ABSTRACT

FDI is an important tool in the economic development of the nation. Contribution of FDI through financial resources, technology and innovative techniques raise the overall productivity of diverse sectors of economy. FDI truly acts as a catalyst for development of sectors such as agriculture, manufacturing, service, SME and many more. Indian retail sector is one of the most sought after sectors that carry great potential for attracting FDI. Critical analyses of recent decision of Government of India to open retail sector for FDI in single brand and multi brand category and its likely impact on various components of Indian economy.

INTRODUCTION The growth of retail, especially in 21st century is mind boggling and attracting the attention of retailers world over. With steady entry of top global retailers such as Wal Mart, Tesco, Carrefour and many more in last couple of years despite conservative approach of the government, the sector has become more fascinating for research study. The recent decision of Indian government of opening up the sector for FDI in single and multi brand retail has stirred up the heat with intense agitational activities witnessed all over India.

OBJECTIVES OF THE STUDY

To study present regulatory framework for FDI in general and in retail marketing sector. To study and analyze likely impact of FDI in single as well as multi brand retail on different components of Indian economy. o Impact on Sales o Impact on Size of Industry, Business/Capacity Addition o Impact on New Orders/Contracts o Impact on Qualitative Improvements and branding of the products o Impact on Supply chain efficiencies o Impact on Employment

Definition of Retail 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 (i.e. wholesale). A sale to the ultimate consumer. Thus, retailing can be said to be the interface between the producer and the individual consumer buying for personal consumption. This excludes direct interface between the manufacturer and institutional buyers such as the government and other bulk customers.

Division of Retail Industry Organised and Unorganised Retailing The retail industry is mainly divided into:- 1) Organised and 2) Unorganised Retailing Organised retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporatebacked hypermarkets and retail chains, and also the privately owned large retail businesses. Unorganised retailing, on the other hand, 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.

FOREIGN DIRECT INVESTMENT

Foreign investment is investment in an enterprise by a Non-Resident irrespective of whether this involves new equity capital or re-investment of earnings. Foreign investment is of two kinds (i)Foreign Direct Investment (FDI) and (ii) Foreign Portfolio Investment.

FDI Policy in India FDI as defined in Dictionary of Economics (Graham Bannock et.al) is investment in a foreign country through the acquisition of a local company or the establishment there of an operation on a new (Greenfield) site. FDI refers to capital inflows from abroad that is invested in or to enhance the production capacity of the economy. Foreign Investment in India is governed by the FDI policy announced by the Government of India and the provision of the Foreign Exchange Management Act (FEMA) 1999. The Reserve Bank of India (RBI) in this regard had issued a notification,which contains the Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000. The Ministry of Commerce and Industry, Government of India is the nodal agency for motoring and reviewing the FDI policy on continued basis and changes in sectoral policy/ sectoral equity cap. The foreign investors are free to invest in India, except few sectors/activities, where prior approval from the RBI or Foreign Investment Promotion Board (FIPB) would be required.

FDI Policy with Regard to Retail Marketing in India a) FDI up to 100% for cash and carry wholesale trading and export trading allowed under the automatic route. b) FDI up to 51 % with prior Government approval (i.e. FIPB) for retail trade of Single Brand products, subject to Press Note 3 (2006 Series) c) FDI is not permitted in Multi Brand Retailing in India.

Entry Options For Foreign Players prior to FDI Policy Entrance routes used by them have been discussed in sum as below:1. 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.

2. 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. 3. 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 arrangements or distribute the brands to franchisees. Mango, the Spanish apparel brand has entered India through this route with an agreement with Piramyd, Mumbai, SPAR entered into a similar agreement with Radhakrishna Foodlands Pvt. Ltd 4. Manufacturing and Wholly Owned Subsidiaries. The foreign brands such as Nike, Reebok, Adidas, etc. that have wholly-owned subsidiaries in manufacturing are treated as Indian companies and are, therefore, allowed to do retail. These companies have been authorised to sell products to Indian consumers by franchising, internal distributors, existent Indian retailers, own outlets, etc. For instance, Nike entered through an exclusive licensing agreement with Sierra Enterprises but now has a wholly owned subsidiary, Nike India Private Limited.

FDI in Single Brand Retail Marketing The Government has not categorically defined the meaning of Single Brand anywhere neither in any of its circulars nor any notifications. In single-brand retail, FDI up to 51 per cent is allowed, subject to Foreign Investment Promotion Board (FIPB) approval and subject to the conditions mentioned in Press Note 3 that (a) only single brand products would be sold (i.e., retail of goods of multi-brand even if produced by the same manufacturer would not be allowed), (b) products should be sold under the same brand internationally, (c) single-brand product retail would only cover products which are branded during manufacturing and (d) any addition to product categories to be sold under single-brand would require fresh approval from the government. FDI in Single brand retail implies that a retail store with foreign investment can only sell one brand. For example, if Adidas were to obtain permission to retail its flagship brand in India, those retail outlets could only sell products under the Adidas brand

FDI in Multi Brand Retail Marketing The government has also not defined the term Multi Brand. FDI in Multi Brand retail implies that a retail store with a foreign investment can sell multiple brands under one roof. If implemented ,It would open the doors for global retail giants to enter and establish their footprints on the retail landscape of India. Opening up FDI in multi-brand retail will mean that global retailers including WalMart, Carrefour and Tesco can open stores offering a range of household items and grocery directly to consumers in the same way as the ubiquitous kirana store.

Sector wise Division for FDI

FDI --- AUTOMATIC ROUTE Floriculture, Horticulture, Animal Husbandry Mining, Exploration of Metal and Nonmetal ores Coal and lignite mining and processing Alcohol distillation and brewing Coffee and Rubber processing Drugs and Pharmaceuticals Power Advertising and films Green field projects in aviation sector Data processing, software development and Computer consultancy services Health and Medical Services Hotel and Tourism Petroleum and natural gas FDI -- GOVERNMENT ROUTE Tree Plantation Manufacturing items reserved for SME (24%) Cigars and cigarette manufacturing Defence (26%) Private Banking sector (74%) Commodity Exchange (49%) Print Media (26%)

Source: D/o IPP. F. No.5 (14)/2009 FC dated 31/3/2010 issued by Ministry of Commerce & Industry, GOI

Table 2. Ranking of Sector wise FDI inflow in India (April 2000- Dec 2010)
% of FDI inflow 32% 14% 12% 11% 11% 6% 6% 4% 3% 1%

Rank 1 2 3 4 5 6 7 8 9 10

Sector Service Sector Computer Hardware and Software Telecommunication Housing and Real Estate Construction Activities Power Automobile Industry Metallurgical Industry Petroleum and Natural Gas Chemicals

Source: Fact Sheet of FDI- DIPP (2010)

Impact of FDI Retail Marketing and on different components of Indian economy.

Impact on Sales a) opening of the FDI in retail will result in substantial growth of sales of their products. b) The growth of sales of the product would be in the Excellent range of more than 20 percent, c) The impact on growth of sales to be in the high range of (10-20 percent) Impact on Size of Industry, Business/ Capacity Addition a) The size of their Industry / company to grow with the opening of 51 percent FDI in multibrand retail along with 100 percent FDI in single-brand retail. b) Industry would grow by Excellent rate of more than 20 percent). c) The impact on the size or capacity addition to be in the high range of 10-20 percent d) The growth to be in the moderate range of 5-10 percent and 22 percent perceive the growth to be in the low range Impact on New Orders/ Contracts a) FDI in retail would impact positively in the form of new orders/contracts generated. b) New orders and contract to grow substantially with more than excellent rate of 20 percent growth. c) The growth of orders / contracts in respect of their products to be in the moderate range (5-10 percent). d) The growth to be in a low range e) The decision would have a negative impact on the growth of size of the industry in terms of new orders.

Impact on Qualitative improvements and branding of the products a) Governments decision of mandatory sourcing of a minimum of 30% from Indian micro and small industry will help in achieving qualitative improvements and branding of the products. b) SMEs in receiving a sure source of market for their products while ensuring higher value realization for their products/supplies. c) Expansion of the scales of production facilitating domestic value addition in manufacturing, thereby creating a multiplier effect on employment, technology up gradation and income generation, demand and further investment. Impact on Supply chain efficiencies a) opening up of the retail would lead to improvements in the supply chain efficiencies in their sector b) It will integrate small and medium size enterprises into the modern trade process, resulting in substantial amount of knowledge and skills transfer in the sector. c) Impact on Employment a) If decision would have a positive impact on their employment whereas 35 percent expect no change in the employment scenario.

Adverse impact feared on supply chain intermediaries: a) foreign retailers may source the products from countries like China which is known as manufacturing hub of the world and it may put Indian SME sector in great danger. b) There may be a possibility of large scale unemployment if not checked. The current provision of 30% sourcing from Indian SMEs should be made mandatory and should be strictly monitored. c) Due to predatory pricing strategies, vast class of Indias merchants may get affected directly. Fear of survival of Small and unorganized retailers in the environment of intense competition : a) The prices will be determined by modern retailers and small shopkeepers may have to loose their profit margin due to predatory pricing strategy. b) the entry of large global retailers such as Wal-Mart would kill local shops and millions of jobs, since the unorganized retail sector employs an enormous percentage of Indian population after the agriculture sector; c) secondly that the global retailers would conspire and exercise monopolistic power to raise prices and monopolistic (big buying) power to reduce the prices received by the suppliers; d) thirdly, it would lead to asymmetrical growth in cities, causing discontent and social tension elsewhere.
Impact on Prospects of Indigenous modern retail marketing:

a) Another concern is that the Indian retail sector, particularly organized retail, is still under-developed and in a growing stage b) therefore, it is important that the domestic retail sector is allowed to grow and consolidate first, before FDI in MBR is allowed.

FDI Beneficiary
Farmers prime beneficiaries : a) Investment in back end infrastructure will help reduce wastage of farm produce, improve livelihood of farmers, lower the prices of products and ease supply side inflation, food safety, hygiene and quality. b) Direct farm initiatives shall also provide better remuneration to farmers. More investment is likely in farming sector. c) Farmers have chances to gain greater market access, higher profits, better technology and linkages with consumers due to direct back end linkages. d) Key farmer issues can be addressed which would help agricultural productivity. Intermediaries often flout mandi norms and their pricing lacks transparency. Real Estate sector likely to upscale their operations: a) Realtors to revive their plans to build malls and shopping complexes, which were shelved down in the past few years due to economic slowdown. b) As per Jones Lang Lasalle India Consultant, Rs. 22,000 crores retail real estate market shall grow at CAGR of 25 % a year for the next five years, growing at 50- 100 %. . Consumers and Common man to become real kings and queens now: a) Entry of global retailers is expected to have direct impact on consumers as well as common man. b) It is expected to bring down commodity prices for the common man. Large scale and high volume sourcing and technology edge of global retailers help in realizing greater operational efficiency and wide assortment of goods at lower prices may be made available to consumers. c) Food safety, hygiene and quality are value additions. More than 60% of the wastage can be prevented if specialized cold storage chains are built up on mass scales, which eventually shall help common man. Long term cash liquidity: a) FDI will provide necessary capital for setting up organized retail chain stores. It is a long term investment because unlike equity capital, the physical capital invested in the domestic company is not easily liquidated. Lead driver for the countrys economic growth: a) FDI in MBR would create a competition among the global investors, which would ultimately ensure better and lower prices thus benefiting people in all sections of the society. b) There would be an increase in the market growth and expansion. It will increase retail employment and suppress untrained manpower and lack of experience. c) Higher wages will be paid by the international companies. Urban consumers will be exposed to international lifestyles.

LIMITATIONS OF THE PRESENT SETUP

Infrastructure : There has been a lack of investment in the logistics of the retail chain, leading to an inefficient market mechanism. Though India is the second largest producer of fruits and vegetables (about 180 million MT), it has a very limited integrated cold-chain infrastructure, with only 5386 stand-alone cold storages, having a total capacity of 23.6 million MT. , 80% of this is used only for potatoes. The chain is highly fragmented and hence, perishable horticultural commodities find it difficult to link to distant markets, including overseas markets, round the year. Intermediaries dominate the value chain : Intermediaries often flout mandi norms and their pricing lacks transparency. Wholesale regulated markets, governed by State APMC Acts, have developed a monopolistic and non-transparent character. According to some reports, Indian farmers realize only 1/3rd of the total price paid by the final consumer, as against 2/3rd by farmers in nations with a higher share of organized retail. Improper Public Distribution System (PDS) :There is a big question mark on the efficacy of the public procurement and PDS set-up and the bill on food subsidies is rising. In spite of such heavy subsidies, overall food based inflation has been a matter of great concern. The absence of a farm-to-fork retail supply system has led to the ultimate customers paying a premium for shortages and a charge for wastages. No Global Reach: The Micro Small & Medium Enterprises (MSME) sector has also suffered due to lack of branding and lack of avenues to reach out to the vast world markets. While India has continued to provide emphasis on the development of MSME sector, the share of unorganised sector in overall manufacturing has declined from 34.5% in 1999-2000 to 30.3% in 2007-08[. This has largely been due to the inability of this sector to access latest technology and improve its marketing interface.

Conclusion
FDI in retail is very much debatable issue which needs to be resolved by taking into consideration the interest of the stakeholders. The decision to allow entry to foreign players in MBR is clearly a game changer for Indian retail sector. A fresh wave of consolidation may come, ending the era of multiple players in modern retail. Big retail bosses across the world shall come to India either independently or by partnering with Indian counterparts for a successful head start. The policy of allowing 100% FDI in single-brand retail was adopted to allow Indian consumers access to foreign brands. It shall benefit both the foreign retailer and the Indian partner foreign players get local market knowledge, while Indian companies can access global best management practices, designs and technological knowhow. By completely opening this sector, the government has strongly conveyed its willingness in retail sector reforms. By allowing FDI in retail trade, India will significantly benefit in terms of quality standards since the inflow of FDI in retail sector is bound to pull up the quality standards and costcompetitiveness of Indian producers and marketers in all the segments.

REASEARCH METHODOLOGY
The study is analytical in nature and covers a period of 12 years (2000-2012), to have a clear picture of the status of FDI in India. The study is divided into 8 parts: Introduction, Objective review, an overview of RETAIL in India, Impact of FDI in retail marketing ,limitations and conclusion. The data is secondary in nature and is collected from RBI annual publications, website of Department of Industrial Policy and Promotion, Government of India, UNCTAD publications, etc.

REFERENCES
Websites :

www.Legalserviceindia.com www.Manupatra.com www.Scribd.com www.cci.in www.rbi.org.in www.dipp.nic.in www.legallyindia.com www.icsi.edu www.retailguru.com

www.abhinavjournal.com

Reports/ Research Papers

A.T. Kearneys Report on Indian Retail, 2008 FDI Consolidated Policy Dr.R.KBalyan FDI in Indian Retail- Beneficial or Detrimental-research paper Damayanthi/S.Pradeekumar-FDI is it the Need of he Hour? Google search Dipakumar Dey-Aspects of Indian Economy-Google search. ICRIER Report on Indian Retail, New Delhi, 2008. Pradhan Swapna, Retail Management, New Delhi, The McGraw Hill Companies, 2007. Rajgopalan, Developmental Issues of Indian Economy, Mumbai, Vipul Publications, 2005. Ramu Shiva, Franchising, New Delhi, A.H.Wheeler, 1997. Seethapathi K., FDI Issues in Emerging Economies, Hyderabad, ICFAI, 2006. 9. D/o IPP. F. No.5 (14)/2009 FC dated 31/3/2010 issued by Ministry of Commrce & Industry, GOI

Newspapers

The Economic Times The Business Standard Hindustan Times, 29th November, 2011, Mumbai Edition Times of India, 3rd December, 2011, Mumbai Edition The Economic Times, 13th January, 2012, Mumbai Edition

Others .

Association of Traders of Maharashtra v. Union of India, 2005 (79) DRJ 426 Indias Retail Sector (Dec 21, 2010) http://www.cci.in/pdf/surveys_reports/indias_retail_sector.pdf Hemant Batra, Retailing Sector In India Pros Cons (Nov 30, 2010)http://www.legallyindia.com/1468-fdi-in-retailing-sector-in-india-pros-cons-by-hemantbatra http://siadipp.nic.in/policy/changes/pn3_2006.pdf Mohan Guruswamy, Implications of FDI in Retail, (Dec 16 2010) http://www.scribd.com/doc/36888679 National Accounts Statistics, 2009 Nabael Mancheri, Indias FDI policies: Paradigm shift, http://www.eastasiaforum.org/2010/12/24/indias-fdi-policies-paradigm-shift/Discussion Paper on FDI in Multi Brand Retail Trading, http://dipp.nic.in/DiscussionPapers/DP_FDI_Multi-BrandRetailTrading_06July2010.pdf Sarthak Sarin, (Nov 23, 2010) Foreign Direct Investment in Retail Sector http://www.legalindia.in/foreign-direct-investment-in-retail-sector-otherssurmounting-india-napping Nabael Mancheri, Indias FDI policies: Paradigm shift, http://www.eastasiaforum.org/2010/12/24/indias-fdi-policies-paradigm-shift/ Economic Times Retail News, FDI in retail to contain inflation (Dec 31, 2010) walmart http://retail-guru.com/allow-100-fdi-in-retail-to-contain-inflation-walmart

IMPACT OF FDI IN RETAIL MARKETING (Study)