Widespread liberalization and deregulation of financial markets, cross-border mergers and acquisitions (M&As), increasing role of investors willing

to invest abroad, rapid advances in modern IOSR Journal Of Humanities And Social Science network (JHSS) telecommunication and computer have all resulted in a tremendous ISSN: 2279-0837, ISBN: 2279-0845. Volume 5, Issue 5 (Nov. - Dec. 2012), PP 99-109 upsurge of international capital www.Iosrjournals.Org flows in India, particularly private capital flows, as compared to official capital The Opportunities Challenges of FDI in Retail in India flows over the last twoand decades. Among the various forms foreign investment, foreign direct investment Rajibof Bhattacharyya Prof. in Economics, G. Department of Commerce, Hooghly Mohsin College, India (FDI)Assistant flows are usually P. preferred over other forms of external finance they are non-debt creating, Abstract: The spectacular and unprecedented growth because of FDI in the global economic landscape over thenonlast two decades has made it an depends integral part of the development strategy of both the developed and volatile and their returns developing on the performance of projects financed by the investors. In fact, FDI provides a win nations. It acts as a major catalyst in the development of a country through up-gradation of win situation to both the technology, managerial and capabilities in various sectors. Rise in purchasing growing consumerism host and skills the home countries. The home countries want power, to take the advantage of and the vast markets by brand proliferation has opened led to retail modernization in India. The growing Indian market has attracted a number industrial growth. On the other handinthe hostFDI countries to acquire of foreign retailers and domestic corporate to invest this sector. in the retail want can expand markets by technological and managerial skills and reducing transaction and transformation costs of business through adoption of advanced supply chain Key Words: FDI, Indian retail sector, Opportunities andMoreover, Challenges, supplement domestic savings and foreign exchange. inImpact order on to and Stakeholders. benefit consumers and suppliers (farmers). Oppositions have raised concerns about employment losses, overcome the defi ciencies of kinds I. all Introduction promotion of unhealthy competition among organized domestic retailers resulting in exit of small of resources viz. financial, capital, entrepreneurship, technological know- how, domestic skills and to of urban cultural development. The present paper focuses on retailers from practices, the market access and distortion the markets-abroad - in their economic development, developing nations accepted FDI overview of the Indian retail sector along with the opportunities of expansion of FDI in retail in India and the as a sole visible for major challenges that panacea it faces. all their scarcities. Economic development, rise in purchasing power, growing consumerism and brand proliferation has led to retail modernization in India. With high economic growth, per capita income increases; this, in turn, leads to a shift in consumption pattern from necessity items to discretionary consumption. Furthermore, as the economy liberalizes and globalizes, various international brands enter the domestic market. Consumer awareness increases and consumers tend to experiment with different international brands. The proliferation of brands leads to increase in retail space. Retail modernization in India depicts a similar story. According to A.T. Kearney s Annual Global Retail Development Index (GRDI) for the year 2012, II. Objective Of The Study A nd Methodology India The has been placed rank (after Chile, China and Uruguay) on objective of our study at is to fifth analyze the current retail Brazil, scenario in India, investigate the controversial views of the various stakeholders and evaluate the likely challenges and threats of FDI in both single and multi the basis of retail investment brand retail in India. The whole paper is based on descriptive arguments, statistical data, case studies, attractiveness. The growing Indian market has attracted a number of foreign retailers and domestic corporate to www.iosrjournals.org 99 | Page invest in this sector. Being encouraged by India s growing retail boom many multinational companies also started to enter India s retail market. According to the Investment Commission of India, the retail sector is expected to grow almost three times its current levels to $660 billion by 2015. FDI in the retail sector can expand markets by reducing transaction and transformation costs of business through adoption of advanced supply chain and benefit consumers, and suppliers (farmers). Opposition to

The Opportunities and Challenges of FDI in Retail in India

comparative study and analytical logic developed through the understandings from various research papers, reports, books, journals, newspapers and online data bases. III. Indian Retail Sector: An Overview And C urrent Position 1.1 Meaning of retail

It is defined as all activities involved in selling goods or services directly to the final consumer for their personal, non-business use via shops, market, door-to-door selling, and mail-order or over the internet where the buyer intends to consume the product. In 2004, The High Court of Delhi defined the term retail as a sale for final consumption in contrast to a sale for further sale or processing. Retailing involves a direct interface with the customer and the coordination of business activities from end to end- right from the concept or design stage of a product or offering, to its delivery and post-delivery service to the customer. 1.2 Evolution of Indian Retail Industry It is interesting to focus on the evolution of the retail sector in India. Historically they evolved as a source of entertainment (in the form of village fairs, melas etc.) which was within the rural reach. Later on these were transformed Mom and Pop/ Kirana stores which are of traditional variety neighbourhood shops. Then came the government supported PDS outlets, khadi stores, cooperatives etc. Finally shopping malls, supermarkets, departmental stores etc has brought a great revolution to the Indian retail market (figure-1)

Figure- (1)

Source: Technopak Research

1.3 Distinction of Indian Retail

The Indian trading sector, as it has developed over centuries, is very different from that of the developed countries. In the developed countries, products and services normally reach consumers from the manufacturer/producers through two different channels: (a) via independent retailers (vertical separation ) and (b) directly from the producer (vertical integration ). In India, however, the above two modes of operation are not very common. Small and medium enterprises dominate the Indian retail scene. The trading sector is highly fragmented, with a large number of intermediaries. So also, wholesale trade in India is marked by the presence of thousands of small commission agents, stockiest and distributors who operate at a strictly local level. Retail giants like US-based Wal-Mart and French Carrefour are very keen to enter in the segment. Bharti Enterprises and Wal-Mart Stores entered into a joint venture in August 2007 and started cash-and-carry stores named 'Best Price Modern Wholesale' in 2009. 1.4 Division of Indian Retail Industry The Indian retail industry is generally divided into two major segments organized retailing and unorganized retailing. (a) 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 also the privately owned large retail businesses. (b) Unorganized Retailing - 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.

www.iosrjournals.org

100 | Page

The Opportunities and Challenges of FDI in Retail in India

Table-1 Share of Organized Retail in Selected Countries, 2006

Source: Planet Retail and Technopak Advisers Pvt. Ltd.

In the developed economies, organized retail is in the range of 75-80 per cent of total retail, whereas in developing economies, the unorganized sector dominates the retail business. The share of organized retail varies widely from just one per cent in Pakistan and 4 per cent in India to 36 per cent in Brazil and 55 per cent in Malaysia (Table-1). Modern retail formats, such as hypermarkets, superstores, supermarkets, discount and convenience stores are widel y present in the developed world, whereas such 1.5 Types of Retailing in India forms of retail outlets only (a) Single BrandSingle brand have implies that foreign companies would be allowed to sell goods sold internationally under a single brand , viz., Reebok, Nokia and Adidas. FDI Single brand retail that just begun to spread to developing countries in in recent years. Inimplies developing a retail store with foreign investment can only sell one brand. For example, if Adidas were to obtain permission countries, the brand retailing business to retail its flagship in India, those retail outlets could only sell products under the Adidas brand and not the Reebok brand, for which separate permission required. If granted permission, Adidas could sell products continues to be dominated by is family-run neighbourhood shops and open under the Reebok brand in separate outlets. markets. As a consequence, (b) Multi Brand- FDI in Multi Brand retail implies a retail store with a foreign industrial investment cansuppliers sell multiple and wholesalers and distributors who that carry products from brands under one roof. Opening up FDI in multi-brand retail will mean that global retailers including Wal-Mart, agricultural producers to offering the a range of household items and grocery directly to consumers in Carrefour and Tesco can open stores the same way as the ubiquitous kirana The approval for single and store. multi brand includes a setmarkets of riders forremain the foreigna investors, aimed at of the independent family-owned shops and open critical part ensuring that the foreign investment makes a genuine contribution to the development of Indian infrastructure supply chain in these countries. and logistics, at the same time facilitating integration of small retailers into the upgraded value chain. While Recent the minimum capital requirement US$ 100 million is unlikely toretail be an issue for the large statistics states of that though organized in India constituted a foreign players vying to enter India in the supermarket/ hypermarket segment, it could make it difficult for meager 4 percent total foreign investors planning toof enter specialty formats such as music, mobile, electronics goods, among others, as these formats require relatively lower investments. at Further, the approval requirements State percent Governments retail in 2006, but it is expanding a much faster pace offrom 45-50 per annum could limit the cities that FDI backed retailers can operate in. The current opposition raised by a number of and has quadrupled it share www.iosrjournals.org 101 | Page to 16 percent by2011-12. The unorganized retail sector is also growing at about 10 percent per annum with sales rising from US $ 309 billion in 2006-07 to US $ 496 billion in 2011-12.

The Opportunities and Challenges of FDI in Retail in India

political parties, if persists, may pose a major roadblock in the entry of the foreign retailer s in India. Besides restricting the number of cities these retailers can operate in, it could also lead to Table- 2: A Comparison of Norms under Single-brand and Multi-brand Retail in India problems in creating supply Parameters Multi-brand Single-brand Ownership/ chain efficiency.
Investment Requirement Minimum investment of US$ 100million by The foreign investor should be an the foreign investor owner of the brand No condition
Investment towards backend infrastructure
At least 50% of the investment by the foreign company to be in back-end infrastructure1

Location of stores

Stores to be restricted to cities with a population of one million or more (53 cities as per 2011 Census); given constraints around real estate, retailers are allowed to set up stores within 10 km of such cities

No Condition

Sourcing

FDI can be a powerful catalyst to spur competition in the Products to be sold should be of a Sales industry, No Condition retail due to the current scenario single brand (only those brands which are branded during of low competition and poor productivity. Permitting foreign manufacturing) only; sold under the same brand name to internationally investment in food-based retailing is likely Approval of While the proposals on FDI will be sanctioned While the proposals on FDI will be ensure adequate flow of capital into the country, & its productive State sanctioned by the Centre, approvals by the Centre, approvals from each State Governments from each State Government would be Government would be required use in a manner likely to promote the welfare required required of all of ICRA society, particularly farmers and consumers. It Source: Presssections Information Bureau, [Note: 1 Back-end infrastructure will include capital expenditure on all would also help bring about in activities, excluding that on frontimprovements -end farmers & agricultural growth and assist in lowering units; i.e. itincome will include investment made towards processing, manufacturing, distribution, design improvement, consumer prices inflation.10 Apart from this, by 1.6 Rationale Behind Allowing FDI in Retail Sector quality control, storage, warehouse, agriculture market allowing FDI packaging, in retail logistics, trade, India will significantly flourish in produce infrastructure, etc. terms of quality standards and consumer Expenditure on land cost and rentals, if any, will not be counted for purposes of expectations, since the inflow of FDI in retail sector is bound back-end infrastructure] to pull up the quality standards and costcompetitiveness of Indian producers in all the segments. It is therefore obvious that we should not only permit but encourage FDI in retail trade. Indian Council of Research in International Economic Relations (ICRIER) has projected the worth www.iosrjournals.org 102 | Page of Indian retail sector to reach $496 billion by 2011-12 and ICRIER has also come to the conclusion that investment of big money (large corporate and FDI) in the retail sector would in the long run not harm interests of small traditional retailers.

At least 30% of manufactured items procured should be through domestic small and medium enterprises (SMEs)

In respect of proposals involving FDI beyond 51%, 30% sourcing would mandatorily have to be done from domestic SMEs and cottage industries artisans and craftsmen

The Opportunities and Challenges of FDI in Retail in India 1.7 Entry Options for Foreign Players Prior to FDI Policy (2006) Although prior to Jan 24, 2006, FDI was not authorized in retailing, most general players had been operating in the country. Some of entrance routes used by them have been discussed in sum as below:-

(a) Franchise Agreements:

It is an easiest track to come in the Indian market. In franchising and commission agents services, FDI (unless otherwise prohibited) is allowed with the approval of the Reserve Bank of India (RBI) under the Foreign Exchange Management Act. This is a most usual mode for entrance of quick food bondage opposite a world. Apart from quick food bondage identical to Pizza Hut, players such as Lacoste, Mango, Nike as good as Marks as good as Spencer, have entered Indian marketplace by this route.

(b) Cash And Carry Wholesale Trading:

100% FDI is allowed in wholesale trading which involves building of a large distribution infrastructure to assist local manufacturers. The wholesaler deals only with smaller retailers and not Consumers. Metro AG of Germany was the first significant global player to enter India through this route.

(c) Strategic Licensing Agreements:

Some foreign brands give exclusive licences and distribution rights to Indian companies. Through these rights, Indian companies can either sell it through their own stores, or enter into shop-in -shop (d) Manufacturing and Owned Subsidiaries: arrangements or Wholly distribute the brands to franchisees. Mango, the Spanish The foreign brands such as Nike, Reebok, Adidas, etc. that have wholly-owned subsidiaries in apparel brand has entered India manufacturing are treated as Indian companies and are, therefore, allowed t o do retail. These companies have been authorised to sell products to Indian consumers by franchising, internal distributors, existent Indian entered through this route with an agreement with Piramyd, Mumbai, SPAR retailers, own outlets, etc. For instance, Nike entered through an exclusive licensing agreement with Sierra into a similar Enterprises but now hasagreement a wholly owned with subsidiary, Nike India Private Limited. Radhakrishna Foodlands Pvt. Ltd. 1.8 Current Position and FDI Norms in Indian Retail
In 2010, the Indian retail market was valued at $435 billion of which the share of modern retail was 7 per cent. The sector is expected to grow t o $535 billion by 2013 with the share of modern retail at 10 per cent. In 2007, India was ranked the twelfth largest consumer market and it is expected to be the fifth-largest consumer market by 2025 after the US, Japan, China and the UK (McKinsey & Company 2007). In 2010, India attracted the largest number of new retailers among emerging and mature markets (CBRE 2011). According to study conducted by ICRIER, total retail business in India will grow at 13% annually, from US $322 billion in 2006-07 to US $590 billion in 2011-12 and further US $1 trillion by 2016-17 (figure-2)

Figure- (2)

Source: Technopak Analysis, CSO and other sources. Being aware of the large market, growing consumerism and brand-consciousness and to provide a greater fillip to high economic growth, in 1997, the Indian retail sector witnessed the first footprints of FDI with

www.iosrjournals.org

103 | Page

The Opportunities and Challenges of FDI in Retail in India 100% FDI being permitted in cash & carry wholesale trading under the government approval route, subsequently brought under the automatic route in 2006. As a step ahead, FDI in single brand retail was permitted to the extent of 51% in 2006, while FDI in multi-brand retail remained prohibited till recently. Despite changes in consumer behaviour and retail modernization, India is one of the few countries where FDI was prohibited in multi-brand retail (until 2011), primarily to protect the traditional mom-and-pop retailers. This policy restricts global low-cost multi-brand retailers such as Wal-Mart, Tesco and Metro AG from catering directly to Indian consumers. Within the country, there has been significant debate on whether FDI should be allowed in multi-brand retail. In July 2010, the Department of Industrial Policy and Promotion (DIPP) released a Discussion Paper on Foreign Direct Investment (FDI) in Multi-Brand Retail Trading to facilitate discussion and debate on whether FDI should be allowed in multi-brand retail and, if so, what conditions should be imposed on FDI. Although a number of issues have been discussed in the Discussion Paper, the implications of the liberalization for Indian consumers have not been discussed. The Economic Survey of 2010-11 mentioned that a phased opening of FDI in multi-brand retail is likely to benefit the consumers, but did not state the exact benefits. In July 2011, a Committee of Secretaries (CoS) had cleared the proposal to allow up to 51% FDI in multi-brand retail, which has been approved by the Union Cabinet in November 2011, albeit with a few riders to set up the supply chain and reduce inflation. The Union Cabinet has also approved increasing the FDI limit in single brand retail to 100% with government approval. While no parliamentary approval is needed for the decision, State Governments have the prerogative to disallow the same in their respective states. As a part of the economic liberalization process set in place by the Industrial Policy of 1991, the 1995 World Trade Organization s (WTO) Agreement Trade in Services (GATS) which government of India opened up the retail sector toGeneral FDI through a series on of steps: included both wholesale and retail trade in services came into effect. 1997 FDI in cash and carry (wholesale) allowed up to 100% under the government approval route. 2006 - FDI in single brand retail was permitted to the extent of 51%; FDI in cash and carry brought under automatic route. 2011 100% FDI in single-brand retail permitted with government approval; 51% FDI in multi-brand retail

with few conditions.

Market liberalization, a growing middle-class, and increasingly assertive consumers are sowing the seeds for a retail transformation that will bring more Indian and multinational players on the scene. India is tipped as the second largest retail market after China, and the total size of the Indian retail industry is expected to touch the $300 billion mark in the next five years from the current $200 billion. But the recent debate has centered on the issue of whether FDI in retail in India will be a boon or a bane. Many studies and surveys were conducted to analyze the impact of FDI in retail sector in various segments of the economy. According to a policy paper prepared by the Department of Industrial Policy and Promotion (DIPP, 2010), FDI in retail must result in backward linkages of production and manufacturing and spur domestic retailing as well as exports. According to the World Bank, opening the retail sector to FDI would be beneficial for India in terms of price and availability of products. While FDI in multi-brand retail has been opposed by several in the past citing fears of loss of employment, adverse impact on traditional retail and rise in imports from cheaper sources like China, adherents of the same indicate increased transfer of technology, enhanced supply chain efficiencies and increased employment opportunities as the perceived benefits. Key Perceived Opportunities The following may be regarded as major perceived benefits of allowing FDI in retail in India: 1. Capital Infusi on- This would provide an opportunity for cash-deficient domestic retailers to bridge the gap between capital required and raised. In fact FDI is one of the major sources of investments for a developing country like India wherein it expects investments from Multinational companies to improve the countries growth rate, create jobs, share their expertise, back-end infrastructure and research and development in the host country. 2. Boost Healthy Competition and check inflation- Supporters of FDI argue that entry of the many multi national corporations will obviously promise intensive competition between the different companies offering their brands in a particular product market and this will result in availability of many vari eties, reduced prices, and convenient distribution of the marketing offers. 3. Improvement in Supply Chain- Improvement of supply chain/ distribution efficiencies, coupled with capacity building and introduction of modern technology will help arrest wastages (in the present situation improper storage facilities and lack of investment in logistics have been creating inefficiencies in food supply chain, leading to significant wastages). 4. Improvement in Customer Satisfaction- Consumers in the organized retail will have the opportunity to choose between a numbers of internationally famous brands with pleasant shopping environment, huge space for

IV. Opportunities And Threats Of Fdi In Retail In India

www.iosrjournals.org

104 | Page

The Opportunities and Challenges of FDI in Retail in India product display, maintenance of hygiene and better customer care. There is a large segment of the population which feels that there is a difference in the quality of the products sold to foreign retailers and the same products sold in the Indian market. There is an increasing tendency to pay for quality and ease and access to a one -stop shop which will have a wide range of different products. If the market is opened, then the pricing could also change and the monopoly of certain domestic Indian companies will be challenged. 5. Improved technology and logistics- Improved technology in the sphere of processing, grading, handling and packaging of goods and further technical developments in areas like electronic weighing, billing, barcode scanning etc. could be a direct consequence of foreign companies opening retail shops in India,. Further, transportation facilities can get a boost, in the form of increased number of refrigerated vans and pre-cooling chambers which can help bring down wastage of goods. 6. Benefits for the Farmers- Presumably, with the onset of multi-brand retail, the food and packaging industry will also get an impetus. Though India is the second largest producer of fruits and vegetables, it has a very limited integrated cold-chain infrastructure. Lack of adequate storage facilities causes heavy losses to farmers, in terms of wastage in quality and quantity of produce in general, and of fruits and vegetables in particular. With liberalization, there could be a complete overhaul of the currently fragmented supply chain infrastructure. Extensive backward integration by multinational retailers, coupled with their technical and operational expertise, can hopefully remedy such structural flaws. Also, farmers can benefit with the farm-to fork ventures with retailers which helps (i) to cut down intermediaries ; (ii) give better prices to farmers, and (iii) provide stability and economics of scale which will benefit, in the ultimate analysis, both the farmers and consumers. 7. Creation of More And Better Employment Opportunities- The entry of foreign companies into Indian Retailing will not only create many employment opportunities but, will also ensure quality in them. This helps the Indian human resource to find better quality jobs and to improve their standard of living and life styles on par with that of the citizens of developed nations. Key Potential Threats Critics of FDI feel that liberalization would jeopardize the unorganized retail sector and would adversel y affect the small retailers, farmers and consumers and give rise to monopolies of large corporate houses which can adversely affect the pricing and availability of goods. They also contend that the retail sector in India is one of the major employment providers and permitting FDI in this sector can displace the unorganized retailers leading to loss of livelihood. The major threats to the domestic retailers in India are specified below: 1. Domination of Organized Retailers- FDI in single-brand retail will strengthen organized retail in the country. These organized retailers will tend to dominate the entire consumer market. It would lead to unfair competition and ultimately result in large-scale exit of domestic retailers, especially the small family managed outlets (local mom and pop stores will be compelled to close down). 2. Create Unemployment- Retail in India has tremendous growth potential and it is the second largest employer in India. Any changes by bringing major foreign retailers who will be directly procuring from the main supplier will not only create unemployment on the front end retail but also the middleman who have been working in this industry will be thrown out of their jobs. 3. Loss of Self Competitive Strength- The Indian retail sector, particularly organized retail, is still underdeveloped and in a nascent stage and that, therefore the companies may not be able t o compete with big global giants. If the existing firms collaborate with the global biggies they might have to give up at the global front by losing their self competitive strength. 4. Indirectly Leads to Increase in Real Estate Cost- It is obvious that the foreign companies which enter into India to open up their malls and stores will certainly look for places in the heart of the cities. There shall be a war for place, initiated among such companies. It will result in increase in the cost of real estate in the cities that will eventually affect the interest of the ordinary people who desire to own their houses within the limit of the cities. 5. Distortion of Culture: Though FDI in Indian retail will indirectly or directly contribute for the enhancement of Tourism, Hospitality and few other Industries, the culture of the people in India will slowly be changed. The youth will easily imbibe certain negative aspects of foreign culture and lifestyles and develop inappropriate consumption pattern, not suited to our cultural environment. V. Impact Of Fdi On Various Stakeholders: The Confederation of Indian Industry (CII) conducted a survey during December 2011 to January 2012 on the impact of FDI on Small and Medium Enterprises (SMEs) based on a large sample size of 250 companies covering different categories of SMEs according to sales turnover. A majority of the SME companies, surveyed have supported the government s decision and the notification allowing 100% FDI in single brand retail and about 52 percent of respondents hope for early implementation of 51% FDI in multi -

www.iosrjournals.org

105 | Page

The Opportunities and Challenges of FDI in Retail in India brand retail. On the question how the SME industry consider entry of MNC retailers as a threat or opportunity, majority of respondents (66.7%) see it as an opportunity for their sector while around 21 % of respondents perceive it as a threat. About 12.5 percent of respondents are of the opinion that the decision would have little or no impact on their company. 1. Effect on Traditional Mom and Pop Stores- Traditional retailing has been established in India for many centuries, and is characterized by small, family-owned operations. Because of this, such businesses are usually very low-margin, are owner-operated, and have mostly negligible real estate and labour costs. Such small shops develop strong networks with local neighbourhoods. The informal system of credit adds to their attractiveness. Moreover, low labour costs also allow shops to employ delivery boys, such that consumers may order their grocery list directly on the phone. These advantages are significant, though hard to quantify. In contrast, players in the organized sector have to cover big fixed costs, and yet have to keep prices low enough to be able to compete with the traditional sector. Getting customers to switch their purchasing away from small neighbourhood shops and towards large-scale retailers may be a major challenge. The experience of large Indian retailers such as Big Bazaar shows that it is indeed possible. The oppositions, on the other hand, believe that local kirana shops will not be affected. The kirana stores operate in a different environment catering to a certain set of cust omers and they will continue to find new ways to retain them. Case Study of China: FDI in retailing was permitted in China for the first time in 1992. Foreign retailers were initially permitted to trade only in six Provinces and Special Economic Zones. Foreign ownership was initially restricted to 49%. Foreign ownership restrictions have progressively been lifted and, and following Chinas accession to WTO, effective December, 2004, there are no equity restrictions. Employment in the retail and wholesale trade increased from about 4% of the total labour force in 1992 to about 7% in 2001. The numbers of traditional retailers were also increased by around 30% between 1996 and 2001. In 2006, the total retail sale in China amounted to USD 785 billion, of which the share of organized retail amounted to 20%. Some of the changes which have occurred in China, following the liberalization of its retail sector, include: (i) Over 600 hypermarkets were opened between 1996 and 2001 (ii) The number of small outlets (equivalent to kiranas ) increased from 1.9 million to over 2.5 million. (iii) Employment in the retail and wholesale sectors increased from 28 million people to 54 million people from 1992 to 2000. Thus the above discussion and case of China suggest that it is too early to predict the erosion of mom and pop stores in India with opening of multi-brand retail sector in India to foreign investors. 2. Effect on Farmers- It is being claimed by the advocates of FDI in retail that the elimination of intermediaries and direct procurement by the MNCs would secure better prices for the farmers. The fact is that the giant retailers would have far greater buyer power vis--vis the farmers compared to the existing intermediaries. The entry of giant MNCs into agricultural procurement would make the problems worse for the farmers. As against the mandis that operate today, where several traders have to compete with each other in order to buy the farmers produce, there will be a single buyer in the case of the MNCs. This will make the farmers dependent on the MNCs and vulnerable to exploitation. On the contrary, the advocates of FDI believe that FDI in retail in the agriculture will help in improving supply chain, infrastructure and ensure economic security for farmers through the elimination of middlemen in the country. Case Study: Case 1- PepsiCo India- Helping Farmers Improve Yield and IncomeToday PepsiCo Indias potato farming programme reaches out to more than 12,000 farmer families across six states. We provide farmers with superior seeds, timely agricultural inputs and supply of agricultural implements free of charge. They have an assured buy-back mechanism at a prefixed rate with farmers. This insulates them from market price fluctuations. Through our tie-up with State Bank of India, we help farmers get credit at a lower rate of interest. They have arranged weather insurance for farmers through our tie-up with ICICI Lombard. Case 2- Bharti Walmart initiative through Direct Farm ProjectCorporate Social Responsibility (CSR) initiatives in Bharti Walmart are aimed at empowerment of the community thereby fostering inclusive growth. They focused on enhancing opportunities in the areas of education, skills training and generating local employment, women empowerment and community development.

www.iosrjournals.org

106 | Page

The Opportunities and Challenges of FDI in Retail in India In conjunction with the farmers development program in Punjab, community-building activities have been implemented in village, Haider Nagar. Due to lack of sanitation facilities, households tend to use the farm fields, thereby affecting yields and impacting the produce that is being supplied to stores. In order to improve the yields and the communitys way of life, we are working on the issues of Sanitation and Biogas, Education, Awareness Building and Health and Hygiene. 3. Effect on Consumers- With liberalization, economic growth and changes in Indian consumers demographic and economic profile and their shopping behaviour, the retail sector is undergoing changes. At present, foreign retailers operate in India through both store and non-store formats. In terms of the shopping behaviour of Indian consumers across different retail outlets, traditional outlets are preferred as consumers can bargain while modern outlets are preferred because they link entertainment with shopping. Those who purchase at modern outlets have reported better product quality, lower prices, one-stop shopping, choice of more brands and products, better shopping experiences with family and fresh stocks as some of the reasons for their choice of outlet. On the other hand, proximity to residence, goodwill, credit availability, possibility of bar gaining, choice of loose items, convenient timings, home delivery, etc., are some of the benefits of traditional outlets (Joseph and Soundararajan 2009). Consumers are the major beneficiaries of the retail boom as organized retailers are initiating measures such as tracking of consumer behaviour and consumer loyalty programmes to retain their market share (Mukherjee and Patel (2005)). Authors of ICRIER Policy series paper (August, 2011) and various other surveys have pointed out that most consumers are willing to experiment to different brands and so they are in favour of allowing FDI in retail. Apart from providing Indian consumers more choices in the form of reputed, good quality brands, liberalizing multi-brand retailing in India is likely to facilitate much greater inflows of investments. This, in turn, will lead to the development of more efficient and lower cost supply chains, resulting in better quality as well as lower-priced products for Indian consumers. This will increase consumer spending, which in turn, will drive growth in all sectors of the economy in a virtuous cycl e. Case Study: Consumers of Indian Telecommunication and Automobile Retail Sector have benefited a lot from liberalizing FDI. In the telecommunication sector, it has led to more access, better quality, better services and lower prices for consumers. The entry of foreign players in the automobile sector has made the domestic industry globall y competitive and even middle and low-income consumers in India can now afford to own cars. Global experiences show that FDI in retail can sometimes negatively impact consumers if corporate retailers adopt anti-competitive practices such as predatory pricing. In India, the Competition Act 2002 has provisions to check abuse of dominant position by major players, including predatory pricing.

4. Effect on Existing Indian Organized Retail Firms- The existing Indian organized retail firms (such as presence to more than 200 locations. Spencer's, Foodworld Supermarkets Ltd, Nilgiri's and ShopRite) support retail reforms and consider international competition as a blessing in disguise. They expect a flurry of joint ventures with global majors for It has already tied up with Hong Kong-based Dairy Farm International. expansion capital and opportunity to gain expertise in supply chain management.

Case 2: Foodworld, which operates over 60 stores, plans to ramp up its

Case Study: investments inRetail Indian retail, Indias expects its global relationship Case 1: Spencer's with 200 stores in India, andFoodworld with retail of fresh vegetables and fruits accounting for 55% of its business claims retail reform to be a win-win situation, as they already procure the farm products will only get stronger. directly from the growers without the involvement of middlemen or traders. Spencers claims that there is scope Though it too inearly to location assessas well theas procuring true impact of allowing FDI in for it to expand itsis footprint terms of store farm products.

With the relaxation in international

single-brand and multi-brand retailing in India, but still the Govt. argues strongly in favour on the ground that it will provide huge gainful employment in agro-processing, marketing and logistics, help farmers secure remunerative prices by eliminating exploitative middlemen, ensure supply chain efficiencies, bring investment in back-end infrastructure and also create a multiplier effect for employment, technology up gradation and income generation by sourcing of a minimum of 107 | Page 30% from Indian micro www.iosrjournals.org and small industry. The opposition, however, argues that there will be a large-scale job loss according to international experience and global retail giants will resort to predatory pricing to create monopoly/oligopoly. So, opening up of FDI in multi-brand retail in India could potentially be a mixed bles sing for domestic players. Hence adequate safeguards should be built in so that it does not end up in a losing proposition.

No. 2, pp. 203-229. [9] Chari, Anusha. and T.C. A. Madhav Raghavan: Foreign Direct Investment in In dia s Retail Bazaar: Opportunities an d Challenges, March 2011 . [10] Confederation of Indian Industry (2012): The Impact of FDI in Retail on SME Sector: A Survey Rep ort. [11] Joseph, M., N. Soundararajan, M.Gu pta and S. Sahu (2008): Impact of Organized Retailing on th e Unorganized Sector, ICRIER, May, 2008. [12] Joseph, M. and Nirupama Soundararajan (2009): Retailing in India: A Critical Assessment, Academic Foundation, New Delhi. [13] Kalhan , Anurad ha, (2007), Impact of Malls o n Small Sh ops and Hawkers, Economic and Political [14] Weekly, Vol.42, No.22, pp.2063-66. [15] Kalhan , Anurad ha an d Martin Franz, (2009), Regulation of Retail: Comparative Experience, [16] Economic and Political Weekly, Vo l.44, No.32 , pp.56 -64. [17] Kulkarni Keerti, Kulkarni Ramakant and Kulkarni Gururaj A.(2012): Foreign Direct Investment In Indian Retail Sector: Issu es And Imp lications, Indian Journal of Eng ineering and ma nagement Sciences, 2012; Vol. 3(3). [18] McKin sey & Company (2007): The Bird of Gold : The Rise of India s Consumer Market, McKinsey Global Institute, 2007. [19] Mu kherjee, A, D. Satija, T.M.Goyal, M.K. Mantrala and S. Zou (201 1): Impact of the FDI Retail Policy on Indian Consumers and the Way Forward, ICRIER Policy Series Aug,2011; No. 5 . [20] Mukherjee, A. and Nitisha Patel (20 05): FDI in Retail Sector: India, Academic Foundation, New Delhi. [21] Neumark, David, Junfu Zhang, and Stephen Ciccarella, 2008. The Effects of Wal-Mart o n Local [22] Labor Markets, Journal of Urban Economics, Vol. 63, No. 2, pp. 405-430. [23] Sarma, E.A.S, 2005 , Need for Caution in Retail FDI, Economic and Political Weekly, Vol.40, No.46, pp.4795-98. [24] Sarthak Sarin, (Nov 23, 2010) Foreign Direct Investment in Retail Sector http://www.legalindia.in/foreign-direct-investment-inretail-sector-others-surmounting-india-napping. [25] Soundararaj, J (201 2): 100% FDI in Single-Brand Retail Of India- A Boo n or a Bane? International Journal of Multidisciplinary Management Studies, May 201 2; Vol.2 Issu e 5. [26] http://icm.icfai. org/casestudies/catalogue/marketing. [27] http://www.cci. in /pdf/surveys _reports/ India s _ retail_sector.pdf. [28] Harsh Mariwala, Retail FDI: A Win-Win Mov e, The Economic Times, Delhi 30-11-2011.

Debates, discussions and conflicting views exit among policy makers, economists and social thinkers on the issue of estimating the costs and benefits of The Opportunities and Challenges of FDI in Retail in India allowing FDI in both single and multi-brand retail in REFERENCES: Policy Suggestions India. Many A recent VI. study by University of North Carolina foreign companies have already entered into Indian market through the available modes such as, Franchising and Exporting. They are much eager to change to FDI that would strengthen their economist Anusha Chari and T C their A entry Madhav Raghavan operations in India. However, if FDI in ret ail is liberalized by considering the following suggestions it is expected bring in more of benefits than threatsMarch to the country.2011, (of ISI, New Delhi), shows that the potential FDI should be initially allowed in less sensitive sectors and also in the sectors wherein the domestic companies are established strongly. large retailers into the country benefits of allowing Then FDI in retail should be liberalized in a phased manner like the case with China. Entry of foreign players must be gradual with social the safeguards so that the effects of labor dislocation can be largely significantly outweigh costs. These benefits minimized. Adequate attention should be paid toproductivity procuring, staff recruitment, investments in warehouse, cold storage, accumulate through gains. With respect to infrastructure, competition and retail formats so that not only does the money comes in but also it's a winwin situation for the current nationalby retailer as well as mom and pop such s tores who account for 70% of the on retail the impact of entry big-box stores as Wal-Mart retail business even after the arrival of national retailers from the corporate giants like the Tata, Reliance, Future Group and the Birla's. employment and earnings, evidence from the The government should take initiatives to improve the manufacturing sector. If the manufacturing is strengthened, the displaced employees of the retail industry could be well accommodated there. \ United States is mixed. county-level data, A National Commission should be set up to study theUsing problems of the retail sector which should also evolvea recent a clear set of conditionality on foreign retailers on procurement of farm produce, study finds that Wal-Mart entry increases retail domestically manufactured employment the goods. year This of conditionality entry (Basker, 2005a) merchandise andin imported must state minimum while space, VII. Conclusion size and other details like indicates that each Wal-Mart contrasting evidence construction and storage standards. worker replaces approximately 1.4 retail workers representing a 2.7 percent reduction in average retail employment (Neumark, Zhang and Ciccarella, 2008). While describing the retail experience in Thailand Sarma (2005) shows how traditional shopkeepers continued to suffer even when the Thai economy recovered, after the Asian crisis of the late 1990s. Foreign-owned retailers, he argues, grabbed a big share of the retail market, often through unethical means. The UK Competition Commission found in a 2000 study6 of major retail chains including Marks & Spencer, Sainsbury and Tesco that the burden of cost increases in the supply chain has fallen disproportionately heavily on small suppliers such as farmers. Apart from prices, the report states that smaller farmers came under severe pressure from supermarkets due to the latter s requirement for large volumes of each product, pushing www.iosrjournals.org 108 | Page they 109 farmers to grow single crops rather than the multiple produce would usually grow to minimize risk. Observed supermarket practices too may work against the interests of incumbent retailers, even organized ones. Supermarket chains routinely sell some products at lower than market prices, which appears to benefit consumers, but this puts pressure on small local stores and has an adverse impact on low-income and elderly
[1] AC Nielsen (2 008): Consumer and Designer Brands. AC Nielsen, April 2008 [2] A.T. Kearney (2011): Retail Global Expansion: A Portfolio of Opportu nities-2011 Global Retail Development Index, A.T. Kearney, 20 11 [3] CBRE (2011): How Global is th e Business of Retail. CB Richard Ellis, Global Research and Consulting, 2011 Edition. [4] Department of Industrial Policy and Promotion , 20 10. Foreign Direct Investment (FDI) in Multi [5] Brand Retail Trading, Discussion paper. Available at http://www.dipp.nic.in. [6] Basker, Emek, 2005a. Job Creation or Destruction? Labor Market Effects of Wal -Mart Expansion, [7] Review of Economic Statistics, Vol. 87, No. 1 , Pages 174-183. [8] Basker, Emek, 20 05b. Selling a Cheaper Mousetrap: Wal-Mart's Effect on Retail Prices, Journal of Urban Eco nomics, Vol. 58,