FDI IN RETAIL SECTORBY:

ANKIT CHAWLA(1211310007)

• FDI

• Retail

• FDI Policy in India

• FDI Policy with Regard to Retailing in India

• Entry Options for Foreign Players prior to FDI Policy

• FDI in Single and Multi-brand

• Foreign Investor’s concern regarding FDI Policy in India

• Concerns for the Government for only Partially Allowing FDI in Retail Sector

• Benefits to different groups

• Limitations of the Present Setup

• Prerequisites before allowing FDI in Multi-brand Retail and lifting cap of Single Brand retail

• Opinion and Reactions of different groups and individuals

CONTENTS

FDI is an investment to acquire long-term interest in enterprises operating outside of the economy of the investor.

FDI is a source of external finance which means that countries with limited amounts of capital can receive finance beyond national borders from wealthier countries.

FDI is considered to be considered an ingredient in economic growth.

FDI

“foreign direct investment, commonly known as FDI, "refers to an investment made to acquire lasting or long-term interest in enterprises operating outside of the economy of the investor.”

INTERNATIONAL MONETARY FUND

• Started at the time of East India Company of Britain.

• After world war II, Japanese companies entered Indian Market.

• UK was the most dominant investor in India.• In 1965, MNC’s of foreign allowed to set

collaborated investors in India• In 1980, Government set Foreign Investment

Board and Foreign Exchange Regulation Act.

HISTORY OF FDI

• In early nineties, Indian economy faced severe Balance of Crisis. Dr. Manmohan Singh with the help of World Bank and IMF introduced the macro-economic stabilization and structural adjustment programme .As a result of these of these reforms India open its door to FDI inflows .

• Then Foreign Investment Promotion Board is established

HISTORY CONTINUED

FDI INFLOWS IN INDIA (FROM 1948-2010)

FDI FLOW IN INDIA (1948-2010)

• Raising the level of investment• Upgrading the Technology• Exploitation of Natural Resources• Development of Basic Economic Infrastructure• Improvement of Export Competitiveness• Improvement in BOP• Benefit to Customer• Revenue to Government

WHY FDI

Retailing is the interface between the producer and the individual consumer, buying for personal consumption. It is the last link that connects the consumer with the manufacturing and distribution chains.

WHAT IS RETAILING?

• India is the fifth largest retail market globally.

• Retail contributes to 15% of India’s GDP.

• India has highest retail density in the world with 15 million outlets.

• It provides employment to 40 million Indians (3.3 % of Indian Population)

• Retailors such as Nike, Wall-mart, IKEA, Apple etc.

INDIA IN RETAIL SECTOR

Organized retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses.

Only 5% of the total retail share.

Unorganized retailing, on the other han, refers to the

traditional formats of low-cost retailing, for example,

the local kirana shops, owner manned general stores,

paan/beedi shops, convenience stores, hand cart and pavement vendors, etc.

95% of the total retail share.

Organized Retailing Unorganized Retailing

DIVISION OF RETAIL INDUSTRY

• FDI permitted in almost all activities

• Up-to 100% FDI allowed in manufacturing

• Most FDI allowed on the ‘automatic route’

• Liberal policy for foreign technology collaboration

• Policy supported by a legal framework

• National treatment to investment

• Investment being constantly reviewed and liberalized

• Policy is independently to be liberal and progressive.

FDI POLICY IN INDIA

• Franchise Agreements• Cash and Carry Wholesale Trading• Strategic Licensing Agreements• Manufacturing and Wholly Owned Subsidiaries

ENTRY OPTIONS FOR FOREIGNERS

• Single brand retail is one in which a single item is sold across all outlets. Such as Reebok, Titan, Puma etc.

• Policy Before 2011• FDI up to 51 %, with prior Government approval, is allowed

in retail trade of single brand products, subject to the following conditions:

• FDI up to 51 % would be allowed, with prior Government approval, for retail trade of Single Brand Products;

• Products to be sold should be of a ‘Single Brand’ only.• Products should be sold under the same brand

internationally.• ‘Single Brand’ product-retailing would cover only products

which are branded during manufacturing.

FDI IN SINGLE BRAND

THE CHANGE:

The Government finally has permitted 100 percent FDI in Single brand retail under the government approval route subject to certain conditions. Some of the stipulated conditions are:

(a) Products to be sold should be of a ‘Single Brand’ only.  

(b) Products should be sold under the same brand internationally i.e. products should be sold under the same brand in one or more countries other than India.

(c) ‘Single Brand’ product-retail trading would cover only products which are branded during manufacturing.

(d) The foreign investor should be the owner of the brand.  

(e) In respect of proposals involving FDI beyond 51%, mandatory sourcing of at least 30% of the value of products sold would have to be done from Indian ‘small industries/ village and cottage industries, artisans and craftsmen’. .

• Marketing of similar and competing products by the same firm under different and unrelated brands. For example: walmart, big bazar, tesco etc.

• FDI in multi brand retail was not permitted in India. However, the Government of India proposed some policy changes in late 2011. they are as follows..

• A decision has been taken by the Government to permit FDI in all products, in a • calibrated manner, subject to the following conditions:

•FDI in Multi Brand Retail Trade (MBRT) may be permitted up to 51%, with Government approval;

•Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products, may be unbranded.

•Minimum amount to be brought in, as FDI, by the foreign investor, would be US $ 100 million.

•At least 50% of total FDI brought in shall be invested in 'back-end infrastructure’.• Back-end infrastructure will include investment made towards processing, manufacturing, distribution,

design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if any, will not be counted for purposes of backend infrastructure.

MULTI BRAND RETAIL IN INDIA

•At least 30% of the procurement of manufactured/ processed products shall be sourced from Indian 'small industries' which have a total investment in plant & machinery not exceeding US $ 1.00 million. This valuation refers to the value at the time of installation, without providing for depreciation. Further, if at any point in time, this valuation is exceeded, the industry shall not qualify as a 'small industry' for this purpose.

•Self-certification by the company, to ensure compliance of the condition at serial nos. (iii), (iv) and (v) above, which could be cross-checked as and when required. • Accordingly, the investors to maintain accounts, duly certified by statutory

auditors.

•Retail sales locations may be set up only in cities with a population of more than 10 lakh as per 2011 Census and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities; retail locations will be restricted to conforming areas as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking;

•Government will have the first right to procurement of agricultural products

• Direct benefit to Farmers• Reduction in Food Inflation• Earning of For-ex• Huge Employment Benefits• Drop in Food Wastage• Better Consumer Choice• Benefit to Kirana Stores• Creation of backend Infrastructure• More Purchase from SMEs

BENEFITS

• Infrastructure• Intermediaries dominate the value chain• Improper Public Distribution System• No global reach

LIMITATION TO THE PRESENT SETUP

In the last few months, there has been significant discussion on permitting Foreign Direct Investment (“FDI”) in Multi-Brand Retail Trading. As part of that process, the Department of Industrial Policy and Promotion (“DIPP”) released a discussion paper on “Foreign Direct Investment (FDI) in Multi-Brand Retail Trading” (“Discussion Paper”) and invited views on the same. The Confederation of Indian Industry (“CII”) had responded to the Discussion Paper earlier (attached as Annexure 1 is a copy of the response for your reference). In addition to the views set out in the attached response, this note seeks to outline CII perspective on key issues relating to FDI in retail trading sector based on certain recent press reports on the recommended proposal of the DIPP, while highlighting the need to adopt a different approach for food and non-food sector.

By : Greeta Varughese [Senior Director]

Special Initiatives (SI) - COConfederation of Indian Industry

OPINIONS AND REACTIONS

I believe that union government's policy to allow foreign direct investment in retail business is destructive for the country, because it won't bring technology...only foreign money will be invested in Indian markets.

By: K N Govindacharya

Former BJP Ideologue

People reject FDI in Retail in the Public Hearing organized by East Delhi Municipal Corporation: Trade Unions, Street Vendors Associations, RWAs & Civil Society expressed their opinion: 98% voted against FDI in Retail in the opinion poll; Respecting Peoples verdict EDMC will not grant trade licences to FDI Retailers

By: Annupurna MIsra

Mayor, EDMC

I think the advocates of FDI have probably put too much emphasis on it. India is really in a different position than a small, developing country. It is different in two ways. First, you have a large pool of entrepreneurs and they are globally savvy. They have access to global technology and they have a lot of wealth. So, if there were large returns to large-scale supermarkets, the domestic industry would have supplied it. They are supplying to some extent. It is possible that more competition would spur growth but not having access to FDI is not an impediment in India. I think you have to ask the question - the way to get access to technology to run a supermarket in other ways. A store like Wal-Mart has developed a supply chain in China that is able to procure many goods at lower prices than others because of the huge buying power they have and will use that power then to bring Chinese goods to India to displace Indian production. So the worry is not so much about the displacement of the small retail store but displacement further down the supply chain. So that is what I am worried about. There are other two other issues also I would worry about. Some of the profits of the companies like Wal-Mart come from free riding on our society. They don't provide healthcare benefits to their workers and they assume that the husbands or wives of the workers get healthcare benefits from their other employees or they get money through some other mechanism. In the US, the salary is so low, it is difficult for them to pay for it. They might not be a good employer. So the question is to bring in the Indian context the firms that are not good employers.

By: Shobhan SaxsenaEditor

Sunday Times of India

Supreme Court

The Supreme Court on Oct 15 refused to stay the Centre's decision to allow Foreign Direct Investment (FDI) in retail sector. A bench of justices R M Lodha and A R Dave, however, said that the policy suffers from "curable" irregularity of want of legal sanction and asked the RBI to amend the Foreign Exchange Management Act (FEMA) regulations to allow implementation of the government's policy.

The bench said the RBI should have amended the FEMA regulations before the implementation of FDI policy and asked the banking regulator to take steps to remove the lacunae in the way of giving a final shape to the policy.

The court observed that the regulations should have been amended before the Centre issued the notification, but clarified that the irregularity can now be cured with RBI amending FEMA regulation. "At least it can be said that it is an irregularity that is curable and as soon as amendment is brought, it would be cured," the bench said.

During the argument, the court said the policy cannot be stayed just because of this irregularity. Attorney General G E Vahanvati submitted that he would talk to the RBI Governor to take immediate steps for bringing amendment in the FEMA regulations. The bench after hearing his submission adjourned the matter for further hearing on November 5.

The court was hearing a PIL filed by lawyer M L Sharma, who has said that RBI's nod was missing from the Centre's policy allowing FDI in retail sector.

By: R M Lodha and A R Dave

Bench of Judges

Supreme Court

Call on 20th September for a nationwide strike (Bharat Bandh) by trade unions of street vendors, small traders, and most of the political parties from left to right and including of parties within the Govt. and parties supporting the Govt. was historical. Millions of retailers and thousands of trade associations observed the bandh demanding rollback of FDI in multi-brand retail. All major markets were closed throughout India. Public transport was off the roads and colleges, schools, offices and transport services remain shut in most part of India. Trains were blocked by political activists of BJP, SP and CPI (ML) in many places including Bihar, Uttar Pradesh, West Bengal, Orissa and Jharkhand. The station Master of Patna Railway Station was locked. The impact of the strike was also seen in states of the North East. The bandh was total in Manipur. Banks, markets, shops and educational institutions were closed, with government offices recording low attendance in Meghalaya. Railway, road and others services were heavily impacted in Jharkhand. Most colleges reported only 20-50% attendance in Mumbai.

STRIKE AGAINST FDI IN RETAIL

Small Farmers will get better pay for their production; Currently on 10-25% of amount is paid to farmer than market selling price. Wastage of Food production is controlled to huge extent as the biggies will be able to get the cold storage of high volume. Tax is paid to govt, whereas local kiranas won’t pay the proper tax. Choice for customers, as there will be lot of options. Low prices offered to customers due to Heavy competition. Immediate employment in real estate and retail sectors. Quality fruits and vegetables without chemicals. Expiry date issued on each product. Export of Indian products to other countries. Global access to technology in retail sector and many more ....One of the best chances to see better India.

By : Easyday Store Manager

Sirsa

FDI will ensure better operations in production cycle and distribution. Due to economies of operation, production facilities will be available at a cheaper rate thereby resulting in availability of variety products to the ultimate consumers at a reasonable and lesser price.

By: Pradeep Madaan

Lecturer

Govt Senior Secondary School

Sirsa

FDI in retail has both a negative and positive impact on economy of India. Positive aspects is it helps to boost the growth of economy by increasing foreign investment, availability of goods in less prices and helps towards better infrastructure. Negative part is it leads to unemployment or we can say it destructs the general kirana business and their livelihood too. India business goes to foreign hands, so it may increase the danger of economy failure.

By: Ms. Shweta Sharma

Asst. Professor

JCD Vidyapeeth

Sirsa

Mythology touched by a tinge of modernism isn’t a bad idea for creativity. The modern day demon in Indore is an effigy of ‘FDI Ravan’ which will be burnt on Dussehra evening. Jaipur, like every year, is all geared up to celebrate Dussehra in the brightest magnificence. "The tallest effigy of 120 feet is erected by us at the Central Spine in Vidhyadhar Nagar. We are planning to make it a delightful evening for the devotees," said a member of the organising committee at Vidhyadhar Nagar.  Pune celebrates this day in a different way altogether. As the traditional practice, Apta leaves that represent gold are exchanged by people. During Dussehra people worship the Shami and in Maharashtra, they exchange leaves of the Apta tree (also known as Sonpatta). In some parts of south India, the leaves of the Shami are soaked in water until the day before Diwali when people bathe with this water.

BY: Aryani Banerjee

Correspondent

India TV

FDI AT DUSSEHRA

One thing that concerns me is the influx of cheap / low-cost products from China, Mexico.. etc, which would kill the manufacturers in India. While one could talk about healthy competition, some countries may be able to produce cheaply purely on the basis of currency exchange rate and cheap labour environment (violating human rights). Would we actually be supporting something we need to condemn, by purchasing from Walmarts and other FDI sponsored outlets?

By: J C Chawla

Branch Manager

Punjab National Bank

Sirsa

There is a lot to be said for big retail to come to India, but we cannot simply be taken in and mimic something which is being pushed down our throats because those who make the policy appear to not have the faintest clue on how retail really works in India.

By: Mohamud Yunus

Professor, Punajabi University

Patiala

THANK YOU