Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Dissertation Report
On
“FDI in multi brand retail and single brand retail and its impact on
Indian economy”
……………………………………………………………………..
(Submitted for the partial fulfilment for the award of Degree of B.Com(Hons.) in
Accounting /Taxation)
To
AMITY UNIVERSITY
HARYANA
Under the Guidance of:- Submitted By:-
Name:-Dr. Vaibhav kaushik Name:- Ankur Lakhotia
B.Com Hons 6th semester
Roll. No:- A50004617109
Amity College of Commerce
CANDIDATE’S DECLARATION
Date: 04/03/2020
5.4 Conclusion
Bibliography
Introduction
Retailing in India is one of the pillars of its economy and accounts for 14
to 15 percent of its GDP. The Indian retail market is estimated to
be US$500 billion and one of the top five retail markets in the world by
economic value. India is one of the fastest growing retail markets in the
world, with 1.2 billion people.
Retail industry in India in recent times has been hailed as one of the
sunrise sectors in the economy. FDI in multi-brand retail is one of the
most debated topics over the last few months both in the parliament and
in the streets. 51% FDI will open up a wide range of opportunities for the
foreign retailers such as Wal-Mart, Metro AG of Germany, Carrefour of
France and so on.
A. WHAT IS FDI?
As the name indicates single brand means that only one brand can be sold
at the outlet. In multi brand retail a variety of brands will be available at
the retail outlet. Generally speaking in India single brand retailing will
not have a significant impact on the retail market and will mostly be
patronized by the upper class whereas multi-brand has the potential to
dramatically alter the market dynamics of the retail trade and in India‘s
case the local ―kirana ―stores.
FDI in multi brand retail is not allowed in India. 51% FDI in single brand
is already allowed .Foreign brands like Nike, Adidas etc are already
present in India .100 % FDI is allowed in ― cash and carry ―retail
where all transactions are by cash up front. FDI participation can only be
through franchise relationships or as wholesalers. Foreign chains
operating in the ―cash and carry‖ business in India are:
The annual retail sale in India is around US $300 billion million. Nearly
90 to 95 % of this is in the unorganized sector controlled by tiny family
run shops or ‗kirana‘ shops. The organized retail is growing at 20 %.
Their growth is driven by the middle class of around 300 million. To put
the organized retail business in India in perspective, let us look at the
picture in some other countries.
Countries Retail sale in US $ Bn Share of organized sector (%)
USA 2983 85
UK 475 80
France 436 80
Germany 421 80
Japan 1182 66
Pakistan 67 1
China 785 20
India 322 4
Cheap and good quality goods become available to the consumer. Cheap
because they will buy directly from the farmer or producers eliminating
middlemen and in large quantities with bulk quantity discounts. Good
quality because they prescribe quality standards which have to be
adhered to. At the end of the day the nature and type of competition does
not matter. Whatever be its nature and type it will always be beneficial to
consumer whether foreign or Indian and whether it comes with 26 % FDI
cap or 51 % or 76 % or whatever.
They have access to market information globally and have knowledge of
global trends as well as seasonality. They can, therefore, take advantage
of cheaper sourcing from anywhere in the world.
· India Inc seems to be gung-ho on the proposal while the political class
are divided and are not so enthusiastic citing concerns about job losses,
the demise of kirana stores and of MNCs getting a stranglehold on the
economy in a historical repetition of the East India Company story.
· It is interesting to recall the first budget speech of Dr. Manmohan
Singh in February 1992 after he announced the new policy in July 1991.
The new policy proposes that 30 % sourcing should be from local micro
and small producers are perhaps another safe guard. This could, however,
run counter to WTO regulations which prohibit such reservation. The
plus side of the coin is that a complaint to WTO takes years to resolve.
Research Problem
Should India allow the entry of FDI in multi-brand retail? But, for the
past few years, there has been plenty of debate and discussion about the
potential role of foreign direct investment (FDI) in multi-brand retail,
including food.
Research Methodology
Secondary sources of data available over the web and various published
articles and journals.
Analysis of Data
Pratap Mehta, president of the Centre for Policy Research, claimed any
U-turn or postponement of retail reforms will cause an immense loss of
face to the Congress-led central government of Manmohan Singh. The
mom-and-pop farmers of India support these reforms. The consumers of
India want the reforms. The government has already annoyed those who
oppose change and innovation in retail. By putting retail reforms on hold,
the government will additionally alienate much larger segment of India's
population supporting FDI. So they will now have the worst of both
worlds, claims Mehta.
On 19 Feb, 2013 Tamil Nadu became the first state in the country to
stoutly resist MNC ‗invasion‘ into the domestic retail sector. In Chennai,
Tamil Nadu CMDA authorities placed a seal on the massive warehouse
spreading across 7 acres that had reportedly been built for one of the
world‘s leading multinational retail giants, Wal-mart.
On 19 Feb, 2013 Tamil Nadu became the first state in the country to
stoutly resist MNC ‗invasion‘ into the domestic retail sector. In Chennai,
Tamil Nadu CMDA authorities placed a seal on the massive warehouse
spreading across 7 acres that had reportedly been built for one of the
world‘s leading multinational retail giants, Wal-mart.
Critics of the Indian retail reforms announcement are making one or more
of the following points:
Despite the fact that Salman Khurshid, India‘s law minister, claiming that
many opposition parties, including the Bharatiya Janata Party, had
privately encouraged the government to push through the retail reform,
the intense criticism now targets Congress-led coalition government, and
its decision to push through one of the biggest economic reforms in years
for India. Opposition parties claim supermarket chains are ill-advised,
unilateral and unwelcome.
The opposition claims the entry of organized retailers would lead to their
dominance that would decimate local retailers and force millions of
people out of work.
Mamata Banerjee, the chief minister of West Bengal and the leader of the
Trinamool Congress, announced her opposition to retail reform, claiming
―Some people might support it, but I do not support it. You see America
is America … and India is India. One has to see what one‘s capacity is.‖
A Wall Street Journal article reports that in Uttar Pradesh, Uma Bharti, a
senior leader of the opposition Bharatiya Janata Party (BJP), threatened
to "set fire to the first Wal-Mart store whenever it opens;" with her
colleague Sushma Swaraj busy tweeting up a storm of misinformation
about how Wal-Mart allegedly ruined the U.S. economy.
The political parties opposing the retail reforms physically disrupted and
forced India's parliament to adjourn again on Friday 2 December 2011.
The Indian government refused to cave in, in its attempt to convince
through dialogue that retail reforms are necessary to protect the farmers
and consumers. Indian parliament has been dysfunctional for the entire
week of November 28, 2011 over the opposition to retail reforms.
Farmer groups
Various farmer associations in India have announced their support for the
retail reforms. For example:
Indian farmers get only one third of the price consumers pay for food
staples, the rest is taken as commissions and markups by middlemen
and shopkeepers
For perishable horticulture produce, average price farmers receive is
barely 12 to 15% of the final price consumer pays
Indian potato farmers sell their crop for Rs. 2 to 3 a kilogram, while
the Indian consumer buys the same potato for Rs. 12 to 20 a
kilogram.
Economists and entrepreneurs
Organized retail will offer the small Indian farmer more competing
venues to sell his or her products, and increase income from less spoilage
and waste. A Food and Agricultural Organization report claims that
currently, in India, the small farmer faces significant losses post-harvest
at the farm and because of poor roads, inadequate storage technologies,
inefficient supply chains and farmer's inability to bring the produce into
retail markets dominated by small shopkeepers. These experts claim
India's post-harvest losses to exceed 25%, on average, every year for
each farmer.
Not only do these losses reduce food security in India, the study claims
that poor farmers and others lose income because of the waste and
inefficient retail. Over US$50 billion of additional income can become
available to Indian farmers by preventing post-harvest farm losses,
improving transport, proper storage and retail. Organized retail is also
expected to initiate infrastructure development creating millions of rural
and urban jobs for India‘s growing population. One study claims that if
these post-harvest food staple losses could be eliminated with better
infrastructure and retail network in India, enough food would be saved
every year to feed 70 to 100 million people over the year.
Andhra
Pradesh, Assam, Haryana, Kashmir, Maharashtra, Manipur, Uttarakh
and, Daman & Diu and Dadra and Nagar Haveli, will allow foreign
retailers.
Other states, particularly BJP-ruled states have said they will not allow
foreign supermarkets to open in their state, these are:
The Chief Minister of the state of Maharashtra - the state with the biggest
GDP in India and home to its financial capital Mumbai - has also
welcomed the retail reform.
Current supermarkets
It is too early to determine if this law has done good or bad to the country. The
show is not over as yet. Its impacts on the economy of the country will be visible
gradually. Until now, FDI was only allowed up to 51 percent in single brand
retail. But with the implementation of this law, 100 percent FDI in single brand
retail and 51 percent FDI in multi brand retail are permissible. International
retailing giants like Walmart and Carrefour will now have their stores in India.
The entire face of retailing in India is expected to change.
Applications have begun to be accepted. Investments from the end of leading
retail groups like Walmart, Tesco, Carrefour, etc. is expected to flow into the
country. Media houses report that Walmart might open its first store in India in
12 to 18 months. It is at present allowed only in a selected list of states in the
country. More names might get added to this list with the passage of time. Now
that the law is implemented, it is being accepted whole-heartedly by majority of
stratum of the society.
This law is believed to benefit farmers the most. For years, the farmers of India
were exploited at the hands of the middlemen. Consumers had to pay heavy
prices for farm products, while farmers were living in poverty. All the profits
were reaped by the middlemen. Foreign retail stores, who have an advanced
infrastructure, might eliminate the need to have many commission based
middlemen. They will buy products directly from farmers and sell it to
consumers, promising more wages to farmers.
Farmers are happy to have this law. They consider this an opportunity to
improve their condition. A delegation of farmers from Punjab thanked the ruling
party and its chairperson for this law. Farmers from Gujarat and Haryana
welcomed this law. The government claims that inflation might also get
controlled owing to this law. Indian Farmer and Industrial Alliance (IFIA)
supported the implementation of this law.
Consumers will get better products for the same price. It will generate
competition among retailers and will force them to supply good quality products
to consumers at lower prices. FDI in retail has benefited the economies of many
countries in the past. It might improve the economy of India, as well. It will
create employment opportunities for commoners. Almost one million jobs are
expected to be generated by this law at the initial stages.
It is hard to predict if the law will do the good it is expected to do in the country.
Ministers from the ruling Congress party are positive about the impacts of this
law. But the case is not the same with the opposition. The opposition parties
have their own reasons to give. Uma Bharti, Senior Leader, BJP was of the
opinion that almost 70 million traders will be rendered jobless owing to this law.
Middlemen constitute a major chunk of the Indian population and they will be
adversely affected by this law.
Besides, as expected FDI will not flow in immediately after the law is
incorporated. There are many shortcomings in the Indian infrastructure which
may prevent excessive FDI. Improper roads, power shortages, and many other
deficiencies will prevent foreign investors to invest in the country. The entire
concept of economy getting changed owing to the implementation of this law
might be exaggerated and overrated.
Prakash Javadekar, Spokesperson, BJP states, "For the last one decade, FDI in
backend infrastructure was allowed. It was estimated that 40 billion of
investments will come. But only 40 million of investments actually came into
the country. The expected results have not been obtained in the past out of FDI.
But this point was not given the attention it needs. The government needs to
improve the infrastructure of the country to get results out of this law."
Foreign investors will have to tie up with Indian retailers to carry out business as
per this law. This has left major Indian retailers like Pantaloons India and others
happy! They welcome this law. The stock prices of major Indian retailers saw an
exceptional rise ever since the law was announced. They might be the biggest
beneficiaries of this law. But owing to the complexities involved, nothing can be
said for sure at this point of time.
The organized retail industry is one of the budding sectors with massive growth
potential and with its emergence Indian economy has really grown and gained
and has led to population growth.
The Indian multi - brand retail ha led to privatization and globalization which in
turn has led to more investments in the country.
Due to their financial clout, they often sell below costs in the new market
High costs borrowing forces the domestic players to charge higher prices for the
products.
Loss of cultural and ethical values due to more influence of the other culture.
Recommendations
More than two decades after the first wave of reforms were introduced in
the year1991; the country‘s socio-economic health has by no means
become better. In the midst of these galloping problems, the
announcement by the UPA government about FDI in multi brand retail
comes not as a relief but as a matter to be given a serious thought. The
debate so far is threefold: (a) one section which is drooling over the
reforms and projecting huge surge of investment in infrastructure and
thereby increment in the employment levels. (b) The second group is the
one which is sceptical about the opening of markets for foreign retail
giants like Walmart,Carrefour, Kmart etc. not because they fear that it
would affect the overall development of the economy. Rather, this group
fears competition from the big foreign companies which have deep
pockets to procure products from the world market. Thus, it would affect
their profits by a huge margin. (c) The third group comprises of the
unorganized retail sector which fears its elimination from the market in
the long run.
Various claims made by UPA seem to fall flat on any reason if we take
into consideration the outcomes of previous reforms. Employment in
formal sector has not increased by any count since 1991, informalization
of labour in the formal sector is a clear indication of this fact.
Productivity in agriculture, where almost 54 per cent of the population is
dependent has declined. It is no longer a profitable venture as the input
costs have gone up in the post green revolution phase. Rise in the
phenomena of rural to urban migration, rural non-farm employment,
farmer suicides, show what precarious condition agriculture has landed
into. Gradual shift of the economy from agriculture to industry, as
expected in the prospects of reforms, has proven to be a fallacy. Instead,
the existing industries have become more capital intensive leading to the
displacement of labour on a mass scale. Trade liberalisation has given the
global players a free hand to rein the economy. As a consequence rate of
inflation is rising unchecked as the price of crude oil is fluctuating
globally. These examples showcase that reforms and liberal policies have
not led to the overall development of the economy.
When only 4 percent of the retail trade in India comes under the
organized retail it becomes essential to evaluate or assess the viability of
FDI taking into consideration not this 4 percent but the 96 percent which
belongs to the unorganized retail sector. The unorganized retail sector is
not a homogeneous category, it comprises of peddlers, street vendors,
kiosks, push-cart vendors, weekly traders. It is not unknown that the
majority of those engaged in retailing at the lower end of the economy
depend on the small and medium enterprises for their supplies. It has
been reiterated time and again, by many economists, how and under what
conditions the unorganized sector has risen to such heights in India and
other developing countries via the route of the neo-liberal regime. Indian
retail market is quite diverse in terms of scale, culture and structure.
Some reasons for this diversity can be attributed to the divide that exists
between rural and urban India. Traditional forms of marketing
(neighbourhood markets, mandis, and periodic/weekly markets) coexist
with modern day markets (supermarkets, hypermarkets, Single brand
outlets etc.). Decline of the rural economy coupled with lack of
employment in the manufacturing sector (organized sector) created a vast
pool of surplus labour in the country in the post reform period. This
multitude of labour started migrating to urban centres in search of
employment and many of them landed up with self employment in the
service sector of which retailing forms a huge part. Annihilation of small
scale and self employed lower middle class will lead to large scale
poverty and destitution because the unorganised sector is absorbing the
shocks of migration and rural distress. It manages by catering to middle
classes in the metropolis. If this market is gone, they will all be
unemployed.
On the one hand the government is trying to convince that FDI would not
harm the local trading practices and on the other hand various traders
associations, vendors are fearing its exit from the retail market in the long
run when various multi brand retail giants with their deep pockets and
marketing skills would create direct contacts with farmers and producers
of essential commodities. Whether it‘s a small vendor selling fruits on his
bicycle or a trader who has a kiosk in a neighbourhood where he sells
grocery or a weekly market trader who sells garments, all three of them
depend on a vegetable mandi, grain mandi and wholesale market for
garments respectively. With the entry of the multi-brand retail giants in
the market two possibilities emerge (a) these retail giants are expected to
procure 30 percent of goods from medium scale enterprises (but it is not
necessary that these enterprises should be from the host country) thus, in
case it decides to capture the domestic market it would create direct
contact with small and medium enterprises and get commodities at the
lowest possible cost and take benefit of the economies of scale. In case
this happens, then the retail giants would slowly gain hands and
monopolize the market and dictate the prices of essential commodities in
the domestic market. This would slowly displace small vendors who
don‘t have enough working capital to compete with retail giants. These
vendors who till now were able to purchase goods from the wholesale
market by proving their credit worthiness would no longer be able to give
cash and carry goods to the retail market.
(b) Since multi brand retail stores have the liberty to buy products from
anywhere in the world and they have enough resources to conduct market
research, it would explore the world market and invest wherever they
would be able to maximize their profits through final sale. In this
scenario, small vendors and traders would continue to have access to the
products which are produced by the small scale industries but at the same
time these enterprises would face severe competition from cheap
commodities imported from elsewhere. In the long run it is speculated
that the prices of their commodities would fall in the markets and sooner
or later these domestic small enterprises would be forced to quit. For
example, T. Vellayan, president of the Tamil Nadu Federation of
Trader‘s Associations gives the example of how the import of palm oil
and soyabean oil for edible purposes proved ineffectual to the oil
manufacturing units. Vellore, Tiruvannamalai, Cuddalore and Villupuram
districts had several stone oil presses. But these traditional oil mills
closed down. In Pudukottai district, oil mill premises have been
converted into marriage halls ( Frontline, Dec.2011).
The adverse impact of the FDI would befall the unorganized retail sector
with great intensity if the State makes more stringent rules of zoning and
regulation. I have been researching the local weekly markets of Delhi for
the past three years. These markets are very prominent feature in all parts
of Delhi and NCR. There are around twelve hundred weekly markets of
which only one fourth are recognized by the Municipal Corporation of
Delhi (consequence of zoning). Approximately 2.5 million people are
employed through these markets. This figure would just double if we take
in to account additional employment that is created around these markets.
Various own account and household enterprises are producing
commodities on a daily basis for such low end markets. Local weekly
markets provide a very easy channel of distribution of commodities
produced not only in local small scale industries but also in the
neighbouring States. For instance, rubber chappals and shoes made in
Agra, sarees made in Surat, hosiery made in Coimbatore, woollens made
in Ludhiana are all sold at affordable prices here in these very markets.
FDI in multi brand retail would either displace various wholesale markets
or the size of such markets would shrink. Today the local markets run on
capital which has a fluid or floating nature. But with the coming of multi
brand retail stores this floating capital would freeze and small retailers
and vendors will be evicted from the market.
It is my contention that in order to make way for the private capital the
State might evict street vendors, cancel their licenses, or remove
tehbazaari rights for weekly markets in the times to come. Just as in
Delhi, Mumbai, Bangalore and other metropolitan cities, the State, has
from time to time uprooted slums and relocated them to the periphery of
the city, to make way for the investment by private corporate builders in
order to make the city slum free. Similar decisions if taken for the
unorganized retail sector would gravely increase inequality and poverty.
Whereas, on the other hand, the concept of global village forces the
theme of liberalization. By closing door of your home, world outside will
not stop from upgradation. Accepting changes and challenges is the truth
of life. Food retailing supply chain is required to be improved and it is
need of an hour to adapt the technology. It is right time to invite FDI
when USA and Europe are under crisis and India is on the verge of facing
heat of inflation.