Introduction

The Indian retail industry has emerged as one of the most dynamic and fast-paced
industries due to the entry of several new players. Total consumption expenditure is
expected to reach nearly US$ 3,600 billion by 2020 from US$ 1,824 billion in 2017. It
accounts for over 10 per cent of the country’s Gross Domestic Product (GDP) and
around 8 per cent of the employment. India is the world’s fifth-largest global destination
in the retail space.
India is the world’s fifth largest global destination in the retail space. In FDI Confidence
Index, India ranks 16th (after U.S., Canada, Germany, United Kingdom, China, Japan,
France, Australia, Switzerland and Italy).
Market Size
Retail industry reached to US$ 950 billion in 2018 at CAGR of 13 per cent and expected
to reach US$ 1.1 trillion by 2020. Online retail sales are forecasted to grow at the rate of
31 per cent year-on-year to reach US$ 32.70 billion in 2018. Revenue generated from
online retail is projected to grow to US$ 60 billion by 2020.
Revenue of India’s offline retailers, also known as brick and mortar (B&M) retailers, is
expected to increase by Rs 10,000-12,000 crore (US$ 1.39-2.77 billion) in FY20.
India is expected to become the world’s fastest growing e-commerce market, driven by
robust investment in the sector and rapid increase in the number of internet users.
Various agencies have high expectations about growth of Indian e-commerce markets.
Luxury market of India is expected to grow to US$ 30 billion by the end of 2018 from
US$ 23.8 billion 2017 supported by growing exposure of international brands amongst
Indian youth and higher purchasing power of the upper class in tier 2 and 3 cities,
according to Assocham.
Investment Scenario
The Indian retail trading has received Foreign Direct Investment (FDI) equity inflows
totalling US$ 1.85 billion during April 2000–June 2019, according to the Department for
Promotion of Industry and Internal Trade (DPIIT).
With the rising need for consumer goods in different sectors including consumer
electronics and home appliances, many companies have invested in the Indian retail
space in the past few months.
India’s retail sector investments doubled to reach Rs 1,300 crore (US$ 180.18 million) in
2018.
Walmart Investments Cooperative U.A has invested Rs 2.75 billion (US$ 37.68 million)
in Wal-Mart India Pvt Ltd.
Background of Policy on FDI in Retail

As per the Statement on Industrial Policy dated 24th July, 1991, FDI
in the Trading sector was permitted up to 51 % only in the trading
companies, primarily engaged in export activities.

In 1997
FDI in trading companies was permitted vide Press Note 3 (1997) as part
of the guidelines for Foreign Investment Promotion Board (FIPB) for
considering proposals for FDI. As per this policy, FDI up to 100% was
permitted under the FIPB route in case of trading companies, for the
following activities:

(a) exports

(b) bulk imports with ex-port/ex-bonded warehouse sales

(c) cash and carry wholesale trading

(d) other import of goods or services provided at least 75% is for

procurement and sale of goods and services among the companies
of the same group and not for third party use or onward
transfer/distribution/sales.

As part of liberalisation process in the year 2000, in addition to FDI in export trading,
bulk imports with ex-port/ex-bonded warehouse sales, and wholesale cash and carry
trading, other permissible modes of trading as per the Export-Import Policy were
opened up for FDI viz. in companies for providing after-sales service; domestic trading
of products of joint ventures; trading of high-tech items; items for social sector; hi-tech
medical and diagnostic items; items sourced from Small Scale Industries (SSI) sector;
domestic sourcing of products for exports; test marketing of such items for which a
company has an approval for manufacture provided such test marketing facility is for a
period of two years and investment in setting up manufacturing facilities commences
simultaneously with test marketing.
IMPACT OF FDI IN RETAIL SECTOR
Generally speaking foreign direct investment lays two kinds of impact positive impact
and negative impact these positive and negative are also advantages and
disadvantages of FDI. Further positive and negative further divided into subhead which
are discussed below:
1. POSITIVE IMPACT
a). Growth in economy
In India there is gap between capital required and capital raised. India need huge capital
to build infrastructure, hospital, and schools for its growing population. There are
sources which are made by the indian investors but unfortunately it is not possible to
them to fulfill growing needs of large section this acan be achieved by major source of
investment through FDI wherein multinational companies create job, share their
expertise, improve infrastructure in the host countries.

b). Giving employment opportunities

India is the second most populous country in the world due to which there are large
number of human resources are available in India in youth as compared to the other
countries. Such mass youth generation is lack in skill, knowledge and expertise for that
FDI plays very important role by creating new employment opportunities which will
increase not only increase the standard of life and living style but also ensure quality in
them. According to the estimates done by the yes bank estimately 81.7 million jobs
were there in coming 5 years.

c). It will Benefit to Farmers

In India large scale of contributing to the economy is agriculture sector but this sector
already suffer with mandi norms, lack of transparency in prices and role of
intermediaries. Intermediaries (i.e. middleman) custom is functioning from the past
decades due to which farmers are not getting adequate cost for their product only 1/3 of
consumer price given to farmer in which 1/3 is goes to middleman this will also increase
price to the consumer as there is no direct interface between consumer and retailer.
Even most of the good are lost or destroy due the inefficient supply chain, lack of
logistic facilities and storage facilities. By permitting the FDI in this sector the farmers
become the prime beneficiaries as the giant shopkeepers improves and upcoming the
need for logistic, infrastructure, direct interface with retailers without middleman and
also provides goods in cheaper price to the consumer.

d). It will Benefit to consumers

Previously consumer buy the goods and take the services either through the organized
retailer or through the unorganized retailer but in India huge section of service providers
are unorganized sector in contrast to the organized sector and these unorganized
sector are not legally pay tax to the government but by introduction of FDI Firstly, role of
organized sector increased which will increase the growth rate of economy Secondly, by
entering the foreign nationals in the market competition will gradually increased which
will resulted in reducing price to the consumer, Thirdly it will provide better shopping
experience to them and various other fringe benefits.

e). Controlling Food Inflation

India is the second largest country in the world in terms of producing fruits and
vegetables but unfortunately it comes down as there is no better chain of supply, in
India large section are unorganized sector they are short of funding as well as in
management due to which lost occurred. After all India traditional agriculture also
change to horticulture farming due to urbanization the goods which are produced are
perishable in nature they need a cold storage transport facilities which is very less. This
problem can be solve by permitting the FDI as they provide funding requirement for
logistics, infrastructure, as well as better transport facility.

f). Increase Tax Revenue

The more the number of organized sector there is more increase in tax revenue as they
are the licensed. But India the percentage of organized sector is less as compared to
the unorganized sector this will be solved by the FDI.
NEGATIVE IMPACT
a). Organized sector domination increased
b). Effect on traditional benefits arising out of traditional store
c). Employment opportunities to Semi-illiterate

Government Initiatives
The Government of India has taken various initiatives to improve the retail industry in
India. Some of them are listed below:

 The Government of India may change the Foreign Direct Investment (FDI) rules
in food processing, in a bid to permit e-commerce companies and foreign
retailers to sell Made in India consumer products.
 Government of India has allowed 100 per cent Foreign Direct Investment (FDI) in
online retail of goods and services through the automatic route, thereby providing
clarity on the existing businesses of e-commerce companies operating in India.

Investments/ developments
Some of the recent significant FDI announcements are as follows:

 In January 2020, Amazon India announced investment of US$ 1 billion for

digitising small and medium businesses and creating one million jobs by 2025.
  In January 2020, Mastercard announced its plans to invest up to US$ 1 billion in
India over next five years to double-up its research and development efforts for
the Indian market.
 In October 2019, French oil and gas giant Total S.A. have acquired a 37.4 per
cent stake in Adani Gas Ltd for Rs 5,662 crore (US$ 810 million) making it the
largest Foreign Direct Investment (FDI) in India’s city gas distribution (CGD)
sector.
 In August 2019, Reliance Industries (RIL) announced one of India's biggest FDI
deals, as Saudi Aramco will buy a 20 per cent stake in Reliance's oil-to-
chemicals (OTC) business at an enterprise value of US$ 75 billion.
 In October 2018, VMware, a leading software innovating enterprise of US has
announced investment of US$ 2 billion in India between by 2023.
 In August 2018, Bharti Airtel received approval of the Government of India for
sale of 20 per cent stake in its DTH arm to an America based private equity firm,
Warburg Pincus, for around $350 million.
 In June 2018, Idea’s appeal for 100 per cent FDI was approved by Department of
Telecommunication (DoT) followed by its Indian merger with Vodafone making
Vodafone Idea the largest telecom operator in India
 In May 2018, Walmart acquired a 77 per cent stake in Flipkart for a consideration
of US$ 16 billion.
 In February 2018, Ikea announced its plans to invest up to Rs 4,000 crore (US$
612 million) in the state of Maharashtra to set up multi-format stores and
experience centres.

Government Initiatives
 In December 2019, government permitted 26 per cent FDI in digital sectors.
 In August 2019, government permitted 100 per cent FDI under the automatic
route in coal mining for open sale (as well as in developing allied infrastructure
like washeries).
 In Union Budget 2019-20, the government of India proposed opening of FDI in
aviation, media (animation, AVGC) and insurance sectors in consultation with all
stakeholders.
 100 per cent FDI is permitted for insurance intermediaries.
 As of February 2019, the Government of India is working on a road map to
achieve its goal of US$ 100 billion worth of FDI inflows.
 In February 2019, the Government of India released the Draft National E-
Commerce Policy which encourages FDI in the marketplace model of e-
commerce. Further, it states that the FDI policy for e-commerce sector has been
developed to ensure a level playing field for all participants.
  Government of India is planning to consider 100 per cent FDI in Insurance
intermediaries in India to give a boost to the sector and attracting more funds.
 In December 2018, the Government of India revised FDI rules related to e-
commerce. As per the rules 100 per cent FDI is allowed in the marketplace-
based model of e-commerce. Also, sales of any vendor through an e-commerce
marketplace entity or its group companies have been limited to 25 per cent of the
total sales of such vendor.
 In September 2018, the Government of India released the National Digital
Communications Policy, 2018 which envisages increasing FDI inflows in the
telecommunications sector to US$ 100 billion by 2022.
 In January 2018, Government of India allowed foreign airlines to invest in Air
India up to 49 per cent with government approval. The investment cannot exceed
49 per cent directly or indirectly.
 No government approval will be required for FDI up to an extent of 100 per cent
in Real Estate Broking Services.
 The Government of India is in talks with stakeholders to further ease foreign
direct investment (FDI) in defence under the automatic route to 51 per cent from
the current 49 per cent, in order to give a boost to the Make in India initiative and
to generate employment.

The Government’s View

The government advocated that foreign direct investment can prove to be a powerful
catalyst which can spur competition in the retail industry. An increase in FDI in the retail
segment can allow the creation of employment opportunities in the retail sector,
increasing the market size and leading to enhanced productivity. It would provide an
opportunity to farmers to increase their incomes by eliminating the role of middlemen,
and would also help them in securing remunerative prices for their goods. Established
foreign retail chains would also aid in bringing about supply chain efficiencies, providing
a precedent for local retail players to learn and emulate.

The policy mandates a minimum investment of $100 million, half of which has to be
used for back end infrastructure like cold storage, refrigeration, and processing, which
would in turn reduce post harvest losses for Indian farmers. The local sourcing of at
least 30% of raw materials would generate further employment opportunities, increasing
income generation and leading to advancements in technology.
A similar FDI policy in retail led to impressive growth in other developing countries like
China, Thailand, and Indonesia. Going by their example, it is fair to believe that it would
benefit India in a likewise manner as well.
ENTRY OPTION FOR FOREIGN COMPANIES:
The foreign companies have various options to enter in retail sector. Some of these
are:-
1.Franchising: Under this parent company lends its name and technology to a local
partner and gets loyalty in return. For example Nike, pizza hut, are some of best known
who have adopted this set of Operation.
It is approved by the RBI (Reserve Bank of India ) under FEMA ACT.
2.Strategic licensing agreement: There are some foreign brand which give rights to
Indian companies or retailers to distribute license through selling either from there own
store or enter in to shop-in-shop arrangement.
3.Manufacturing and wholly owned subsidiaries: There are some companies who have
subsidiaries in manufacturing are treated as Indian companies and therefore allowed to
do retail. For example:- reebok, Adidas, Nike etc.

1. Limited choice to the consumer and foul play on the part of shopkeeper
Most of the Indian shopping takes place outside the retail shop consumer ask the
shopkeeper for the product which he needs and than the shopkeeper access to the
storage area picked up and than handover to consumer after that consumer pay price of
it. During this whole process there is no choice to the consumer to choose same
product in different brand even there is no price tag on it. Sometimes during this
process only shopkeeper may substitute the product claiming it is similar and equivalent
to that product which is asked by consumer. This led to FDI in retail today consumer
can access to shelf choose their choice of product even compare with similar product.

2. No quality control and training

Most of the retailer in India come under the unorganized retailing sector who do not
have better supply chain of product, no quality control, no screening technology to
check fake and authenticate product even no training on safety, storage, packaging etc.
There is no after sale support service to the consumer.

3. Infrastructure
India is the second largest country in the world who produce fruits and vegetables but
unfortunately it has very limited logistics facilities available. Moreover the goods which
are of perishable nature find it difficult to travel distant markets as no cold-chain
infrastructure. It also caused heavy loss to farmers in terms of quality and quantity of
produce .
By permitting FDI in cold-chain to the extent of 100% through automatic route will
enhance role FDI in retail sector.
LEGAL AS WELL AS REGULATORY FRAMEWORK FOR FDI
IN INDIA:
RATIONALE BEHIND FDI IN RETAIL SECTOR

There are number of factors which tend to growth of the FDI in retail sector-
The government of India and reserve bank of India together will go on to regulate
‘capital account transaction’ which is come through FDI. The regulation is done
according to the FEMA ACT 1999( foreign exchange management act) earlier it was
done by FERA ACT which has been replaced by the FEMA ACT. Basically the Reserve
bank of India first of all notifies or make recommendation to the Department of Industrial
Policy and Promotion (DIPP), and Ministry of Commerce & Industry for the purpose of
making policy on subject after that government of India take notice of that and after
discussion it makes policy pronouncement through press notes as amendment.
Working of each department in regulating foreign direct investment:

1. Ministry of Commerce and Industry-

It is an monitoring and reviewing agency for FDI policy on continuous basis. It also
makes policy of FDI through press notes, which RBI has notified to it.

2. RBI (Reserve Bank of India)-

Its main function to regulate foreign exchange market in India through administering
FEMA with the help of Ministry of finance, and another main function of it is to
consolidate and amend the laws relating to foreign exchange.

3. FIPB (Foreign Exchange Promotion Board)-

It is a board set up under Department of economic affairs. It offers single window
clearance for proposals on FDI in India, which are not allowed by automatic route. It has
power to consider recommendation up to 1200 crore rupees. That’s why it plays an
important role in administration and implementation of government FDI policy.
4. DIPP (Department of Industrial Policy and Promotion)-
This department plays key role in Industrial development of the country by introducing
formulation, implementation and other strategy measures. It also resolve problems
which are faced by the foreign investor in implementation of their projects through
foreign investment implementation authority.
The Indian companies can receive FDI under two routes-

1. Automatic route- Also called ‘Entry route for investment’ there are sectors where the
government of India make’s provision for FDI to enter without the approval of either RBI
or Government.
2. Government route- It is in contrast of automatic route as in it prior approval for
investment must be taken either from the Foreign Investment Promotion Board (FIPB),
Ministry of Finance, DIPP as the case may be.

Following sectors require prior approval of Government of India.

a). Retail trading, lottery business, atomic energy, gambling and betting, business of chit
fund, agriculture and plantation, nidhi companies, housing and real estate business.
b). Activities that require industrial license
c). Proposals in which the foreign collaborator has existing financial /technical
collaboration in India in the same field.

Forecasts for Retail Sector Growth in India

The data from private consulting company reports suggest that growth in the retail
market has been rapid despite major restrictions on FDI. In the third-quarter report of
2019, the Brand Marketing India (BMI) India Retail Report forecasts that the total retail
sales will grow from US$ 353 billion in 2019 to US$ 543.2 billion by 2020. An important
consideration, the report suggests that there is the fast-growing middle and upper class
consumer base. The analysis also suggests that in the next few years there will be
major opportunities in India's smaller cities1.

Road Ahead
E-commerce is expanding steadily in the country. Customers have the ever-increasing
choice of products at the lowest rates. E-commerce is probably creating the biggest
revolution in the retail industry, and this trend would continue in the years to come.
India's e-commerce industry is forecasted to reach US$ 53 billion by 2018. Retailers
should leverage the digital retail channels (e-commerce), which would enable them to
spend less money on real estate while reaching out to more customers in tier-2 and tier-
3 cities. The Union Budget 2019-20 is expected to give boost to the rural consumption
in India.
It is projected that by 2021 traditional retail will hold a major share of 75 per cent,
organised retail share will reach 18 per cent and e-commerce retail share will reach 7
per cent of the total retail market.
Nevertheless, the long-term outlook for the industry is positive, supported by rising
incomes, favourable demographics, entry of foreign players, and increasing
urbanisation.

1
Conclusion
Despite encouraging signs, India’s retail market remains largely off-limits to large
international retailers like Wal-Mart and Carrefour. Opposition to liberalizing FDI in this
sector raises concerns about employment losses, unfair competition resulting in
largescale exit of incumbent domestic retailers and infant industry arguments to protect
the organized domestic retail sector that is at a nascent stage. Based on international
evidence, allowing entry by large international retailers into the Indian market may help
tackle inflation especially in food prices. Moreover, technical know-how from foreign
firms, such as warehousing technologies and distribution systems can improve supply
chain efficiency in India, in particular for agricultural produce. Better linkages between
demand and supply have the potential to improve the price signals that farmers receive
and also serve to enhance agricultural and other exports.