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Fdi in retail
FDI in Retail
 There is whole lot of mayhem about FDI in retail ever since
  it knocked the doors of Indian Economy. The mere word
  “FDI” has haunted the corridors of parliament, big retail
  outlets, mom n pop store owners, the middle men and even
  the end consumers. The arguments citing the advantages
  of FDI in retail mostly revolve around the following:
  Improvement in Retail capability building
 Improvement in management of supply chain
 Push to productivity
 With the recent development in this context, it is essential
  to analyse the impact of FDI in retail without any bias. To
  cut the long story short:

FDI in Retail
 What is FDI in Retail?


 Single Brand Retail: FDI investment till now was 0.03 % (INR 204 Cr) of total FDI
  investment from April 2000 to September 2011. This relaxation will increase FDI in
  retail sector through the entrance of new players (Foreign or Domestic), increase or
  buy outs in stake, M&A amongst existing single brand retailers, Joint ventures with
  foreign and existing players.
 There will be sourcing norm of only 30% from local sources. This will lead to lower
  procurement locally. So MSME sector will lose but the luxury retail market will
  witness growth. This will surely lead to outflow of money from India. Growth in
  luxury retail market and low or no growth in MSME sector will lead to negligible
  employment generation.
  Possibly, there will be changes in existing licensing/ distributor/ franchise
  arrangements being converted into joint ventures or complete buy out by foreign
  entrants.

FDI in Retail
 Multi brand Retail: FDI here will lead to increased
  investments and growth in Indian retail sector. In this case
  too, new JV’s and M&A will be seen. Tactics of buying
  stakes or complete buyout will be played. This should
  provide options for existing Indian retail companies to raise
  long term capital for expansion.


 This financial inflow will lead to development of retail
  infrastructure and value addition to the existing supply
  chain. The sector will see investment in setting up supply
  chain mechanism, transport infrastructure, cold storage,
  technology etc. This will directly enhance the operational
  efficiency of the entire supply chain.
FDI in Retail
 Agriculture: The farmers/producers will be benefitted as they
  will get better price for their produce. Although the buy will be
  completely based on bulk buy i.e. entire stock based on quality.
  This means if the company decides to purchase only the quality
  produce then the not so good produce will find its way to local
  market (if it exists) or in garbage. Either way the
  farmer/producer will get paid for the quality produce. This in
  turn will encourage farmers/producer to improve their existing
  ways of farming/production. Again this will require investment
  in technology.
  Companies may go for contract farming and this again will lead
  to improvement in the method of farming by introduction of
  better seeds, better fertilizers, new farming equipment etc.
  provided by the companies.
FDI in Retail
 FDI in retail to benefit the farmers &
    consumers


 Middlemen: Another very visible impact will be the eradication of
  middlemen from the supply chain. It is usually believed that this would
  lead to lesser exploitation of the farmers/ producers and at the same
  time competitive process for the end consumers. But at the same time,
  the big retail brings in new breed of middlemen- quality controller,
  standardiser, certification agency, processor, packaging consultants etc.
  It is these middlemen who would now take their share from the
  farmers’ profits and the consumers’ savings.
 Thus, it is premature to comment on how much the farmers and end
  consumers will gain out of this elimination of traditional middlemen
  and introduction of the new middlemen.
FDI in Retail
 Employment: the Indian retail market is estimated to be around $ 400
    billion with more than 12 million retailers employing 40 million
    people. A contrasting picture will be seen as the small retailers, “Kirana
    shops”, departmental stores etc. will find a tough time to compete or
    even exist in such scenario. In such scenario, the landless farmers or
    labours that turned into small time retailers will be worst hit.
    Government will have to face the question of how to compensate for
    their loss. This problem will further get intense considering the very
    low employability of such landless farmers/laborers.
    Another viewpoint is that the damage will not be so extensive as the big
    retailers will operate in the outskirts or in a very few locations in any
    city or town and the “Kirana shops” will co-exist in the interiors. In any
    of the cases, the sheer magnitude of impact to society will be
    intolerable.

FDI in Retail
FDI in Retail
FDI in Retail
FDI in Retail
 What Retailers Think


 Role of State government: As clarified by the central government, it will be
  on the state governments whether or not to allow multi-brand FDI in the
  respective state. But India, being a signatory to Bilateral Investment promotion
  and Protection Agreements (BIPAs), has to provide national treatment to the
  foreign investors. The fact that such agreements have been signed with more
  than 70 countries will certainly force the state governments to open up for big
  retailers.
 It will be interesting to see the regulation norms set by the state governments
  as it will clearly guide the extent of FDI in their respective states. One thing is
  for sure that State government will be able to get more revenues by keeping FDI
  in place. But how that increased revenue will justify the lost livelihood of
    millions of people or what steps will the government take to minimize this loss.

Fdi in retail
Fdi in retail

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Fdi in retail

  • 2. FDI in Retail  There is whole lot of mayhem about FDI in retail ever since it knocked the doors of Indian Economy. The mere word “FDI” has haunted the corridors of parliament, big retail outlets, mom n pop store owners, the middle men and even the end consumers. The arguments citing the advantages of FDI in retail mostly revolve around the following: Improvement in Retail capability building  Improvement in management of supply chain  Push to productivity  With the recent development in this context, it is essential to analyse the impact of FDI in retail without any bias. To cut the long story short: 
  • 3. FDI in Retail  What is FDI in Retail?   Single Brand Retail: FDI investment till now was 0.03 % (INR 204 Cr) of total FDI investment from April 2000 to September 2011. This relaxation will increase FDI in retail sector through the entrance of new players (Foreign or Domestic), increase or buy outs in stake, M&A amongst existing single brand retailers, Joint ventures with foreign and existing players.  There will be sourcing norm of only 30% from local sources. This will lead to lower procurement locally. So MSME sector will lose but the luxury retail market will witness growth. This will surely lead to outflow of money from India. Growth in luxury retail market and low or no growth in MSME sector will lead to negligible employment generation. Possibly, there will be changes in existing licensing/ distributor/ franchise arrangements being converted into joint ventures or complete buy out by foreign entrants. 
  • 4. FDI in Retail  Multi brand Retail: FDI here will lead to increased investments and growth in Indian retail sector. In this case too, new JV’s and M&A will be seen. Tactics of buying stakes or complete buyout will be played. This should provide options for existing Indian retail companies to raise long term capital for expansion.  This financial inflow will lead to development of retail infrastructure and value addition to the existing supply chain. The sector will see investment in setting up supply chain mechanism, transport infrastructure, cold storage, technology etc. This will directly enhance the operational efficiency of the entire supply chain.
  • 5. FDI in Retail  Agriculture: The farmers/producers will be benefitted as they will get better price for their produce. Although the buy will be completely based on bulk buy i.e. entire stock based on quality. This means if the company decides to purchase only the quality produce then the not so good produce will find its way to local market (if it exists) or in garbage. Either way the farmer/producer will get paid for the quality produce. This in turn will encourage farmers/producer to improve their existing ways of farming/production. Again this will require investment in technology. Companies may go for contract farming and this again will lead to improvement in the method of farming by introduction of better seeds, better fertilizers, new farming equipment etc. provided by the companies.
  • 6. FDI in Retail  FDI in retail to benefit the farmers & consumers   Middlemen: Another very visible impact will be the eradication of middlemen from the supply chain. It is usually believed that this would lead to lesser exploitation of the farmers/ producers and at the same time competitive process for the end consumers. But at the same time, the big retail brings in new breed of middlemen- quality controller, standardiser, certification agency, processor, packaging consultants etc. It is these middlemen who would now take their share from the farmers’ profits and the consumers’ savings.  Thus, it is premature to comment on how much the farmers and end consumers will gain out of this elimination of traditional middlemen and introduction of the new middlemen.
  • 7. FDI in Retail  Employment: the Indian retail market is estimated to be around $ 400 billion with more than 12 million retailers employing 40 million people. A contrasting picture will be seen as the small retailers, “Kirana shops”, departmental stores etc. will find a tough time to compete or even exist in such scenario. In such scenario, the landless farmers or labours that turned into small time retailers will be worst hit. Government will have to face the question of how to compensate for their loss. This problem will further get intense considering the very low employability of such landless farmers/laborers. Another viewpoint is that the damage will not be so extensive as the big retailers will operate in the outskirts or in a very few locations in any city or town and the “Kirana shops” will co-exist in the interiors. In any of the cases, the sheer magnitude of impact to society will be intolerable. 
  • 11. FDI in Retail  What Retailers Think   Role of State government: As clarified by the central government, it will be on the state governments whether or not to allow multi-brand FDI in the respective state. But India, being a signatory to Bilateral Investment promotion and Protection Agreements (BIPAs), has to provide national treatment to the foreign investors. The fact that such agreements have been signed with more than 70 countries will certainly force the state governments to open up for big retailers.  It will be interesting to see the regulation norms set by the state governments as it will clearly guide the extent of FDI in their respective states. One thing is for sure that State government will be able to get more revenues by keeping FDI in place. But how that increased revenue will justify the lost livelihood of millions of people or what steps will the government take to minimize this loss. 