[ VOLUME 6 I ISSUE 2 I APRIL– JUNE 2019] E ISSN 2348 –1269, PRINT ISSN 2349-5138

Foreign direct investment in retail market: An analytical study of Indian

economy

Dr.Surbhi G.Garg1 & Priyanka Khare2

1,2Shri Guru Nanak Girls Degree College, Lucknow

Received: February 15, 2019 Accepted: March 31, 2019

ABSTRACT: India being largest developing economyand attracts foreign and domestic retailers due to
higher purchasing power of consumers. Urbanisation, industrialisation and consumerism havepaved the
opportunities for expansion of retail market in the country.The spectacular growth of foreign direct
investment in Indian economic landscape over past years has boosted the development of policies and
strategies in the nation. Reforming climate of foreign direct investment in retail market for single and
multiple brands has brought a new zeal in the retail sector. With rapid pace of growth in retail scenario,
the low contribution of organised retail is soon going to have tremendous increase through FDI.This
present paper discerns an overview of foreign direct investment in Indian retail sector and attempts to
analyse its impact on economy. It also focuses on future prospects of foreign direct investment and
upcoming challenges faced in India.The research study is based on secondary data and immense review of
literature on foreign direct investment in retail sector of India. The study reveals the impact of foreign
direct investment for developing India and ample opportunity in rural India.

Key Words: Foreign Direct Investment, Retail market, Indian economy, Future prospects, Challenges.

I. Introduction
Development of Indian economy, increased purchasing power, merger and acquisition among cross border,
rapid advancement of technology and brand proliferation enhances the level of retail in India. The economic
growth of the country increases per capita income and thus causes a shift in the pattern of consumption
from necessity items towards discretionary items. However liberalisation, privatization and globalisation
have paved the ways for international brands to enter Indian domestic market. In a report on foreign direct
investment, AT Kearney (2018) states that India is having second highest ranking among emerging market.
It leads to various reforms in business environment and economic growth of India. India is expected to
rebound this year.IBEF (2018) states that India is first in global retail development index 2017, which is
backed in increasing spending of consumers in the country. A report of economic times (2018) states that
FDI confidence index falls by three spots at 11 thin 2018, it ranked 8 thposition as shown in figure.1 in year
2017. It is said that downfall in the rank may be due to introduction of GST in the country, still the strong
performance in Indian market attracts the investors.
Figure 1: FDI confidence index 2017

Source:https://www.ibef.org/industry/retail-india.aspx

According to Batra (2010) economic development of various countries rely on foreign capital. Industrial
policy 1991 allowed FDI in retailing for single brand which accounts for 51%. Retail sector quest the thirst
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http://ijrar.com/ Cosmos Impact Factor 4.236
of employment in the country by employing skilled, semi-skilled and educated workforce of the country.
Indian retail industry comprises of organised and major unorganised sector. Unorganised retailing is most
popular in India and dominates the market. Bhattacharya (2012) analysed the retail scenario in India. The
study reveals that foreign direct investment in India provides opportunities for capital infusion and also
facilitates healthy competition among various countries. Thus it reduces price, increased product varieties.
FDI in retail sector influences unorganised retail sector, since it is tough for small domestic retailers to face
giant global retailers.
A study conducted byBagaria&Santra (2014) reveals four phases of foreign policy of India regarding
investment. 1948-66 phase in which the country welcomed foreign investment. Relative and restrictive
policies were adopted in late sixties. Further policy was revised in 1980 to attract resources from oil export.
The fourth phase of foreign policy commenced in 1991 to encourage economic growth in the country.
Investment in unorganised sector is very low thus it lacks proper infrastructure, since many retailers have
less than 500 square feet area, thus the flow of FDI boost the growth in retail sector.Mishra (May, 2017) in
a report states that Indian retail sector is expected to be double by 2020. It is expected to be $1.1-1.2 trillion
from $ 630. Government has already allowed 100 percent foreign direct investment in e-commerce and food
retail in past years. According toRay et.al (2014), India is having varying culture and tradition, thus it is
challenge for companies to adopt themselves according to varying customer preference. Since the Indian
market is dominated by unorganised retailers thus it has opportunities for organised retailers. FDI
accelerates the growth of Indian economy, provides job opportunities, develops infrastructure and
beneficial for customers.
Bahar (2015) reveals that FDI in Indian retail sector is necessary since it enhances export competiveness
and increases financial resources in the country. It increases the job opportunities. Indian retail sector lacks
proper infrastructure, improper distribution system. Dominance if marketing intermediaries influences
retail industry of the nation.Chowdhary (2016) reveals that FDI in Indian retail sector orients the country
towards development. It lures skills and enhances efficiency of companies through aid of FDI. It strengthens
the value of Indian currency and reduces growing rate of inflation in the country.Chawlaet.al.
(2016)revealed that retail sector in India is growing due to increased young population, increased women
workforce, double income of the country, rapid urbanisation in the country and customer orientation
towards modern shopping trend. The study suggests that small retailers should improve their strategy for
sustaining in the market. The government should also frame policy in interest of small retailers.
Bhaskar&Harshita (2017) states that most of the economies which are already developed depend on retail
sector. Indian retail industry is fourth largest player among various players present in the market. Indian
retail industry is facing various challenges such as change in preference of customer and logistical
challenges. Proper development of infrastructure and well developed infrastructure influen ces Indian retail
market.

II. An overview of Indian retail sector

Foreign direct investment accelerates the growth of Indian economy. India is one of the largest retail market
having ample opportunities for growth. It is largest employer for the sector. According to a report by
Hindustan times (2018), RBI reveals that India is preferred for FDI, since domestic consumption is high in
the country. Foreign capital inflow is increasing in the country majorly due to flow in communication,
financial services retail and wholesale trade. Majority of FDI inflow in India is from Mauritius and Singapore
which accounts for 61% of total equity investment in the country. An annual report of Reserve bank of India
shows country-wise foreign direct investment inflow to India and inflow in retail and wholesale trade. The
report in table-1 shows increasing trend in FDI inflow from various countries in India. According to the
report investment in retail and wholesale trade continuous increase in economy.
Table-1: Country-wise foreign direct investment inflow to India and inflow in retail and wholesale
trade.
US($ million)
Country/year 2012-13 2013-14 2014-15 2015-16 2016-17
Total FDI 18,286 16,054 24,748 36,068 36,317
Mauritius 8,059 3,695 5,878 7,452 13,383
Singapore 1,605 4,415 5,137 12,479 6,529
Japan 1,340 1,795 2,019 1,818 4,237

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Netherlands 1,700 1,157 2,154 2,330 3,234

U.S.A 478 617 1,981 4,124 2.138
United kingdom Kingdom 1,022 111 1891 842 1,301
Germany 467 650 942 927 845
U.A.E 173 239 327 961 645
Switzerland 268 356 292 195 502
France 547 229 347 392 487
South Korea 224 189 138 241 466
Italy 63 185 167 279 364
Cyprus 415 546 737 488 282
Spain 348 181 401 141 213
British Virgin Islands 3 0 30 203 212
China 148 121 505 461 198
Belgium 33 66 47 57 172
Others 1,394 1,501 1,754 2,677 1,109
Sector-wise inflow
Retail & wholesale trade 551 1,139 2,551 3,998 2,771
Source: RBI
A report by press information bureau government of India cabinet (Jan, 2018) states that FDI inflow in the
country has increased to various measures undertaken by Indian government.The total FDI of US $60.08
have been received in FY 2016-17 which is higher from past financial years. Government have permitted
100% FDI for single brand retail trade through automatic route.Quarterly factsheet (August, 2018) on FDI
reveals that FDI inflow in India has shown tremendous increase from US $ 4029 million in FY 2000 -01 to US
$ 16, 868 million in FY 2018-19 for June. In a report Pandey (August, 2018) states that 100% FDI is
allowed for single brand retail trade in India in which more than 51% and at least 30% value of the goods is
sourced from India. In contrary only 51% FDI is allowed for multiple brand retail trade.

III. Statement of problem

Foreign direct investment vitalises the developing Indian economy. Thus the concentration on current
status of foreign direct investment in Indian retail is essential. Unorganised sector dominates in Indian retail
market with major percentage. The question regarding the impact of FDI on retail sector, the upcoming
opportunities in retail sector due to FDI and various challenges needs to be probed by researchers,
academicians to acquire new knowledge and provide clear picture of foreign direct investment on retail
sector of Indian.

IV. Objective and methodology of the study

The various objective of the present study are:
To study the importance of foreign direct investment in Indian retail sector.
To analyse the impact of foreign direct investment in Indian retail sector.
To study various future prospects of foreign direct investment and upcoming challenges faced in
Indian retail sector.
The present study is based on secondary data, statistical data and analytical understanding of various
research papers from various journal considered for the study.

V. Research gap
Foreign direct investment accelerates the growth of the nation. Various researchers have already
concentrated their studies on FDI and retail sector in India. Bhattacharya (2012) focussed the study on
opportunities and challenges of FDI and retail. Bagaria&Santra (2014) focussed the study towards in the
same direction on retail marketing. Bahar (2015) studied FDI in retail sector. Chowdhary (2016)
concentrated the studies through analysing FDI in retail sector. Still there exists a research gap, since the
researchers have not analysed the whole economy.

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http://ijrar.com/ Cosmos Impact Factor 4.236
VI. Challenges and Opportunities of Foreign retail in India
Challenges:
 Improper infrastructure:Indian retail industry lacks proper infrastructure development, thus it
influent total cost of production and cost to the consumer.
 Logistic management:Improper logistic in the country increases inefficiency in retail processes.
Retail sector lacks well- developed logistic system.
 Unorganised sector:Indian retail market is dominated by unorganised retailers. Thus there is a
challenge for organised retailers to strengthen their roots in the market.
 Political issues: FDI is influenced by political interference. FPI for multiple brand retail trade was
influenced due to lack of consensus from political policies in November 2011 and further new
policy was framed in September 2012.
Opportunities:
 Capital infusion in the nation: It resolves the problem of cash deficit retailers and provides the
opportunity to raise funds. The funds can be utilised in the development of infrastructure, creates
job opportunities and accelerates the growth of the nation.
 Enhances customer satisfaction: Organised sector facilitates customers with ample choices
among national and international brands of products. Infrastructure development provides
pleasant environment to the customers for shopping the products. Availability of huge space for
shopping and product displays enhances satisfaction among the customers. Price competition is
influenced due to FDI, since it challenges the monopoly of domestic players.
 Improves technology:Inflow of financial resources in the sector facilitates improved technology
for manufacturing, processing, packaging, weighing and billing the products. Automation in the
sector increases the efficiency of the segment.
 Creates employment opportunities:Foreign companies in the Indian retail sector ensures and
environment of quality employment opportunities in the nation. The lifestyle of the Indian citizen is
improved with the standard of living due to availabity of better job opportunities. The skills of
Indian human resource is thus utilised effectively.

VII. Conclusion
Foreign direct investment empowers Indian economy to withstand competition. FDI in retail sector
enhances quality standards for the products, expertise and employment in the segment. FDI must be
encouraged in the nation to increase efficiency of the sector. The government of India must ensure that the
domination of foreign companies should not concentrate the Indian market and influence domestic retailers.
The policies must the framed for sustainability of small retailers in the market. Still FDI is helpful in
development and growth of Indian economy. FDI has positive impact on the economy.

References
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