Fdi In Indian Retailing Commerce Essay Example

retail has several potential benefits including improving the supply chain, investing in technology and manpower development, promoting tourism growth, increasing sourcing from India, advancing agriculture practices,and enhancing efficiency of small and medium-scale industries. Retail currently contributes around 13% to GDP and employs 7% of the national workforce,making it an important part of the Indian economy.According to Arvind Singhal, CEO of KSA Technopak, the retail sector would benefit from the emergence of more corporate-backed retail operations. Hummels and Stern (1994) literature states that foreign investment requires technologies, infrastructure, and labor skills. Understanding the different patterns of FDI in relation to per capita income is crucial, including both inbound and outbound investments. Government incentives and other factors, whether institutional, historical or cultural in nature also shape international market plans which greatly influence investors (Martin and Velazquez, 1997). Previous research has examined various determinants of FDI to identify key factors impacting its placement such as differences in factor costs and market size. This highlights the significance of market size for foreign organizations operating as large industries. To evaluate a company's success, its performance in the market must be considered using metrics like GDP, GDP per capita, and GDP growth. In simpler terms, FDI refers to investments made by a company in a country other than its own.In India,the Government of India(GOI)has established a policy on FDI governing foreign investments based on provisions set by the Foreign Exchange Management Act(FEMA)1999To obtain specific guidelines on FDI in the retail market, it is advised to refer to Press Note 4 of 2006 issued by the Department of Industrial Policy and Promotion (DIPP) and the comprehensive FDI Policy from October 2010 (DIPP,

2010). These documents provide guidelines specifically for FDI in trading activities. FDI allows for exporting and wholesale selling with full cash payment upon purchase. According to Press Note 3 (2006 Series), FDI can account for up to 51% of total sales and marketing for a single brand, but multi-brand marketing is not permitted under these policies. In India, there are multiple coexisting markets that contradict the 'Wheel of Retailing' theory suggesting new markets emerge from existing ones. Different players have adopted various formats such as franchise agreements which act as entryways for quick-service chains like Pizza Hut, as well as brands like Lacoste, Mango, Nike, and Marks and Spencer. Subject to approval from the Reserve Bank of India and unless prohibited by the FDI act, foreign investors can invest in product-based companies through franchise agreements and commission agent services. Cash And Carry Wholesale Trading fully embraces allowing complete FDI in the wholesale trading sector which supports local industries through large-scale distribution. It should be noted that this information has been adapted from a report titled "Indian Retail: On the Fast Track" published by KPMG and FICCI in 2005.Smaller retail businesses in India often use intermediaries called jobbers to sell their products instead of directly interacting with consumers. The first company to adopt this approach was Metro AG from Germany. Foreign companies have the option to establish strategic licensing agreements that grant exclusive licenses and distribution rights to local companies.

Indian companies have various options for selling these products, including opening their own stores, making shop-in-shop agreements, or distributing them to franchisees. For instance, Mango, a Spanish clothing brand, entered the Indian market by partnering with Piramyd

in Mumbai. Similarly, SPAR made a similar arrangement with Radhakrishna Foodland Pvt.Ltd.

International brands like Nike, Reebok, and Adidas are considered Indian entities as they have their own manufacturing facilities. They can sell their products through franchising arrangements and supplying existing retailers while operating self-owned outlets as well. An example of this approach is Nike's initial partnership with Sierra Enterprises before eventually becoming a wholly owned subsidiary known as Nike India Private Limited.

The government has not provided an official definition of what qualifies as a "Single Brand." However, foreign direct investment up to 51% is permitted in single-brand retail under specific conditions mentioned in Press Note 3 after obtaining approval from the Foreign Investment Promotion Board (FIPB).These conditions encompass the allowance of sales for multi-brand products manufactured by the same company, as long as they are sold under the same international trade name. Single-brand retail pertains only to products that are branded during manufacturing, and any expansion of the product categories falling under "single-brand" necessitates government approval. The term "single brand" lacks a specific definition but alludes to foreign companies selling products internationally under one trade name. Retail establishments with foreign investment can solely vend one particular brand, such as Reebok or Adidas. Authorization would be required to sell items from other brands. Concerns have been expressed by the government regarding opening up the retail sector to foreign direct investment. A report on FDI in the retail sector has been released by the Department Related Parliamentary Standing Committee on Commerce, which highlights various issues including domestic retailers being displaced - particularly small family-owned businesses - and potential unemployment within the retail industry. Additionally, there is apprehension

that individuals losing their jobs in retail may encounter difficulties in finding employment within the slow-growing manufacturing sector. Opponents argue that allowing foreign investors into India's retail sector should be postponed until the domestic retail industry has developed and consolidated further. They believe that global retailers like Wal-Mart could compel local stores to shut down, leading to job losses.The text discusses the potential consequences of imbalanced growth in retail chains and the implementation of a policy allowing foreign direct investment (FDI) in single-brand retailing. They predict that global retailers would collude and use their power to raise prices for suppliers while reducing their own costs, resulting in discontent and social tension. This would cause both consumers and suppliers to suffer while these retail chains increase their profit margins. However, some people see FDI as a way to promote competition in an industry with limited competition and poor productivity.

The government permitted FDI ownership up to 51% in single-brand retailing starting from 2006. Since then, a total of 94 proposals have been received, with 57 approved by May 2010. From April 2006 to September 2010, India received $196.46 million of FDI influx in the individual trade name retailing sector, accounting for 0.16% of total FDI during that period.

As a result of this policy change, several retail stocks saw an increase in value on the Bombay Stock Exchange: Pantaloons Retail (India) Ltd ended at Rs 441 with a growth rate of 4.84%, Shopper's Stop Ltd experienced a rise of 2.02% in their shares, and Trent Ltd witnessed a growth rate of 3.19%.The key index on the exchange in India rose by 173.04 points or 0.99%, reaching 17,61448. If

India had allowed for 100% foreign direct investment (FDI) in individual trade brand retailing, its retail sector could have experienced even greater growth. This level of FDI would have provided benefits to both foreign retailers and Indian companies, as they could leverage each other's strengths and expertise. Foreign participants would gain local market knowledge, while Indian companies would gain access to global best management practices, designs, and technological know-how.

The government's decision to partially open the retail sector has relieved pressure from trading partners during negotiations and demonstrated India's commitment to gradually liberalize this industry. Allowing foreign investment in food-based retail is expected to attract capital into the country and benefit various segments of society, particularly farmers and consumers. It would likely increase farmer income and implement measures that enhance productivity.

According to the Discussion Paper on FDI (2010), permitting FDI in retail trade would stimulate agricultural growth, decrease consumer price inflation, and improve quality standards and consumer expectations.Leading organizations such as CII, FICCI, US-India Business Council, The Retail Association of India, and Shopping Centers Association of India support a phased approach to liberalizing FDI in multi-brand retail with an initial cap of 49-51 percent. Meanwhile, international retailers like Wal-Mart, Carrefour, Metro, IKEA, and TESCO advocate for future full opening up. Furthermore, major multinational retailers including Wal-Mart, Metro AG, and Woolworths Ltd urge for liberalization of FDI rules on multi-brand retail in India. According to the Indian Council of Research in International Economic Relations (ICRIER), a prominent economic think tank in India, the Indian retail sector is predicted to be valued at $496 billion by 2011-12. ICRIER also concludes that large capital investment in the retail sector

will not harm small traditional retail merchants. In evaluating the current state of the retail industry in India and assessing its strengths (such as a large and young workforce with an average age of 24) weaknesses (such as lack of infrastructure), opportunities (such as increasing number of working women) and threats (such as competition from e-commerce giants), SWOT analysis proves to be a valuable tool.The service sector's growth opportunities benefit the retail industry, thanks to factors such as significant investments from national and international players. These investments have allowed for the development of substantial reserve funds in real estate, which in turn enable the construction and establishment of retail businesses. As a result, customers now have access to a wide range of multinational quality products.

This growth has also led to an overall improvement in employment opportunities, both directly and indirectly. Additionally, farmers benefit from higher prices for their products due to the addition of valuable nutrients. The increased value and consumer demand, along with elevated spending on luxury items, play crucial roles in this growth.

Furthermore, the availability of land for retail space is facilitated by India's large domestic market and its middle class and affluent consumers. The Indian organized retail industry has experienced significant growth thanks to the sachet revolution that made retail more accessible to a wider range of consumers. Factors such as lower real estate rates and a small portion of organized retailing drive this growth.

In fact, India ranks second in the Global Retail Development Index with a 24% annual growth rate in departmental stores. Organized retail sections are profitable and offer customers quality products at discounted prices due to diverse tastes and

demands of consumers there are opportunities for a wide range of goods.
Once this model gains traction, it will revolutionize the domestic retail trade. International retail giants see India as a significant market and rank it as the fifth most attractive retail market. The organized retail sector is projected to surpass GDP growth in the next five years due to changing lifestyles, rising incomes, and favorable demographics. This growth is mainly driven by food and clothing retailing. The Indian retail industry is expanding rapidly and proving to be dynamic, attracting interest from numerous companies. It has the potential to become one of the largest industries in terms of employment and establishments. However, rural retailing in India remains largely untapped due to various obstacles such as concerns about supply chain management. While the supply chain for fast-moving consumer goods (FMCG) does not require significant adjustments, perishable goods present challenges. Government guidelines, limited infrastructure, and inadequate investment can hinder the development of modern retail formats. The supply chain for agricultural products is comparatively less complex but lacks standardization. Hypermarkets and supermarkets face difficulties serving all segments of society while providing value, variety, and quantity to buyers. Competing with other establishments within the industry requires substantial initial investments. Organized retailers often overlook labor regulations, and there is a lack of proper taxation system for this sectorInadequate infrastructure poses a further hindrance to the growth of organized retailers, particularly in urban areas where vehicle parking issues are prevalent. Additionally, due to limitations within this industry segment, these establishments are unable to hire retail workforce on a contract basis. In contrast, the unorganized sector in India holds more power as it

requires less investment.

The focus of retailing has shifted from simply selling goods or services to providing consumers with hope, aspirations, and trends that they desire to emulate. However, if organized retailing fails, it will primarily affect wealthy and middle-class consumers in cities while neglecting the majority of consumers in rural areas and small towns.

Despite the rapid expansion of mall establishments, there is still a lack of well-established retail chains offering a suitable range of products. Modern retailing emphasizes market analysis, maintaining open options, managing costs reasonably, and retaining customers. One flaw in Indian retailing is the presence of numerous insignificant establishments; 96% of them are smaller than 500 sq.ft. In comparison to developed countries, even retail chains in India are smaller.

While there has been significant growth in available retail space due to sector expansion, this has also led to increased rental costs for businesses seeking locations. As a result, retailers often allocate a substantial portion of their budget towards rent which limits their profitability.Despite its large population and rapidly growing economy, the Indian retail industry has relatively small sales potential. However, it has a significant impact on the Indian economy by contributing to employment generation. Retailing in India employs 8% of the labor force and has the potential to create an additional eight million jobs directly and indirectly. It also supports small-scale units by providing them with access to markets and platforms to sell their products. Currently, there are 400,000 small handicraft industries thriving due to retailing in India. The increasing demand for retail space has led to the expansion of the real estate sector as retailers need physical space, which poses one of their

main challenges. Consequently, the real estate market has experienced substantial growth in recent years as well. Moving forward, organized retailing will significantly shape both the Indian economy and the real estate sector as Indians are attracted to modern shopping methods. This advancement in India's retail sector is offering increasing employment opportunities each day. To ensure competitive pricing from providers, major players within India's retail sector have adopted a strategic approach towards them.Foreign direct investment (FDI) in India's retail sector has the potential to significantly benefit its economy, given that it is one of the fastest-growing economies globally. The introduction of FDI into India would have a positive impact on the country's GDP and economic development, as well as promote integration with the global retail market. Additionally, FDI could generate employment opportunities and improve wages, incentives, and overall lifestyle - aspects that the current retail industry has struggled to achieve. Furthermore, it would enhance the supply chain, technology, manpower, and skill development. This move would also stimulate growth in small and medium-scale industries.