Presentation on“To assess the impact of decision of Indian Government to allow 51% FDI in Multi Brand Retail Sector.”A study conducted with reference to food oriented retailers.

By: Pooja BhambhaniGuide: Prof. Aniruddha Bodhankar SEM IV

Introduction Foreign direct investment is a investment by a company in a country other than that in which the company is based.

Foreign direct investment (FDI) is a direct investment into production or business in a country by a company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country.

Foreign direct investment includes :

mergers and acquisitions building new facilities, reinvesting profits earned from overseas operations intra company loans.

Types Horizontal FDI Vertical FDI

Methods

The foreign direct investor may acquire voting power of an enterprise in an economy through any of the following methods:

1. by incorporating a wholly owned subsidiary or company anywhere

2. by acquiring shares in an associated enterprise3. through a merger or an acquisition of an unrelated

enterprise4. participating in an equity joint venture with another

investor or enterprise

Foreign direct investment in India

Foreign investment was introduced in 1991 as Foreign Exchange Management Act (FEMA), driven by Finance minister Manmohan Singh.

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.

Foreign direct investment in India

The Ministry of Commerce and Industry, Government of India is the nodal agency for monitoring and reviewing the FDI policy on continued basis and changes in sectoral policy/ sectoral equity cap.

The FDI policy is notified through Press Notes by the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion (DIPP).

Retailing in INDIA

Until 2011, Indian Central Gov. denied FDI in MBR. SBR was limited to 51% ownership.

In January 2012, India approved reforms for single-brand stores with 100% ownership and imposed requirement that SBR source 30% of its goods from India.

On 7 December 2012, the Federal Government of India allowed 51% FDI in multi-brand retail in India.

OBJECTIVES to investigate and review current policy and regulations with regards to foreign investors to gain an understanding of the current position on FDI to assess the key factors to be considered in making policy changes in the future and to compare the thoughts and opinions of people.

Method of Data Collection:-I. Primary Data Collection Tools: QuestionnaireII. Secondary Data collection Sources: Through published data in newspapers.

AdvantagesAllowing FDI in multi-brand retail will bring about :

supply chain improvement investment in technologymanpower & skill development upgrade in the agriculture sectorbenefits to the government through greater GDP and tax income. The organized sector will also lay stress on producing more and will generate more employment in production as well as retail industry.

ANALYSIS

1. The 100% FDI in MBR will have a strong effect(adverse effect) on Organized Retail, it will have a positive impact on India’s Capital account, Rural sector, Currency Appreciation

2. However the 100% FDI in MBR will have no impact on purchasing power of consumers, unorganized retailers , small retailers (basically food oriented retailers).

3. The KMO test (0.624) shows the adequacy of sampling and the Bartlett’s test shows that there is no sufficient evidence for rejecting the null hypothesis thereby the null hypothesis cannot be rejected.

ANALYSIS4. The Scree plot shows that two rescaled principal

components can be extracted which can be named as economic factors and local factors. The economic factors shows that the FDI in MBR will have 92.4% impact on organized retail sector.

5. The economic factors also shows that the FDI in MBR will force the government (impact factor -90%) to appreciate the currency .

6. Rural Retail sector will be affected (83.3%).

ANALYSIS

7. Positive impact on capital account (78.5%).

8. The local factors such as increase in purchasing power and unorganized food retailers will have moderate impact.

9. The impact on small food oriented retailers will be very negligible (only 52%).

SUGGESTIONS The government should impose local employment

quotas on foreign retailers, firstly to reduce the effects of any potential labour displacement , and secondly to encourage foreign retailers to provide training ,skills and development to local people who without it would not be able to transfer to the organised retail sector’ or back end services.

The government should reform price control policies to ensure that foreign retailers cannot sell a below minimum price, rather than the current maximum retail price(MRP).

Rules on re – patriation of foreign profits should be revised, to discourage 100% of profits from leaving India.

CONCLUSION

The domestic retailers who responded believe that FDI in retail will bring the benefit of skills transfer, technology, innovation and best practises as well as supply chain, infrastructure and logistics improvements. They also thought that it would increase employment and economic growth and draw more investment in to the domestic sector and sub-sectors. Overall, 70% of people believe that it would have a positive impact.