Project Synopsis - Impact of FDI on retail sector

 

 

 

 

 

 

Summary of Project Synopsis

 

Title of the project

Impact of FDI on retail sector

 

Submitted to

Dr. Harvinder Singh

 

 

 

Submitted by

Kamna Pandey

09EM-038

 

 

 

 

 

Impact of FDI on retail sector

Introduction:

The retail sector is one of the fastest rising sectors of India. It has contributed 14% share of total GDP, 7% of total employment in 2004 (Guruswamy et al.2005, 619). India is now the last major frontier for globalized retail. In last 20years since economic liberalization of 1991, India’s middle class has greatly expanded, and so has its purchasing power. But over the years unlike other major emerging economies, India has been slow to open its retail sector to foreign investment. Recent signals from government however suggest that this may be about to change; Global super market chain stores such as Wal Mart (united states), Carrefour ( France), Marks & Spencer & Tesco ( United Kingdom) and shoprite ( south Africa) may finally be allowed to set up shop in India .

Foreign Direct Investment in the retail sector in India is restricted. In 2006, the government eased retail policy for the first time, allowing up to 51% FDI through single brand route. Since then there has been steady increase in FDI in retail sector and the cumulative FDI in single brand retail stood at$195 million by the middle of 2010 ( DIPP 2010).

Foreign investment in the single brand retail sector in India has been resilient to the global economic crisis 2007-08. Given India’s large population and rapidly expanding middle class, there is robust and growing demand and rapidly expanding market.

In the past few decades large retailers have experienced substantial growth around the world. Evidence suggests while the impact of entry by large retail chains on employment and incumbent mom – and – pop stores is mixed, there can be substantial benefits to consumers in the form of lower prices and lowered food price inflation in particular. Similarly by employing improved distribution and warehousing technologies, large retail chains are in a position to provide better price signals to farmers and to serve as a platform for enhanced exports.

At the same time, public outcry over the impact of these chain stores on other retailers and local communities is reported around the world. Small retailers, farmers, and even large organized have concerns about the entry of large global chain stores. On balance, however, in this paper we will try to analyse the effect of new FDI policy on different stakeholders and ecosystem players.

Objective :

Given this backdrop, the recent clamour about opening up the retail sector to Foreign Direct Investment (FDI) becomes a very sensitive issue, with arguments to support both sides of the debate. It is widely acknowledged that FDI can have some positive results on the economy, triggering a series of reactions that in the long run can lead to greater efficiency and improvement of living standards, apart from greater integration into the global economy. Supporters of FDI in retail trade talk of how ultimately the consumer is benefited by both price reductions and improved selection, brought about by the technology and know-how of foreign players in the market. This in turn can lead to greater output and domestic consumption. But the most important factor against FDI driven “modern retailing” is that it is labour displacing to the extent that it can only expand by destroying the traditional retail sector. Till such time we are in a position to create jobs on a large scale in manufacturing, it would make eminent sense that any policy that results in the elimination of jobs in the unorganized retail sector should be kept on hold. Though most of the high decibel arguments in favour of FDI in the retail sector are not without some merit, it is not fully applicable to the retailing sector in India, or at least, not yet. This is because the primary task of government in India is still to provide livelihoods and not create so called efficiencies of scale by creating redundancies. As per present regulations, no FDI is permitted in retail trade in India. Allowing 49% or 26% FDI (which have been the proposed figures till date) will have immediate and dire consequences.

 By doing the research on this topic i will try to find significance of retail on Indian society . Also would like to understand the impact of FDI on different stake holders and ecosystem players.

Research problem :

Retailing is 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. A retailer is one who stocks the producer’s goods and is involved in the act of selling it to the individual consumer, at a margin of profit. As such, retailing is the last link that connects the individual consumer with the manufacturing and distribution chain.

The retail industry in India is of late often being hailed as one of the sunrise sectors in the economy. AT Kearney, the well-known international management consultancy, recently identified India as the ‘second most attractive retail destination’ globally from among thirty emergent markets. It has made India the cause of a good deal of excitement and the cynosure of many foreign eyes. With a contribution of 14% to the national GDP and employing 7% of the total workforce (only agriculture employs more) in the country, the retail industry is definitely one of the pillars of the Indian economy. Trade or retailing is the single largest component of the services sector in terms of contribution to GDP. Its massive share of 14% is double the figure of the next largest broad economic activity in the sector.

The retail industry is divided into organised and unorganised sectors. 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 corporate-backed 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. Unorganized retailing is by far the prevalent form of trade in India – constituting 98% of total trade, while organised trade accounts only for the remaining 2%. Estimates vary widely about the true size of the retail business in India. AT Kearney estimated it to be Rs. 4,00,000 crores and poised to double in 2005.2 On the other hand, if one used the Government’s figures the retail trade in 2002-03 amounted to Rs. 3,82,000 crores. One thing all consultants are agreed upon is that the total size of the corporate owned retail business was Rs. 15,000 crores in 1999 and poised to grow to Rs.35,000 crores by 2005 and keep growing at a rate of 40% per annum. Ina recent presentation, FICCI has estimated the total retail business to be Rs.11,00,000 crores or 44% of GDP. According to this report dated Nov. 2003,sales now account for 44% of the total GDP and food sales account for 63% of the total retail sales, increasing to Rs.100 billion from just Rs. 38.1 billion in 1996. Food retail trade is a very large segment of the total economic activity of our country and due to its vast employment potential; it deserves very special focused attention. Efficiency enhancements and increase in the food retail sales activity would have a cascading effect on employment and economic activity in the rural areas for the marginalized workers. Thus even without FDI driving it, the corporate owned sector is expanding at a furious rate. The question then that arises is that since there is obviously no dearth of indigenous capital, what is the need for FDI? It is not that retailing in India is in the need of any technology special to foreign chains. The objective of this study is to understand the importance of FDI on retail sector. By analyzing different factors I would be able to draft suggestions to Government on Policy of FDI, will be able to show overall benefits, concerns, roadmap and future.

 

Research methodology:

For the present study, the research technology includes both primary and secondary data collection.  The research methodology will be qualitative & exploratory in nature and the information will be updated through Primary sources (E- mail, Telephone, personal interview, online interview & group discussions) from the different stakeholders like small, big retailers, Senior managers, CEO, & COO’s of big retail shops. The sample for the study includes 15-20 retailers basically top and middle management of big retail shops. Secondary sources include information from the company journals, periodical, websites etc.  Sample size would be interview of selected 20 stakeholders. Data Sampling would be based on judgmental sampling.

Time Frame:

Total research will take 2 months time and the final project will be submitted in first week of April.

References:

·         FICCI website

·         UTMS journal of Economics