FDI- An Introduction

Refers to the net inflows of investment to acquire a

lasting management interest in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital. It usually involves participation in management, joint-venture, transfer of technology and expertise. A measure of foreign ownership of productive assets.

Retail Sector in India

One of the pillars of Indian Economy: contributes 13% of GDP. Over 12 million outlets operate in the country India has the highest number of outlets per person (7 per thousand) Indian retail space per capita is lowest at 2 sq.ft/ person. Only 4% outlets are bigger than 500 sq ft Over 90% trade is conducted through independent local stores

Organized & Unorganized Retail

Organized
Trading activities undertaken by licensed retailers

Unorganized
Traditional formats of low-cost retailing

Hypermarkets Retail Chains Privately owned structured business

Kirana stores Owner managed stores Hand cart/ pavement vendors

Growing at 35% anually

Growing at 6% anually

FDI in Retail Sector

FDI in single-brand retailing was permitted in

2006, up to 51 per cent of ownership. 57 proposals out of 94 were approved. FDI inflow of US$196.46 million under the category of single brand retailing was received. Retail stocks rose by as much as 5%.

Effects of 100% FDI in Single Brand

Foreign players get local market knowledge Indian companies can access global best management practices and technology Adequate flow of capital Study shows that investment of big money in the retail sector would in the long run not harm interests of small, traditional, retailers.

FDI in Multi Brand

FDI in Multi Brand retail implies that a retail store with a foreign investment can sell multiple brands under one roof. At present FDI is not permitted in Multi Brand Retailing in India.

But FDI in Cash and Carry wholesale trading is 100% allowed which involves building of a large distribution infrastructure to assist local manufactures. The wholesaler deals only with smaller retailers and not consumers. Opening it up will mean that global retailers (Wal-Mart, Carrefour, Tesco) can open stores offering a range of items directly to consumers.

Why Indian Market?

Growth in working population Rising disposable incomes Changing consumer lifestyles Development of rural markets Reduce dependency on Chinese exports

Need for FDI in Retail Sector

Increased Efficiency
Efficient and tested management practices
Economies of scale Adoption of global best practices

Adoption of modern technology

The organized model adopted by organized retailers

may be adopted by other players gradually, leading to overall efficient system.

Would lead to stability in prices by eliminating

hoarding and speculations.

FDI- Good or Bad?

Arguments Against FDI
Wipe out the mom-pop stores Displace labour in a labour-surplus society Control over prices

Arguments For FDI

Multiplier effect on generating jobs in allied sectors like construction, furnishing, hardware, food processing ,packing, management, data processing, etc Readily available equity funds, Investment in technology Development in supply chain infrastructure, reduced wastage Improved quality Increase in exports

Challenges
SKILLED WORKERS
INFLATION COMPETITION

TAXATION POLICIES

REAL ESTATE PROBLEM

PROBLEM IN RAISING FUNDS SUPPLY CHAIN MANAGEMENT

MARKET POWER

The Challenge
A strong competition from mom and pop shops: Easily accessible & approachable. Provide services like Free home delivery and goods on credit. They change consumer focus.