FDI in India

P a g e | 1Impact of FDI on Kirana-stores/retailing in India

Impact of FDI on Kirana-Stores/Retailing in India.

Group Members

Name Roll.no

1.Gaurav Jadhav 57

2.Mayur Thakre 52

3.Shantanu Bhople 31


4.Vidhi Bhatt 08

5.Kokila Patel 17

ACKNOWLEDGEMENTWe would like to thank our teacher and our guide

Dr. Swati who inspired us and supported us in doing our research in the right way. We would also like to thank all the people who gave their valuable feedback by answering our questioner.


PREFACEThis project is a part of an on-going and collaborative research project among the students of S.Y.BMS – A of M.L DHANKUAR college. Our project is guided by Dr. Swati.

The intention of the project is to know and understand the people’s views on the proposed changes in the FDI policy with regards to retailing in India.


Sr.No.

Index Page.No.

1.2.3.4.5.6.7.

IntroductionReview of literatureResearch MethodologyResultsConclusionRecommendations

01 07 09 13 15 16 19


Bibliography

Introduction

Retailing :

Retailing is the interface between the producer and the individual consumer buying for personal consumption. This excludes direct interface between the manufacturer and institutional buyers such as the government and other bulk customers. A retailer is one who stocks the producer’s goods and is involved in the act of selling it to the individual consumer, at a margin of profit. As such, retailing is the last link that connects the individual consumer with the manufacturing and distribution chain. In India’s GDP, retailing contributes 10-11 %. The retail industry is divided into organized and unorganized sectors.


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 alsothe privately owned large retail businesses. Unorganized retailing, on the other hand, 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.

Foreign Direct Investment :

Investment done by citizens and government of one country (home country) invest in industries of another country (host country) is called as FDI. Foreign direct investment (FDI) in this

country assumed critical importance in the context of this liberalization. Though India is the tenth most industrialized country in the world, it is well known that it is mainly agro-based with around 70% population engaged in the farm sector. However, in the initial stage of liberalization, FDI


was centered on the urban manufacturing sectors because of its civic infrastructure, labour availability, flexible taxation mechanism etc. The success story of FDI in these sectors is known to you.

Review of Literature survey


1.According to the books; a) FDI in India’s Retail Sector, More Bad

than Good ? by By Mohan Guruswamy,Kamal Sharma,Jeevan,Prakash Mohanty,Thomas J. Korah.

b) Impact of FDI on Indian Retail Trade: Good, Bad or Mix by Dr. Kakali Majumdar.

c) Foreign Direct Investment in Indian Retail Sector – An Analysis by Paulkit agarwal.

Employment in Retailing:A simple glance at the employment numbers is enough to paint a good picture of the relative sizes of these two forms of trade in India – organized trade employs roughly 5 lakh people, whereas the unorganized retail trade employs nearly 3.95 crores. According to a GOI study the number of workers in retail trade in 1998 was almost 175 lakhs. Given the recent numbers indicated by other studies, this is only indicative of the magnitude of expansion the retail trade is experiencing, both due to economic expansion as well as the ‘jobless growth’ that we have seen in thepast decade. It must be noted that even within the organised sector, the number of individually-


owned retail outlets far outnumber the corporate backed institutions. Though these

numbers translate to approximately 8% of the workforce in the country (half the normal share in developed countries)there are far more retailers in India than other countries in absolute numbers, because of the demographic profile and the preponderance of youth, India’s workforce is proportionately much larger. That about 4% of India’s population is in the retail trade says a lot about how vital this business is to the socio-economic equilibrium in India.

The Waiting Foreign Juggernaut:The largest retailer in the world ‘Wal-Mart’ has a turnover of $ 256 bn. And is growing annually at an average of 12-13%. In 2004 its net profit was $9,000 mn. It had 4806 stores employing 1.4 mn persons. Of these 1355 were outside the USA. The average size of a Wal-mart is 85,000 sq.ft and the average turnover of a store was about $ 51 mn. The turnover per employee averaged $ 175,000. In 2004 Wal-Mart had a 9% return on assets and 21% return on equity. By contrast the average Indian retailer had a turnover of Rs. 186,075. Only 4% of the 12 million retail outlets were larger than 500 sq.ft in size. The total turnover of the unorganized


retail sector was Rs. 735,000 crores employing 39.5 mn persons.Let alone the average Indian retailer in the unorganized sector, no Indian retailer in the organised sector will be able to meet the onslaught from a firm such as Wal-Mart when it comes. With its incredibly deep pockets. Wal- Mart will be able to sustain losses for many years till its immediate competition is wiped out. This is a normal predatory strategy used by large players to drive out small and dispersed competition. This entails job losses by the millions.India has 35 towns each with a population over 1 million. If Wal-Mart were to open an average Wal-Mart store in each of these

cities and they reached the average Wal-Mart performance per store – we are looking at a turnover of over Rs. 80,330 mn with only 10195 employees. Extrapolating this with the average trend in India, it would mean displacing about 4,32,000 persons.

If large FDI driven retailers were to take 20% of the retail trade, as the now somewhat hard-pressed Hindustan Lever Limited anxiously anticipates, this would mean a turnover of Rs.800 billion on today’s basis. This would mean an employment of just 43,540 persons displacing


nearly eight million persons employed in the unorganized retail sector.

Research Methodology


1.The research design used in the research is ‘Research design in descriptive studies’. Descriptive study are those studies which are concerned with specific predictions, with narrations of the facts and characteristics concerning individual, group or situation are examples of descriptive research studies. Most

studies of social research are under this category.

2.The steps followed are as followed :-a)Formulating the objective of study -

The objective of the research conducted is to find out the impact of proposed FDI policy on Retail sector in Indian economy.

b) Designing the data collection methods – The method used for collecting the data is ‘Questioner method’. The questions used in the questioner method were multiple choice questions and open ended questions the follow questions were asked ;

1.Are you aware about the proposed changes in F.D.I policy with regards to retailing in India ?

2.Where will you prefer to shop ? Why ?Kirana–store


Wal-Mart/Carrefour.3.Do you think it will affect the Retailers ? How ?

4.Do you think it will help the government in generating higher revenue ?

5.Will it cause a rise or fall in employment ? How ?

6.Due you think the prices of the goods will fall due to increase in the competition between the retailers ?

7.Where do you get a better service ? Why ?Kirana-storeSupermarkets.

8.According to what are the challenges that the Kirana-stores will suffer ?

9.Do you think the implementation of the policy will affect the standard of living of the people ? how ?

Advantages

Cost-Effective


Non-Partial technique Longer time provide to answer the questions Large samples of questions make results more

reliablec)Selecting the sample –

The sample selected should be selected in such a way it covers the whole population. Hence, we have divided the sampling into two parts, out of the total 50 copies of questioner 25 will be filled by the retailers and 15 by the working population and 10 by the students of various colleges.

d) Collecting the data -The data was collected in two forms i.e; by descriptive study and by questioner method. The descriptive data was collected from various internet site and also from various books such as [FDI in India’s Retail Sector, More Bad than Good ? by By Mohan Guruswamy, Kamal Sharma, Jeevan,Prakash Mohanty, Thomas J. Korah].The questioner method was anwered by the general public.

e)Processing and analyzing the data –


The data was then properly processed and analysed. The point of view of every person who answered the questioner was taken into consideration and their ideas and thoughts were analysed and accordingly the research was prepared.

f) Reporting the searched data –After analyzing the whole research, the conclusion must be formed and it has to be neatly and properly submitted.Aproper layout should be planned, which helps in presenting the report in simple and effective style.


Results

1) After analyzing all the reviews it was found out that out of 50 people who answered the questioner 40 people said that due to the implementation of the FDI policy the retailers in India would suffer due to the entry of big Multinational supermarkets such as Wal-mart, Carrefour etc. The retailers will also suffer due to the lower prices which will be provided by the giant supermarkets. They will also suffer because the facilities and infrastructure what will be provided by them will be less as compared to the large supermarkets. They will


also have to change as the changing trends in the retailing business, which will not be possible for the small retailers.

2) After analyzing the literature survey it was found out that around 18.89 crore people are doing the retailing business out of the whole population of 1 billion in India, that means around 8% of the total population are employed under the retail business and who contribute around 10-11% in the total GDP of India. The big giants such as Wal-Mart who have a networth of 9,000 million dollar. It has 4085 stores all ovr the world, in which 1.4 million (14 lakh) people are employed whereas the total retailing population in India is 18.89 crores.

3) It has been predicted by some of the economists that if the FDI policy is allowed in retail sector then, let alone the average Indian retailer in the unorganized sector, no Indian retailer in the organised sector will be able to meet the onslaught from a firm such as Wal-Mart when it comes. With its incredibly deep pockets Wal-Mart will be able to sustain losses for many years till its immediate competition is wiped out. This is a normal predatory strategy used by large players to drive out small and


dispersed competition. This entails job losses by the millions. India has 35 towns each with a population over 1 million. If Wal-Mart were to open an average Wal-Mart store in each of these cities and they reached the average Wal-Mar performance per store – we are looking at a turnover of over Rs. 80,330 million with only 10195 employees. Hence the desired result ill not be found and lacks of people who deal in the retail sector will end jobless.

Conclusion


1) After doing the research it has been concluded that if FDI policy is introduced in the retail sector then it will affect the retailers in India.

2) The small retailer who are earning for their livelihood will suffer a major loss due to the competition of the giant supermarket and will be jobless in the end.

3) But on the other hand, if it is introduced then the common people will be benefited i.e; the prices of the goods will fall and the infrastructure facilities will improve, the quality of the goods will improve, the standard of living of the people will improve and this will lead to a better life of the general public.

4) So it has been found out that the loss suffered by the retailers will be major and it will lead to major crisis. For example in the state of West Bengal, ¾ of the population in major cities and village earn their livelihood by doing the retailing business.


Recommendations1. The retail sector in India is severely constrained by limited availability of bank finance. The Government and RBI need to evolve suitable lending policies that will enable retailers in the organised and unorganised sectors to expand and improve efficiencies. Policies that encourage unorganised sector retailers to migrate to the organised sector by investing in space and equipment should be encouraged.

2. A National Commission must be established to study the problems of the retail sector and to evolve policies that will enable it to cope with FDI– as and when it comes.

3. The proposed National Commission should evolve a clear set ofconditionalities on giant foreign retailers on the procurement of farm produce, domestically manufactured merchandise and imported goods. These conditionalities must be aimed at encouraging the purchase of goods in the domestic market, state the minimum space, size and specify details like, construction and storage standards, the ratio of floor space to parking space


etc. Giant shopping centres must not add to our existing urban snarl.

4. Entry of foreign players must be gradual and with social safeguards so that the effects of the labour dislocation can be analysed & policy finetuned. Initially allow them to set up supermarkets only in metros. Make the costs of entry high and according to specific norms and regulations so that the retailer cannot immediately indulge in ‘predatory’ pricing.

5. In order to address the dislocation issue, it becomes imperative to develop and improve the manufacturing sector in India. There has been a substantial fall in employment by the manufacturing sector, to the extent of 4.06 lakhs over the period 1998 to 2001, while its contribution to the GDP has grown at an average rate of only 3.7%17. If this sector is given due attention, and allowed to take wings, then it could be a source of great compensation to the displaced workforce from the retail industry.

6. The government must actively encourage setting up of co-operative stores to procure and stock their consumer goods and commodities from small producers. This will address the dual problem of limited promotion and marketing


ability, as well as market penetration for the retailer. The government can also facilitate the setting up of warehousing units and cold chains, thereby lowering the capital costs for the small retailers.

7. According to IndiaInfoline.com, agro products and food processing sector in India is responsible for $69.4 billion out of the total $180 billion retail sector (these are 2001 figures).This is more than just a sizeable portion of the pie and what makes it even more significant is the fact that in this segment, returns are likely to be much higher for any retailer. Prices for perishable goods like vegetables, fruits, etc. are not fixed (as opposed to, say, branded textiles) and therefore, this is where economies of scale are likely to kick in and benefit the consumer in the form of lower prices. But due attention must be given to the producer too.Often the producer loses out, for example, when the goods are procured at Rs.2 and ultimately sold to the consumer at about Rs.15 as in the case of tomatoes now. The Government themselves can tap into the opportunities of this segment, rather

than letting it be lost to foreign players. And by doing so, they can more directly ensure the welfare of producers and the interest of the consumers.


8. Set up an Agricultural Perishable Produce Commission (APPC), to ensure that procurement prices for perishable commodities are fair to farmers and that they are not distorted with relation to market prices.


Bibliography

2.Questionner.

3.FDI in India’s Retail Sector, More Bad than Good ? by By Mohan Guruswamy, Kamal Sharma, Jeevan,Prakash Mohanty, Thomas J. Korah.

4.Impact of FDI on Indian Retail Trade: Good, Bad or Mix by Dr. Kakali Majumdar.

5.Foreign Direct Investment in Indian Retail Sector – An Analysis by Paulkit agarwal.

Economy & Finance

FDI in India