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Retail - A Pillar of the Indian EconomyThe Indian retail
industry is one of the sunrise sectors in the economy
India is the second most attractive retail destination globally
from among thirty emergent markets (AT Kearney)
Retail contributes of 14% to the national GDP and employs 7% of
the total workforce (only agriculture employs more) in the
countryIndia now generates a good deal of excitement and is the
cynosure of many foreign eyes
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Vital Statistics Indian retail trade amounts to $180 billion -
nearly 10 per cent of GDP (China's retail trade is 8 per cent of
GDP
Indian retail trade employs 21 million persons - about 7% of the
labor force (China employs 6%)
Indian retail trade is six times bigger than Thailand and five
times larger than South Korea and Taiwan
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Division of the Retail PieOrganized
Trading conducted by licensed retailers
Corporate-backed hypermarkets and retail chainsPrivately-owned
large retail businesses.Unorganized
Traditional formats of low-cost retailing
Local kirana shopsOwner-manned general stores Paan/beedi
shopsConvenience storesHandcart and pavement vendors
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MISMATCH !!!Unorganized retailing is by far the prevalent form
of trade in India constituting 98% of total trade
Organized trade accounts only for the remaining 2%
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1993 - Finance minister Dr. Manmohan Singh changed the law to
permit FDI in retail trade 1996 - Finance minister P. Chidambaram
changed the law to ban FDI in retail trade At present, foreign
direct investment (FDI) in pure retailing is not permitted under
Indian law
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View From The TopThe World Bank favors the opening up of India's
retail sector to Foreign Direct Investment to facilitate the speedy
integration of India with the global economy
"The retail sector in India today is a case of low core sector
both domestically and internationally
Uri Dadush, World Bank Director, Development Prospects Group
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FactsIndia is the focus of many international industries
experiencing growth limitations in their own countries, where
domestic markets are saturated
Indias robust and sustainable economic growth makes it a
tempting proposition for companies looking to expand their scope of
operations
The Indian government is amenable to FDI for high end and
grocery retailing - FDI in the Indian retail sector may soon be a
reality
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FDI Boon Or Bane?Many opinions on permitting FDI in Indian
retail.
The arguments for & against:
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The Nays
Indian retail needs more time to evolve independently
Many global retailers venturing into India borrow locally rather
than bringing in fresh capita from abroad
Cost of capital higher for Indian retailers than for foreign
players FDI can cause a huge price disparity between the foreign
owned retail chains and local Indian retailers VERDICT - Indian
retail is too inefficient to match swords with foreign players
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The AyesThe World Trade Organization mandate now requires that
India lift the ban or face 'cross-retaliation' measures such as
withdrawal of tariff and trade privileges now available to India
under the new General Agreement on Tariffs and Trade
FDI would ensure substantial growth in the food processing and
textile sectors via the resultant linkage effects of a modernized,
globalized retail trade
The employment generation for Indian youth would be enormous
VERDICT - Indian retail will benefit from juxtaposition with
market-savvy, market-intelligent corporations such as Wal-Mart,
Carrefour, Ahold and JC Penny, and would learn to adopt their best
management practices
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REAL TIME SCENARIO
The government has postponed the annual review of the FDI policy
and regulations
This years review was expected to result in the opening up of
various areas, including commodity markets to FDI
The review of the FDI policy was due in March 2007, but it has
been postponed due to the on-going Parliament session. The review
would now be conducted when the Parliament goes into recess from
March 21 to April 18
The Government is considering allowing FDI in multi-brand retail
in areas like sports goods and electronics. At present, 51 percent
FDI in single-brand retail is allowed. In wholesale,
`cash-and-carry up to 100 percent FDI is allowed
Mrs. Sonia Gandhi Make forward movement on opening up of the
retail sector only after examining the impact of the decision on
livelihood security of those engaged in small-scale operations
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