FDI IN RETAIL

12201,12204,12212,12235,12256

Group-B5

What is FDI? What is FDI?

Modes Of FDI

Acquiring Shares

Modes of FDI

Merger & Acquisition

Joint Venture

Subsidiary

FDI Inflow worldwide

Source: Delloite

1 20

50

100

150

200

250

300

350

400

450

500

$ 218bn

$436bn

20122005

Source: Deloitte

The

Indi

an R

etai

l sec

tor h

as sh

own

CAGR

of 1

0%

Growth of investment in retail

6210

8

6

44

3 2 1

Food

Fashion

Leisure & entertainment

Fashion Accessories

Consumer Durables

Health, Beauty & Pharma

Furniture

Telecom

Books & MusicSource: Deloitte

Indian Retail Market Segment(2011)

Present Scenario

FDI in Multi-Brand

retailing

51 percent

FDI in Single-Brand retailing

100 percent with prior government approval.

FDI in ‘cash and carry’ wholesale trading

Permitted up to 100 percent under the automatic route. Products with refrigeration (cold storage)

Permitted up to 100 percent

under the automatic

route.

Current FDI Norms

1 2 3 4 5 610500

11000

11500

12000

12500

13000

13500

14000

11689

12049.8

12408.8

12770.8

13122.1

13448.5

Increase of retail outlets in India(2002-2007)

Source: Deloitte

The lacuna in retail sector: Where are we lacking behind?

13 million retail outlets that account for around 95-96% of the total Indian retail industry.

Rigid regulations, real estate costs, high personnel costs, lack of basic infrastructure, shrinkage, and highly competitive domestic retailer groups.

The per capita retail space in India is among the lowest in the world, though the per capita retail store is the highest.

Farmers

• 50% Of Production of food and vegetables is wasted at this level

Middlemen Consumers

Reasons for this loss: Rigid regulations Real estate costs High personnel costs Lack of basic infrastructure Shrinkage Highly competitive domestic retailer groups

What Impact FDI will make?

Food processing

Cold Storages

Transportation

“It is estimated that FDI in retail can create approximately 4 million direct jobs and almost 5 to 6 million indirect jobs including contractual employment within a span of 10 years, making it the largest sector in organized employment.”

What Impact FDI will make?

ASSOCHAM estimates suggest employment of one person per 350-400 sq.ft of retail space, which means nearly 1.5 million jobs will be created in the front-end alone in the next 5 years

Assuming that 10% extra people are required for the back end, the direct employment generated by the organized retail sector in India over the coming 5 years will be close to 1.7 million jobs

Benefits

Cut down inter-mediaries Give better

prices to farmers

Provide stabilityEconomies of scale which will benefit, both the farmers and consumers

BenefitsA 1% increase in infrastructure is associated with a 1% increase in GDP across all countries.

Provision of adequate and quality infrastructure is necessary for increasing the productivity and efficiency of agri value chain.

The entry of modern retail formats in India will undoubtedly bring with it an intensive infrastructure creation.

More focus will lie on cold chain infrastructure warehouse distribution in order to strengthen the supply chain.

Healthy Competition will be boosted and there will be acheck on the prices (inflation).

Benefits: Building an Efficient Supply Chain

Increase private investment in the area of supply chain infrastructure

Private Players

A boost from the various schemes of the Government to incentivize rural infrastructure creation

Government

COMPARATIVE ANALYSIS OF FARMERS’ SHARE IN FINAL PRODUCE

1 20%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

30

70

70

30

Series3Series2Series1

Break up of farmers share in developed and developing countries in food grains

India

1 2 30

10

20

30

40

50

60

70

80

90

100

2028

47

8072

53

Series2Series1

Farmers share in different areas in

India

Horticulture

Cereals and grains

Fresh fruits & vegetables

Developed countries

Source: ASSOCHAM

The other side of the coin

The Indian example of retailing: ITC’s ABD program AMUL Future Group Hypercity

ITC-ABD covers 10 states and 4 million farmers. The company’s e-Choupal and ‘Choupal Pradarshan Khet’ are initiatives that have been empowering farmers to improve productivity and deriving better returns.

 

Some other facts

Though India has a very healthy savings to GDP ratio, the investments are not sufficient to tackle the issue of a large population.

The opponents should realize that no foreign company can come to India on its own and will need a local partner to bring in 49% investment in the venture.

Will bring investments in rural India in the form of cold storages, food processing industries and transportation.

Today there is no restriction on how many Kirana shops can be opened in a locality and number of shops per say 1000 people. All Kirana shops are doing business and making money.

At least 10 million jobs will be created in the next three years in the retail sector.

FDI in retail will help farmers’ secure remunerative prices by eliminating exploitative middlemen.

Huge investments in the retail sector will see gainful employment opportunities in agro-processing, sorting, marketing, logistics management and front-end retail.

Sourcing of a minimum of 30% from Indian micro and small industry is mandatory.

Policy mandates a minimum investment of $100 million with at least half the amount to be invested in back-end infrastructure, including cold chains, refrigeration, transportation, packing, sorting and processing.

In any case, organized retail through Indian corporate is permissible. Experience of the last decade shows small retailers have flourished in harmony with large outlets.

A strong legal framework in the form of the Competition Commission is available to deal with any anti-competitive practices, including predatory pricing.

This will have a salutary impact on food inflation from efficiencies in supply chain.

Thailand has experienced

tremendous growth in the agro-processing

industry.

There has been impressive growth in retail and wholesale

trade after China approved 100% FDI

in retail.

In Indonesia, even after several years of

emergence of supermarkets, 90%

of fresh food and 70% of all food is still

controlled by traditional retailers.

S U C C E S S S T O R I E S

Conclusion

If anything, the entry of retail giants is likely to hot up competition, giving consumers a better deal, both in prices and choices.

Mega retail chains need to keep price points low and attractive - that's the USP of their business.

This is done by smart procurement and inventory management: Good practices from which Indian retail can also learn.

In addition, the fear of major job losses is also highly exaggerated. There will not be job losses, but job redistribution along with a spurt in jobs.

So we can easily sit back and be assured that FDI in retail is going to help Indian economy and Indian Peasantry grow.

FDI in retail is a BOON for India.

References: 

http://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD 

http://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD/countries?display=map 

http://www.euromoneycountryrisk.com/Home/Return/Analysis/Country-Risk-Asia-trading-places-with-the-west 

http://en.wikipedia.org/wiki/Retailing_in_India 

FDI in Retail - Advantage Farmers report by Food & Agribusiness Strategic Advisory and Research (FASAR) Team - YES BANK and ASSOCHAM (Oct 2012) 

Research paper on Foreign Direct Investment : The Big Bang in Indian Retail by Arun Kr. Singh and P.K. Agarwal 

http://www.timesjobs.com/jobskill/FDI-Jobs 

http://www.anilagashe.com/2011/12/fdi-in-retail.html  

The Role of the Multilateral Trading System in the Recent Economic Crisis Pascal Lamy. 

BRIC spotlight report 2011.

Thank You