6% of the total Indian Retail
Value that stood at Rs. 12,00,000 crore ($270 billion).
The FDI inflow during 2008-09 (from April 2008 to March 2009) stood at
approx. US$ 27.3 billion. It is interesting to note here that as per an UNCTAD
study Assessing the impact of the current financial and economic crisis on
global FDI flows India achieved a substantial 85.1 per cent increase in FDI
flows in calendar year 2008the highest increase across all countrieseven
as global flows declined by 14.5 per cent.
FDI inflows to India increased 17 per cent in 2013 to reach US$ 28 billion

Interpretation
According to a study by the Indian Council for Research on International
Economic Relations (ICRIER), retailing contributes to 10 per cent of the GDP
and employs seven percent of the total national workforce. The share of the
organised sector in retail trade is currently a mere 3 per cent and is expected
to reach 9-10 per cent, indicating a huge opportunity for prospective new
players.

India : A much-favoured destination for investment According to KPMG

survey, India has emerged as the top FDI destination offering a higher return
on investment than emerging markets like Mexico, Brazil and even China.
The AT Kearneys 2004 Global Retail Development Index ranks India as the
second most attractive retail destination among the 30 odd emerging
markets and places it next to Russia pushing China to 3rd position.
As per the global survey of corporate investment plans carried out by KPMG
International, released in June 2008, (a global network of professional firms
providing audit, tax, and advisory
services), India will see the largest overall growth in its share of foreign
investment, and it is likely to become the world leader for investment in
manufacturing. Its share of international corporate investment is likely to
increase by 8 per cent to 18 per cent over the next five years, helping it rise
to the fourth, from the seventh position, in the investment league table,
pushing
Germany, France and the UK behind. According to the AT Kearney FDI
Confidence Index 2007, India continues to be the second most preferred
destination for attracting global FDI inflows, a position it has held since 2005.
India topped the AT Kearneys 2007 Global Services Location Index, emerging
as the most preferred destination in terms of financial attractiveness, people
and skills availability and business environment. Many big names in
international retail are also entering Indian cities. Global players, such as Wal
Mart, Marks & Spencers, Roseby, etc., have lined up investments to the tune
of US$ 10 billion for the retail industry.
International retailers such as Wal-Mart, Carrefour and Woolworths are also
interested in the food processing market, a sector that has trebled in value in
the past two years.

6. Conclusion
According to the Investment Commission of India, the retail sector is
expected to grow almost three times its current levels to $660 billion by
2015. It is expected that India will be among the top 5 retail markets then.
The organized sector is expected to grow to $100 bn and account for 12-15%
of retail sales by 2015.
There is certainly a lucrative opportunity for foreign players to enter the
Indian terrain. Growth rates of the industry both in the past and those
expected for the next decade coupled with the changing consumer trends
such as increased use of credit cards, brand consciousness, and the growth
of population under the age of 35 are factors that encourage a foreign player
to establish outlets in India. However, it is not out of place to mention here
that the government policies towards FDI are the only hindering factors that
do not make this a fairy tale for foreign players.
It is submitted that the antagonists of FDI in retail sector oppose the same on
various grounds, like, that the entry of large global retailers such as Wal-Mart
would kill local shops and millions of jobs, since the unorganized retail sector
employs an enormous percentage of Indian population after the agriculture
sector; secondly that the global retailers would conspire and exercise
monopolistic power to raise prices and monopolistic (big buying) power to
reduce the prices received by the suppliers; thirdly, it would lead to
asymmetrical growth in cities, causing discontent and social tension
elsewhere. Hence, both the consumers and the suppliers would lose, while
the profit margins of such retail chains would go up.
However, it can be said that the advantages of allowing unrestrained FDI in
the retail sector evidently outweigh the disadvantages attached to it and the
same can be deduced from the examples of successful experiments in
countries like Thailand and China; where too the issue of allowing FDI in the
retail sector was first met with incessant protests, but later turned out to be

one of the most promising political and economical decisions of their

governments and led not only to the commendable rise in the level of
employment but also led to the enormous development of their countrys
GDP.
It is to be noted that FDI in retail would undoubtedly enable Indian Inc to
integrate its economy with that of the global economy. Reference in this
regard can also be made to the laudatory words of Prof. Gan Bhukta,
Professor of Marketing, GITAM Institute of Foreign Trade, India, who has very
aptly stated in his article entitled Optimizing Youth Employment Through
FDI in Retail in India that FDI will help to overcome both the lack of
experience in organized retailing as well as lack of trained manpower. FDI in
retail would reduce cost of intermediation and entail setting up of integrated
supply chains that would minimize wastage, give producers a better price
and benefit both producers and consumers. From the stand point of
consumers,

organized

retailing

would

help

reduce

the

problem

of

adulteration, short weighing and substandard goods.

Moreover, it is submitted that in the fierce battle between the advocators
and antagonist of unrestrained FDI flows in the Indian retail sector, the
interests of the consumers have been blatantly and utterly disregarded.
Therefore, one of the arguments which inevitably needs to be considered and
addressed while deliberating upon the captioned issue is the interests of
consumers at large in relation to the interests of retailers.
It is also pertinent to note here that it can be safely contended that with the
possible advent of unrestrained FDI flows in retail market, the interests of the
retailers constituting the unorganized retail sector will not be gravely
undermined, since nobody can force a consumer to visit a mega shopping
complex or a small retailer/ sabji mandi. Consumers will shop in accordance
with their utmost convenience, where ever they get the lowest price, max
variety, and a good consumer experience. Moreover, it is to be noted that
the small retailers will still remain in good business owing to the fact of their

convenient location near the residential societies and to the fact of the
distant location of the mega stores and malls.
From this point of view, it can inter alia be concluded that the interest of the
consumers should take precedence over the interest of the retailer and
consequently healthy flow of FDI in retail should be permitted.
Further, it would be worthwhile to list down certain advantages from the
point of view of consumers which will inevitably flow from the establishment
and development of larger stores and supermarkets:
FDI will not just provide access to larger financial resources for investment in
the retail sector but simultaneously will rationally allow larger supermarkets,
which tend to become regional and national chains (i) to negotiate prices
more aggressively with manufacturers of consumer goods and thus pass on
the benefit to consumers; and (ii) to lay down better and tighter quality
standards and ensure that manufacturers adhere to them.
It is also to be noted that consumer goods manufacturers generally prefer
supermarkets since they not just offer a wide range of their (manufacturers)
products and services, so the consumer can enjoy single-point shopping, but
simultaneously they by their attractive presentation and tempting retailing
strategies also account for an increasing share of consumer product sales.
Also, the fact that a well-known chain of supermarkets procures its goods
from a known manufacturer becomes a stamp of quality. Moreover, with the
availability of free flow of finance in conjunction with advent of healthy inflow
of FDI, the supermarkets will be in a better position than small retailers to
make shopping a pleasant experience by making investments in much
needed infrastructure facilities like parking lots, coffee shops, ATM machines,
etc.
Apart from this, by allowing FDI in retail trade, India will significantly flourish
in terms of quality standards and consumer expectations, since the inflow of
FDI in retail sector is bound to pull up the quality standards and costcompetitiveness of Indian producers in all the segments. It is therefore
obvious that we should not only permit but encourage FDI in retail trade.

Lastly, it is to be noted that the Indian Council of Research in International

Economic Relations (ICRIER), a premier economic think tank of the country,
which was appointed to look into the impact of BIG capital in the retail
sector, has also come to conclusion that investment of big money (large
corporates and FDI) in the retail sector would in the long run not
harm interests of small, traditional, retailers.
Foreign investment inflows are anticipated to more than double and breach
the US$ 60 billion mark in FY 15 as foreign investors show more confidence
in India's new government. Riding on huge expectations from the incoming
Modi government, global investors are gung ho on the Indian economy which
is expected to witness over 100 per cent increase in foreign investment
inflows - both FDI and FIIs - to above US$ 60 billion in the current financial
year, as against US$ 29 billion during 2013-14.
The country will require around US $1 trillion in the 12th Five-Year Plan (201217), to fund infrastructure growth covering sectors such as highways, ports
and airways. This necessitates substantial support in terms of FDI. In 2013,
FDI was witnessed in sectors such as automobiles, chemicals, computer
software and hardware, construction development, pharmaceuticals, power,
services, and telecommunications. France, Germany, Japan, Mauritius, the
Netherlands, Singapore, the UK, and UAE invested in India during that year.

In light of the above, it can be safely concluded that allowing healthy FDI in
the retail sector would not only lead to a substantial surge in the countrys
GDP and overall economic development, but would inter alia also help in
integrating the Indian retail market with that of the global retail market in
addition to providing not just employment but a better paying employment,
which the unorganized sector (kirana and other small time retailing shops)
have undoubtedly failed to provide to the masses employed in them.

Thus, as a matter of fact FDI in the buzzing Indian retail sector should not
just be freely allowed but per contra should be significantly encouraged.

7. Bibliography
REFERENCES :
1. The economic Times
2. The times of India
3. http://www.dipp.gov.in/English/Policies/FDI_Circular_2014.pdf
4. www.ibef.org
5. http://www.rbi.org.in/
6. www.finmin.nic.in
7. www.ncaer.org
8. www.icrier.org
9. www.indiaretailing.com
10.
www.globalretailbusiness.com
11.
www.researchandmarkets.com