This ppt tells how di effects the Multibrand retail in India

1. Foreign Direct Investment (FDI)
Challenges and Opportunities in Multi-Brand
Retail

2. TEAM MEMBERS
PARTH SARTHI GAIROLA
RAJAT SAXENA
PRABHUTI BHASIN
RUCHIKA
PRITI PRIYA
NITIN YADAV
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3. Road Map for Presentation
Background
What is FDI & FII
Reasons for FDI in retail in India
Opportunities and Challenges
Sector wise analysis of FDI
Conclusion
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4. Background: India Transformed !!
…Yesterday
 Slow rate of growth
 Bureaucratic Controls
 Protected and slow
 Small consumer markets
 Weak infrastructure
…Today
 Strong macro economic fundamentals
 Encouraging foreign investment
 Outsourcing destination
 Growing consumerism
 Impetus on infrastructure development
India -- the largest Democracy - one of the fastest growing economies in the World!
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5. ADVANTAGES INDIA HAS TO OFFER
• Stable democratic environment over 60
years of independence
• Large and growing market
• World class scientific, technical and
managerial manpower
• Cost-effective and skilled labour
• Abundance of natural resources
• Large English speaking population
• Well-established legal system with
independent judiciary
• Developed banking system and vibrant
capital market
• Well developed accountancy, legal,
actuarial and consultancy profession
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6. What is FDI & FII
Foreign Institutional Investment (FII):
FII denotes all those investors or investment companies
that are not located within the territory of the country in
which they are investing.
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7. What Exactly is FDI ?
Foreign direct investment (FDI) in its classic form is
defined as a company from one country making a
physical investment into building a factory in another
country.
Include investments made to acquire lasting interest in
enterprises operating outside of the economy of the
investor.
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8. Distinction between FDI and FII
FDI FII
1. It is long-term investment 1. It is generally short-term investment
2. Investment in physical assets 2. Investment in financial assets
3. Aim is to increase enterprise capacity or 3. Aim is to increase capital availability
productivity or change management
control
4. Leads to technology transfer, access to 4. FII results in only capital inflows
markets and management inputs
5. FDI flows into the primary market 5. FII flows into the secondary market
6. Entry and exit is relatively difficult 6. Entry and exist is relatively easy
7. FDI is eligible for profits of the company 7. FII is eligible for capital gain
8. Does not tend be speculative 8. Tends to be speculative
9. Direct impact on employment of labour 9. No direct impact on employment of labour
and wages and wages
10.Abiding interest in mgt. 10.Fleeting interest in mgt. 8

9. Why FDI is NEEDED ?
1. Gain a foothold in a new geographic market.
2. Increase a firm’s global competitiveness and positioning.
3. Fill gaps in a company’s product lines in a global industry.
4. Reduce costs in areas such as R&D, production, and distribution.
5. Advantages of advanced technology, management practices and
assured markets.
6. Contribution to GDP and foreign exchange earnings.
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10. FDI in Retail in India

11. Retail
• In 2004, The High Court of Delhi defined the term „retail‟ as a sale for final
consumption.
• Unorganized Retail- refers to the traditional formats of low-cost retailing.
• e.g.. the local kirana shops, owner manned general stores, paan/beedi shops,
convenience stores, hand cart and pavement vendors, etc.
• Organized Retail- refers to trading activities undertaken by licensed retailers, that
is, those who are registered for sales tax, income tax, etc.
• In India 94% is unorganized retail & 5-6% is organized retail.
• India tops in the list of emerging market for global retailer .
• Retailing in India is one of the pillars of its economy and accounts for 14 to 15% of
its GDP.
• According to study conducted by ICRIER, total retail business in India will grow at
13% US $590 billion in 2011-12 and further US $1 trillion by 2016-17.

12. • The Indian retail market is estimated to be US$ 450 billion and one of the top
five retail markets in the world by economic value.
• India's retail and logistics industry employs about 40 million Indians (3.3% of
Indian population).

13. Entry Options For Foreign Players
prior to FDI Policy
• Franchise Agreements .
• Eg -: Pizza Hut, Lacoste & Spencer.
• Cash And Carry Wholesale Trading.
• 100% FDI is allowed in wholesale trading which involves building of a large
distribution infrastructure to assist local manufacturers.
• Eg -: Metro AG of Germany
• Strategic Licensing Agreements.
• Some foreign brands give exclusive licenses and distribution rights to Indian
companies.
• Eg -:Mango, the Spanish apparel brand has an agreement with Piramyd, Mumbai.
• Manufacturing and Wholly Owned Subsidiaries.
• Eg -: Nike, Reebok & Adidas.

14. FDI in Retail in India
• Until 2011, Indian central government denied foreign direct investment
(FDI) in multi-brand retail.
• Even single-brand retail was limited to 51% ownership.
• In November 2011, India's central government announced retail
reforms for both multi-brand stores and single-brand stores.
• In December 2011, under pressure from the opposition, Indian
government placed the retail reforms on hold.
• In January 2012, India approved reforms for single-brand stores with
100% ownership.
• Imposed the requirement that the single brand retailer source 30% of
its goods from India.
• IKEA announced in January that it is putting on hold its plan to open
stores in India because of the 30% requirement.

15. FDI Policy with Regard to
Retailing in India
• FDI up to 100% for cash and carry wholesale trading and export trading
allowed under the automatic route.
• FDI up to 100 % with prior Government approval for retail trade of Single
Brand products.
• FDI up to 51% is permitted in Multi Brand Retailing in India.
• All retail stores can open up their operations in population having over
1million.
• Multi-brand retailers must bring minimum investment of US$ 100 million.
• Half of this must be invested in back-end infrastructure facilities such as
cold chains, refrigeration, transportation, packaging etc.
• The opening of retail competition (policy) will be within parameters of
state laws and regulations.

16. Challenges and Opportunities
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17. OPPORTUNITIES

18.  Direct Benefit To Farmers
 Increase in employment opportunities
 Reduction In Food Inflation
 Earning of Foreign Exchange
 Drop in Food Wastage

19. Consumer Choice
Benefit To Kiryana Store
Creation of Backend Infrastructure
More Purchases from SME
Overall Growth Of The Economy

20. CHALLENGES IN
RETAIL SECTOR

21. Current scenario two
major problems :
• Political Instability
• Public Agony

22. SWOT Analysis of Retail Sector.
• Major contribution to GDP. • Lack of Competitors.
• High Growth Rate. • Highly Unorganized.
• Low Productivity.
• High Potential. • Shortage of Talented Professionals.
• High Employment Generator. • No Industry‘ status, hence creating
financial issues for retailers
S W
• There will be more organization in • Current Independent Stores will be
the sector. compelled to close.
• Healthy Competition. (check on • Big players can knock-out
inflation.) competition.
• Create transparency in the system. • India does not need foreign
• Intermediaries will be evicted. retailers.
• Quality Control and Control • Remember East India Company it
Wastage. entered India as trader and then
• Heavy flow of capital. took over politically.
O T

23. Sector Wise Analysis of FDI Inflow
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24. Top FDI Sectors and inflow in india
Cumulative Sector- wise FDI equity inflows (from April 2000 to January 2012) - Annex-„B‟.

25. Top Investing Countries Of FDI In India
i) *Includes inflows under NRI Schemes of RBI.
(ii) Cumulative country-wise FDI equity inflows (from April 2000 to January 2012) – Annex-„A‟.

26. Year-wise FDI Inflows in India
40000
35000
Amounts in US$ million
30000
25000
20000
15000
10000
5000
0
Financial years
Fact Sheet On Foreign Direct Investment (FDI) 2010-2011
http://dipp.nic.in/English/Publications/FDI_Statistics/2011/india_FDI_
March2011.pdf

27. FDI Equity Inflows from 2000-2012
%age growth over previous year
S. Nos Financial Year (April – March) Amount of FDI Inflows
(in terms of US $)
FINANCIAL YEARS 2000-2012 In ` crores In US$ million
1 2000-01 10733 2463 -
2 2001-02 18654 4065 ( + ) 52%
3 2002-03 12871 2705 ( - ) 18 %
4 2003-04 10064 2188 ( - ) 14 %
5 2004-05 14653 3219 ( + ) 40 %
6 2005-06 24584 5540 ( + ) 48 %
7 2006-07 56390 12492 (+ )146 %
8 2007-08 98642 24575 ( + ) 53 %
9 2008-09 ‘*’ 142829 31396 ( + ) 20%
10 2009-10 # 123120 25834 ( - ) 10 %
11 2010-11 # 88520 19427 ( - ) 13 %
12 2011-12 # (April - January 2012) 122307 26192 -
CUMULATIVE TOTAL (from April 2000 to January 2012) 723367 160096 -
Sourc(i) RBI‟s Bulletin March 2012 dt. 13.03.2012 (Table No. 44 – FOREIGN INVESTMENT INFLOWS).
Monthly data on components of FDI as per expended coverage are not available. These data, therefore, are
not comparable with FDI data for previous years.
Figures updated by RBI up to January, 2012

28. FDI Equity Inflows in Urban Regions of India: Year 2010-
2011
Fact Sheet On Foreign Direct Investment (FDI) 2010-2011
http://dipp.nic.in/English/Publications/FDI_Statistics/2011/india_FDI_
March2011.pdf

29. Global Retail‟s Big 10 and
Shopping Future
 Walmart
• Home base- US
• Present in 16 countries
• Total revenue- $418.9bn
 Carrefour
• Home base- France
• Present in 33 countries
• Total revenue- $119bn
 Tesco
• Home base- UK
• Present in 13 countries
• Total revenue- $92bn

30.  Metro
• Home base- Germany
• Present in 33 countries
• Total revenue- $88.bn
 Kroger
• Home base- US
• Present in 1 country
• Total revenue- $82bn
 Schwarz
• Home base- Germany
• Present in 26 countries
• Total revenue- $79bn

31.  Costco
• Home base-US ; Present in 9 countries.
• Total revenue- $76.2bn
 The Home Depot
• Home Base- US ; Present in 5 countries.
• Total revenue- $67.9bn
 Walgreen Co
• Home base- US ; Present in 2 countries.
• Total revenue- $67.4bn
 Aldi
• Home base- Germany ; Present in 18 countries.
• Total revenue- $67bn

32. INDIA v/s CHINA
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33. China and India are World‟s Top
Two FDI Destinations: UN Survey
• A recent survey of transnational corporations found that
companies see China and India as the world’s first and second most
important destinations for foreign direct investment over the 2010
to 2012 period, respectively

34. • China and India together account for about 37.5% of
world population and 6.4% of the value of world output
and income at current prices and exchange rates
If China opened up in 1978, India did so in 1991 i.e 14
yrs after China therefore any comparison of India of
today should be made with china as it was more than a
decade ago as emerging global powers now
…
Since the two countries have similar labor endowments
and development lags due to government controls and
protected nature of their economies , they can be
expressed to follow similar growth paths on opening
up…

35. China – Economic Fact Sheet
GDP – real growth rate:
9.8% (2008) country comparison to the world:
13% (2007)
11.6% (2006)
GDP-Per capita (PPP-Purchasing power parity):
$6,000 (2008)country comparison to the world:
$5,500 (2007)
$4,900 (2006)
note: data are in 2008 US dollars
GDP – composition by sector:
agriculture: 10.6%
industry: 49.2%
services: 40.2% (2008)

36. India – Economic Fact Sheet
• GDP- real growth rate:
• 6.6% (2008)
• 9% (2007)
• 9.6% (2006)
• GDP – per capita (PPP – Purchasing power parity)
• $2,800 (2008)
• $2,700 (2007)
• $2,500 (2006)
• note: data are in 2008 US dollars
• GDP – Composition by sector:
• agriculture: 17.2%
• industry: 29.1%
• services: 53.7% (2008)

37. Comparing India and China’s Growth Stories
Indicators India China
Political System Multi-party Democracy One-party
authoritarian rule
Speed of Growth Economic reforms Economic reforms
started in 1991. started in 1978.
Average 6% growth Average 9.5% growth
rate in past two rate in past two
decades. decades.
Areas of Rising power in Dominant in mass
Specialization software, design, manufacturing,
services, and precision electronics and heavy
industry. industrial plants

38. Comparing India and China’s Growth Stories
Indicators India China
Gini index 47.0 (up 10 points
(standard measure 36.8 from 15 yrs ago)
of inequality)
Foreign Direct 6.8% (up from 0.3% 17.8%
Investment in 2004)
Future Areas of R&D, bio-technology, IT business, services
growth high-value IT enabled and continued
services (legal, medical, manufacturing
engineering
architecture),
manufacturing, agro-
based industry

39. Comparision
 India lags behind china in infrastructure.
 China has a weak banking and legal system.
 India has the advantage of the English language which has made it
easier to participate in the global economy.
 What holds India back are bureaucratic red tape, corruption and its
inability to build infrastructure fast enough.
 According to Peter Drucker, India has managed rural to urban
transition in a relatively smooth and peaceful manner, which China is
still struggling to do.

40. GROSS DOMESTIC SAVINGS
CHINA & INDIA
70
China India
60
50
40
30
20
10
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

41. INFRASTRUCTURE
INVESTMENTS

42. OIL AND GAS

43. Port and shipping
 Indian exports $13.94 billion in august 2009 where as china is $ 95.41 billion.
 Indian imports amounted to $130.36 billion where as china is 424.59 billion
 Installed port capacity in China is 5.6 btpa vis-à-vis India‟s capacity of ~0.75 btpa
 Container terminal capacity in China is ~100 m teus vis-à-vis India‟s capacity of 8.6 m
teus.
 The largest container vessel calling at Chinese Port is more than 13,000 teus where
as at Indian container terminal (JNPT) is 6,000 teus.
 The draft at Shanghai is 19+ m where as at JNPT it is 11.5m and at Mundra it is 17.5 m.
 The berth length at Shanghai is 13,800 m and that at hong kong is 4,426 m whereas total
container berth length at JNPT is 2000 m and at 1280 m at Mundra

44. Structural change
 China: “classic” pattern, moving from primary to
manufacturing sector, which has doubled its share of
workforce and tripled its share of output.
 India: Move has been mainly from agriculture to services in
share of output, with no substantial increase in
manufacturing, and the structure of employment has not
changed much. Share of the primary sector in GDP fell from
60 per cent to 25 per cent in four decades, but share in
employment still more than 60 per cent.

45. Poverty reduction
 China: Officially 4 per cent of the population now lives
under the poverty line, unofficially around 12 per cent.
(Reflects earlier asset redistribution and basic need
provision in China under communism, plus larger mass
market and role of agricultural prices.)
 India: poverty ratio much higher and persistent, between
26 per cent and 34 per cent depending upon how one
interprets the NSS data.

46. • 2009 China FDI USD 95 billion
2009 Indian FDI USD 36.6 billion
• 2010 China Jan – Jul FDI USD 58.35 billion
2010 India Jan – Jun FDI USD 10.78 billion

47. Comparison of FDI inflow in
India and china
1999- 2002 2003 2004
2000(annual
avg)
India 30104 52743 60630 72406
China 1705 5627 5474 6598
Developing 134670 163583 275032 334285
economies
World 495391 617732 710755 916277

48. Sector wise FDI inflow in china
2000 2001 2002 2003 2004 2005
National total 67594 89873 102764 100084 111434 71826
Agriculture 58328 81102 58106 33635 53800 35495
Mining & 2584417 3090747 3679998 3693570 4301724 139437
quarrying
Manufacturi 224212 227276 137508 129538 113624 49020
ng
Electric 90542 80670 70877 61176 77158 181230
power
&gas,water
&productio
n supply
Whole sale 101188 90890 91346 86737 127285 159871
and retail
trade
Banking 7629 3527 10665 23199 25248 21969
&insurance

49. Conclusion
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50.  Small retailers will not be crowded out, but would strengthen market positions by turning
innovative/contemporary.
 Growing economy and increasing purchasing power would more than compensate for the
loss of market share of the unorganized sector retailers.
 There will be initial and desirable displacement of middlemen involved in the supply chain
of farm produce, but they are likely to be absorbed by increase in the food processing
sector induced by organized retailing.
 Innovative government measures could further mitigate adverse effects on small retailers
and traders.
 Farmers will get another window of direct marketing and hence get better remuneration,
but this would require affirmative action and creation of adequate safety nets.
 Consumers would certainly gain from enhanced competition, better quality, assured
weights and cash memos.
 The government revenues will rise on account of larger business as well as recorded sales.
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51. "If there is one place on the
face of this Earth where all
the dreams of living men have
found a home when man
began the dream of existence,
it is India".
Romain Rolland,
French philosopher
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