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A saga of uncertainties…

INDIA RETAIL REFORMS
Current FDI Policy

 India’s current policy does not allow FDI in
  retail trade except for “Single Brand Retail”
Current FDI Policy

 India’s current policy does not allow FDI in
  retail trade except for “Single Brand Retail”
 FDI up to 51% is allowed in Single Brand
  Retail with prior government approval
Current FDI Policy

 India’s current policy does not allow FDI in
  retail trade except for “Single Brand Retail”
 FDI up to 51% is allowed in Single Brand
  Retail with prior government approval
 100% FDI is allowed in wholesale cash-and-
  carry format
Current FDI Policy

 India’s current policy does not allow FDI in
  retail trade except for “Single Brand Retail”
 FDI up to 51% is allowed in Single Brand
  Retail with prior government approval
 100% FDI is allowed in wholesale cash-and-
  carry format
 Franchisee arrangements are allowed in retail
  format
Current FDI Policy
Particulars                     FDI %   Route       Conditions

Retail Trading (except single   Nil
brand)
Single Brand product            51%     FIPB*        Products to be sold of a single brand only
retailing                                            Products should be sold under the same brand
                                                      internationally
                                                     Single brand product retailing to cover only products
                                                      which are branded during manufacturing
Wholesale / cash and carry      100%    Automatic
trading

Trading for exports             100%    Automatic

Trading of items sourced        100%    FIPB        Subject to the condition that the test marketing approval
from small scale sector                             will be for a period of two years and investment in setting
                                                    up manufacturing facilities commences simultaneously
                                                    with test marketing
Test marketing of such          100%    FIPB
items for which a company
has approval for
manufacture                                         *FIPB: Foreign Investment Promotion Board
Current FDI Policy

 International retailers are fast expanding their
  business in India to tap the immense consumer
  base
Current FDI Policy

 International retailers are fast expanding their
  business in India to tap the immense consumer
  base
 Reebok has set up its largest store in the world in
  Hyderabad
Current FDI Policy

 International retailers are fast expanding their
  business in India to tap the immense consumer
  base
 Reebok has set up its largest store in the world in
  Hyderabad
 Tommy Hilfiger and Levis have over 20,000
  square feet of retail space and stand-alone stores
  across major metros
Current FDI Policy

 International retailers are fast expanding their
  business in India to tap the immense consumer
  base
 Reebok has set up its largest store in the world in
  Hyderabad
 Tommy Hilfiger and Levis have over 20,000
  square feet of retail space and stand-alone stores
  across major metros
 Fast-food giants Pizza Hut, McDonalds, Subway
  etc. are expanding at a fast pace with their
  expansion into the Tier II and Tier III cities
Retail Entry Options
    Strategic License           Cash & Carry
                                                             Distribution
      Agreements              Wholesale Retailing

 • Foreign company          • 100 % FDI allowed in     • An international
   enter into a licensing     wholesale trading          company can set up a
   agreement with a           which involves             distribution office in
   domestic retailer or       building a large           India and supply
   partnering with Indian     distribution network       products to the local
   promoter owned                                        retailers. Franchise
   companies                                             outlets can also be set
                                                         up in this route




    Franchisee Route            Manufacturing                Joint Venture


 • The entry route which    • A company can setup      • International firms
   includes the master        manufacturing units in     can enter into
   franchisee route is        India along with           agreements with
   widely used, with a        standalone retailing       domestic players and
   number of                  outlets                    set-up base in India.
   international brands                                  Share of MNCs is
   to set up presence in                                 restricted to 49% in
   India                                                 this route
Retail Entry Options
    Strategic License           Cash & Carry
                                                             Distribution
      Agreements              Wholesale Retailing

 • Foreign company          • 100 % FDI allowed in     • An international
   enter into a licensing     wholesale trading          company can set up a
   agreement with a           which involves             distribution office in
   domestic retailer or       building a large           India and supply
   partnering with Indian     distribution network       products to the local
   promoter owned                                        retailers. Franchise
   companies                                             outlets can also be set
                                                         up in this route




    Franchisee Route            Manufacturing                Joint Venture


 • The entry route which    • A company can setup      • International firms
   includes the master        manufacturing units in     can enter into
   franchisee route is        India along with           agreements with
   widely used, with a        standalone retailing       domestic players and
   number of                  outlets                    set-up base in India.
   international brands                                  Share of MNCs is
   to set up presence in                                 restricted to 49% in
   India                                                 this route
Retail Entry Options
    Strategic License           Cash & Carry
                                                             Distribution
      Agreements              Wholesale Retailing

 • Foreign company          • 100 % FDI allowed in     • An international
   enter into a licensing     wholesale trading          company can set up a
   agreement with a           which involves             distribution office in
   domestic retailer or       building a large           India and supply
   partnering with Indian     distribution network       products to the local
   promoter owned                                        retailers. Franchise
   companies                                             outlets can also be set
                                                         up in this route




    Franchisee Route            Manufacturing                Joint Venture


 • The entry route which    • A company can setup      • International firms
   includes the master        manufacturing units in     can enter into
   franchisee route is        India along with           agreements with
   widely used, with a        standalone retailing       domestic players and
   number of                  outlets                    set-up base in India.
   international brands                                  Share of MNCs is
   to set up presence in                                 restricted to 49% in
   India                                                 this route
Retail Entry Options
    Strategic License           Cash & Carry
                                                             Distribution
      Agreements              Wholesale Retailing

 • Foreign company          • 100 % FDI allowed in     • An international
   enter into a licensing     wholesale trading          company can set up a
   agreement with a           which involves             distribution office in
   domestic retailer or       building a large           India and supply
   partnering with Indian     distribution network       products to the local
   promoter owned                                        retailers. Franchise
   companies                                             outlets can also be set
                                                         up in this route




    Franchisee Route            Manufacturing                Joint Venture


 • The entry route which    • A company can setup      • International firms
   includes the master        manufacturing units in     can enter into
   franchisee route is        India along with           agreements with
   widely used, with a        standalone retailing       domestic players and
   number of                  outlets                    set-up base in India.
   international brands                                  Share of MNCs is
   to set up presence in                                 restricted to 49% in
   India                                                 this route
Retail Hurdles
                               US$ 590 bn

                  US$ 322 bn

                  2006-07      2011-2012


 Retail Trade Estimated to Grow 13% annually
Retail Hurdles
                                US$ 590 bn

                   US$ 322 bn

                   2006-07      2011-2012


 Retail Trade Estimated to Grow 13% annually
 Share of organised retail growing very fast
Retail Hurdles
                                 US$ 590 bn

                    US$ 322 bn

                    2006-07      2011-2012


 Retail Trade Estimated to Grow 13% annually
 Share of organised retail growing very fast
 An attractive destination for global retailers
Retail Hurdles
                                 US$ 590 bn

                    US$ 322 bn

                    2006-07      2011-2012


 Retail Trade Estimated to Grow 13% annually
 Share of organised retail growing very fast
 An attractive destination for global retailers
   Democratic country with high growth rate
Retail Hurdles
                                 US$ 590 bn

                    US$ 322 bn

                    2006-07      2011-2012


 Retail Trade Estimated to Grow 13% annually
 Share of organised retail growing very fast
 An attractive destination for global retailers
   Democratic country with high growth rate
   Youth population with growing disposable income
Retail Hurdles
                                 US$ 590 bn

                    US$ 322 bn

                    2006-07      2011-2012


 Retail Trade Estimated to Grow 13% annually
 Share of organised retail growing very fast
 An attractive destination for global retailers
   Democratic country with high growth rate
   Youth population with growing disposable income
 Existing investment cap an entry hurdle
Retail Reforms: Dilemma
 Second coming of UPA government was seen as a
  positive sign
Retail Reforms: Dilemma
 Second coming of UPA government was seen as a
  positive sign
 The Congress party, reasonably stronger, after
  the elections, to dictate its agenda can push
  further the retail reforms agenda it had
  persuaded
Retail Reforms: Dilemma
 Second coming of UPA government was seen as a
  positive sign
 The Congress party, reasonably stronger, after
  the elections, to dictate its agenda can push
  further the retail reforms agenda it had
  persuaded
 Government’s recent views presents a different
  picture
Retail Reforms: Dilemma
 Second coming of UPA government was seen as a
  positive sign
 The Congress party, reasonably stronger, after
  the elections, to dictate its agenda can push
  further the retail reforms agenda it had
  persuaded
 Government’s recent views presents a different
  picture
 “The government will continue to deliberate on the proposals for opening of
 sectors like multi brand retail. These sectors require wider consultation
 within the Cabinet.”
                                       Anand Sharma, Union Commerce Minister
Retail Reforms: Dilemma
    June ‘09 - A parliamentary panel asks government to
       ban foreign firms and big domestic corporates from
       retailing groceries, fruits and vegetables, and stop
       issuing licences for wholesale operations*




* http://www.livemint.com/2009/06/08185249/Parliamentary-panel-recommends.html
Retail Reforms: Dilemma
    June ‘09 - A parliamentary panel asks government to
       ban foreign firms and big domestic corporates from
       retailing groceries, fruits and vegetables, and stop
       issuing licences for wholesale operations*

    July ’09 - The Economic Survey 2009-10 released by
       the Ministry of Finance generated some hopes by
       proposing opening up of FDI in multi-format retail,
       starting with food retailing.


* http://www.livemint.com/2009/06/08185249/Parliamentary-panel-recommends.html
** http://www.thehindu.com/2009/07/03/stories/2009070358300100.htm
Retail Reforms: Dilemma
     July ‘09 - On a written reply to the Lok Sabha (the
       lower house of parliament) on July 13, 2009 the
       Minister of State for Commerce announced that
       the government has no proposal to change the
       current policy on retail trade *
    "Government also fully recognises the need to ensure that small retailers are
    not adversely affected by the growing organised retail and that there is no
    adverse effect on employment.”
            Jyotiraditya Scindia, the Minister of State for Commerce and Industry



* http://www.livemint.com/2009/07/13161538/No-plans-to-change-retail-FDI.html
Retail Reforms: Dilemma
     December ‘09 - government has released a draft
       document aimed at simplifying overseas
       investments in India called “FDI Regulatory
       Framework. The new policy framework clarifies that
       while FDI is not allowed in retail, FII is permitted ” *

    "This document keeps retail out of the prohibited sector list of foreign
    investment while retaining it in the prohibited sector list of FDI.”




* http://www.livemint.com/2009/12/24230435/India-to-review-FDI-rules-ever.html
What scares policymakers?
     Retail business is the second largest employer
        after agriculture




* http://finance.yahoo.com/news/Is-WalMart-Killing-Your-inc-1332006942.html?x=0&.v=56
What scares policymakers?
     Retail business is the second largest employer
      after agriculture
     The government does not want to antagonise
      the labour-intensive sector




* http://finance.yahoo.com/news/Is-WalMart-Killing-Your-inc-1332006942.html?x=0&.v=56
What scares policymakers?
     Retail business is the second largest employer
      after agriculture
     The government does not want to antagonise
      the labour-intensive sector
     Numerous studies indicated, entry of a retailing
      gians like Wal-Mart does significantly impact
      sales at other local establishments*




* http://finance.yahoo.com/news/Is-WalMart-Killing-Your-inc-1332006942.html?x=0&.v=56
What scares policymakers?
     Retail business is the second largest employer
      after agriculture
     The government does not want to antagonise
      the labour-intensive sector
     Numerous studies indicated, entry of a retailing
      gians like Wal-Mart does significantly impact
      sales at other local establishments*
     The government seeks to safeguard small
      retailers from adverse impact of growing
      organised retail
* http://finance.yahoo.com/news/Is-WalMart-Killing-Your-inc-1332006942.html?x=0&.v=56

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India Retail Reforms: A saga of uncertainities

  • 1. A saga of uncertainties… INDIA RETAIL REFORMS
  • 2. Current FDI Policy  India’s current policy does not allow FDI in retail trade except for “Single Brand Retail”
  • 3. Current FDI Policy  India’s current policy does not allow FDI in retail trade except for “Single Brand Retail”  FDI up to 51% is allowed in Single Brand Retail with prior government approval
  • 4. Current FDI Policy  India’s current policy does not allow FDI in retail trade except for “Single Brand Retail”  FDI up to 51% is allowed in Single Brand Retail with prior government approval  100% FDI is allowed in wholesale cash-and- carry format
  • 5. Current FDI Policy  India’s current policy does not allow FDI in retail trade except for “Single Brand Retail”  FDI up to 51% is allowed in Single Brand Retail with prior government approval  100% FDI is allowed in wholesale cash-and- carry format  Franchisee arrangements are allowed in retail format
  • 6. Current FDI Policy Particulars FDI % Route Conditions Retail Trading (except single Nil brand) Single Brand product 51% FIPB*  Products to be sold of a single brand only retailing  Products should be sold under the same brand internationally  Single brand product retailing to cover only products which are branded during manufacturing Wholesale / cash and carry 100% Automatic trading Trading for exports 100% Automatic Trading of items sourced 100% FIPB Subject to the condition that the test marketing approval from small scale sector will be for a period of two years and investment in setting up manufacturing facilities commences simultaneously with test marketing Test marketing of such 100% FIPB items for which a company has approval for manufacture *FIPB: Foreign Investment Promotion Board
  • 7. Current FDI Policy  International retailers are fast expanding their business in India to tap the immense consumer base
  • 8. Current FDI Policy  International retailers are fast expanding their business in India to tap the immense consumer base  Reebok has set up its largest store in the world in Hyderabad
  • 9. Current FDI Policy  International retailers are fast expanding their business in India to tap the immense consumer base  Reebok has set up its largest store in the world in Hyderabad  Tommy Hilfiger and Levis have over 20,000 square feet of retail space and stand-alone stores across major metros
  • 10. Current FDI Policy  International retailers are fast expanding their business in India to tap the immense consumer base  Reebok has set up its largest store in the world in Hyderabad  Tommy Hilfiger and Levis have over 20,000 square feet of retail space and stand-alone stores across major metros  Fast-food giants Pizza Hut, McDonalds, Subway etc. are expanding at a fast pace with their expansion into the Tier II and Tier III cities
  • 11. Retail Entry Options Strategic License Cash & Carry Distribution Agreements Wholesale Retailing • Foreign company • 100 % FDI allowed in • An international enter into a licensing wholesale trading company can set up a agreement with a which involves distribution office in domestic retailer or building a large India and supply partnering with Indian distribution network products to the local promoter owned retailers. Franchise companies outlets can also be set up in this route Franchisee Route Manufacturing Joint Venture • The entry route which • A company can setup • International firms includes the master manufacturing units in can enter into franchisee route is India along with agreements with widely used, with a standalone retailing domestic players and number of outlets set-up base in India. international brands Share of MNCs is to set up presence in restricted to 49% in India this route
  • 12. Retail Entry Options Strategic License Cash & Carry Distribution Agreements Wholesale Retailing • Foreign company • 100 % FDI allowed in • An international enter into a licensing wholesale trading company can set up a agreement with a which involves distribution office in domestic retailer or building a large India and supply partnering with Indian distribution network products to the local promoter owned retailers. Franchise companies outlets can also be set up in this route Franchisee Route Manufacturing Joint Venture • The entry route which • A company can setup • International firms includes the master manufacturing units in can enter into franchisee route is India along with agreements with widely used, with a standalone retailing domestic players and number of outlets set-up base in India. international brands Share of MNCs is to set up presence in restricted to 49% in India this route
  • 13. Retail Entry Options Strategic License Cash & Carry Distribution Agreements Wholesale Retailing • Foreign company • 100 % FDI allowed in • An international enter into a licensing wholesale trading company can set up a agreement with a which involves distribution office in domestic retailer or building a large India and supply partnering with Indian distribution network products to the local promoter owned retailers. Franchise companies outlets can also be set up in this route Franchisee Route Manufacturing Joint Venture • The entry route which • A company can setup • International firms includes the master manufacturing units in can enter into franchisee route is India along with agreements with widely used, with a standalone retailing domestic players and number of outlets set-up base in India. international brands Share of MNCs is to set up presence in restricted to 49% in India this route
  • 14. Retail Entry Options Strategic License Cash & Carry Distribution Agreements Wholesale Retailing • Foreign company • 100 % FDI allowed in • An international enter into a licensing wholesale trading company can set up a agreement with a which involves distribution office in domestic retailer or building a large India and supply partnering with Indian distribution network products to the local promoter owned retailers. Franchise companies outlets can also be set up in this route Franchisee Route Manufacturing Joint Venture • The entry route which • A company can setup • International firms includes the master manufacturing units in can enter into franchisee route is India along with agreements with widely used, with a standalone retailing domestic players and number of outlets set-up base in India. international brands Share of MNCs is to set up presence in restricted to 49% in India this route
  • 15. Retail Hurdles US$ 590 bn US$ 322 bn 2006-07 2011-2012  Retail Trade Estimated to Grow 13% annually
  • 16. Retail Hurdles US$ 590 bn US$ 322 bn 2006-07 2011-2012  Retail Trade Estimated to Grow 13% annually  Share of organised retail growing very fast
  • 17. Retail Hurdles US$ 590 bn US$ 322 bn 2006-07 2011-2012  Retail Trade Estimated to Grow 13% annually  Share of organised retail growing very fast  An attractive destination for global retailers
  • 18. Retail Hurdles US$ 590 bn US$ 322 bn 2006-07 2011-2012  Retail Trade Estimated to Grow 13% annually  Share of organised retail growing very fast  An attractive destination for global retailers  Democratic country with high growth rate
  • 19. Retail Hurdles US$ 590 bn US$ 322 bn 2006-07 2011-2012  Retail Trade Estimated to Grow 13% annually  Share of organised retail growing very fast  An attractive destination for global retailers  Democratic country with high growth rate  Youth population with growing disposable income
  • 20. Retail Hurdles US$ 590 bn US$ 322 bn 2006-07 2011-2012  Retail Trade Estimated to Grow 13% annually  Share of organised retail growing very fast  An attractive destination for global retailers  Democratic country with high growth rate  Youth population with growing disposable income  Existing investment cap an entry hurdle
  • 21. Retail Reforms: Dilemma  Second coming of UPA government was seen as a positive sign
  • 22. Retail Reforms: Dilemma  Second coming of UPA government was seen as a positive sign  The Congress party, reasonably stronger, after the elections, to dictate its agenda can push further the retail reforms agenda it had persuaded
  • 23. Retail Reforms: Dilemma  Second coming of UPA government was seen as a positive sign  The Congress party, reasonably stronger, after the elections, to dictate its agenda can push further the retail reforms agenda it had persuaded  Government’s recent views presents a different picture
  • 24. Retail Reforms: Dilemma  Second coming of UPA government was seen as a positive sign  The Congress party, reasonably stronger, after the elections, to dictate its agenda can push further the retail reforms agenda it had persuaded  Government’s recent views presents a different picture “The government will continue to deliberate on the proposals for opening of sectors like multi brand retail. These sectors require wider consultation within the Cabinet.” Anand Sharma, Union Commerce Minister
  • 25. Retail Reforms: Dilemma  June ‘09 - A parliamentary panel asks government to ban foreign firms and big domestic corporates from retailing groceries, fruits and vegetables, and stop issuing licences for wholesale operations* * http://www.livemint.com/2009/06/08185249/Parliamentary-panel-recommends.html
  • 26. Retail Reforms: Dilemma  June ‘09 - A parliamentary panel asks government to ban foreign firms and big domestic corporates from retailing groceries, fruits and vegetables, and stop issuing licences for wholesale operations*  July ’09 - The Economic Survey 2009-10 released by the Ministry of Finance generated some hopes by proposing opening up of FDI in multi-format retail, starting with food retailing. * http://www.livemint.com/2009/06/08185249/Parliamentary-panel-recommends.html ** http://www.thehindu.com/2009/07/03/stories/2009070358300100.htm
  • 27. Retail Reforms: Dilemma  July ‘09 - On a written reply to the Lok Sabha (the lower house of parliament) on July 13, 2009 the Minister of State for Commerce announced that the government has no proposal to change the current policy on retail trade * "Government also fully recognises the need to ensure that small retailers are not adversely affected by the growing organised retail and that there is no adverse effect on employment.” Jyotiraditya Scindia, the Minister of State for Commerce and Industry * http://www.livemint.com/2009/07/13161538/No-plans-to-change-retail-FDI.html
  • 28. Retail Reforms: Dilemma  December ‘09 - government has released a draft document aimed at simplifying overseas investments in India called “FDI Regulatory Framework. The new policy framework clarifies that while FDI is not allowed in retail, FII is permitted ” * "This document keeps retail out of the prohibited sector list of foreign investment while retaining it in the prohibited sector list of FDI.” * http://www.livemint.com/2009/12/24230435/India-to-review-FDI-rules-ever.html
  • 29. What scares policymakers?  Retail business is the second largest employer after agriculture * http://finance.yahoo.com/news/Is-WalMart-Killing-Your-inc-1332006942.html?x=0&.v=56
  • 30. What scares policymakers?  Retail business is the second largest employer after agriculture  The government does not want to antagonise the labour-intensive sector * http://finance.yahoo.com/news/Is-WalMart-Killing-Your-inc-1332006942.html?x=0&.v=56
  • 31. What scares policymakers?  Retail business is the second largest employer after agriculture  The government does not want to antagonise the labour-intensive sector  Numerous studies indicated, entry of a retailing gians like Wal-Mart does significantly impact sales at other local establishments* * http://finance.yahoo.com/news/Is-WalMart-Killing-Your-inc-1332006942.html?x=0&.v=56
  • 32. What scares policymakers?  Retail business is the second largest employer after agriculture  The government does not want to antagonise the labour-intensive sector  Numerous studies indicated, entry of a retailing gians like Wal-Mart does significantly impact sales at other local establishments*  The government seeks to safeguard small retailers from adverse impact of growing organised retail * http://finance.yahoo.com/news/Is-WalMart-Killing-Your-inc-1332006942.html?x=0&.v=56