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R RE ES SE EA AR RC CH H L LE ET TT TE ER R
ABSTRACT
With Government very well putting the cap on Privatization & Disinvestments, foreign direct investment in trade has developed into the fresh theatre of war flanked by the pro-reform and anti-reform lobbies. Foreign investors are tremendously enthusiastic on charisma in India's retail sector. AT Kearney's 2005 Global Retail Development Index has termed India The most compelling opportunity for retailers. There's sufficient reasons cited for this: the country is becoming richer, close to a quarter of the population is in the 20-34 age group in demand by marketers, and punter expenditure is anticipated to pick up in a major way. Both sides have been taking extreme positions. Those rooting for FDI assure overall opulence if it is permitted. Undeniably, FDI in retail is emerging as a sort of litmus trial to the government's pledge to liberalization, with Prime Minister also supporting advancement on this front. On the other hand, those divergent on the pitch claim it will mop away corner shops in every locality, chuck inhabitants out of jobs & bring unthinkable melancholy. This article develop an insight as to what are the trends in Indian Retail Industry, benefits and drawbacks of FDI in Retail, whether it will be beneficial for economy and finally the challenges in Indian Retailing. Keywords : Privatization, FDI and Retail.
1. INTRODUCTION
Foreign direct investment (FDI) plays an extraordinary and growing role in global business. It can provide a firm with new markets and marketing channels, cheaper production facilities, and access to new technology, products, skills and financing. For a host country or the foreign firm which receives the investment, it can provide a source of new technologies, capital, processes, products, organizational technologies and management skills, and as such can provide a strong impetus to economic development. Foreign direct investment, in its
classic definition, is defined as a company from one country making a physical investment into building a factory in another country. As such, it may take many forms, such as a direct acquisition of a foreign firm,
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Assistant Professor, MBA Department, Lovely Professional University, Phagwara, Punjab, INDIA. Lecturer, 3Senior Lecturer, 2,3,4MBA Department, Mangalayatan University, Aligarh, Uttar Pradesh, INDIA. *Correspondence : jmd.bhardwaj@gmail.com
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construction of a facility, or investment in a joint venture or strategic alliance with a local firm with attendant input of technology, licensing of intellectual property. Foreign direct investment (FDI) is considered to be the lifeblood for economic development as far as the developing nations are concerned Foreign direct investment (FDI) has the potential to generate employment, raise productivity, transfer skills and technology, enhance exports and contribute to the long-term economic development of the worlds developing countries. More than ever, countries at all levels of development seek to leverage FDI for development. Foreign affiliates of some 64,000 transnational corporations (TNCs) generate 53 million jobs. FDI is the largest source of external finance for developing countries. Developing countries inward stock of FDI amounted to about one third of their GDP, compared to just 10 per cent in 1980. Foreign direct investment (FDI) has become a key component of national development strategies for all most all the countries over the Globe. FDI is considered to be an essential tool for jump-starting economic growth through its bolstering of domestic capital, productivity and employment. FDI to developing countries in the 1990s was the leading source of external financing. The rise in FDI volume was accompanied by a marked change in its composition. That is investment taking the form of acquisition of existing assets (mergers and acquisitions) grew much more rapidly than investment in new assets particularly in countries undertaking extensive privatization of public enterprises.
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development of new airports, cash and carry wholesale trading and export trading, laying of natural gas pipelines, petroleum infrastructure, captive mining of coal and lignite. Subject to other regulations, 100 percent FDI is allowed in distillation and brewing of potable alcohol, industrial explosives and hazardous chemicals. Indian investor allowed to transfer shares in an existing company to foreign investors.
Limit for telecoms services firms raised to 74 per cent from 49 per cent.
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Investment in supply chain, cold chains and warehousing Implementation of IT in retail Stimulate Infant industries and other supporting industries Increased Local sourcing Increase number and improve quality of Employment - Provide better value to end customers Hence, it will lead to overall economic growth and create benchmarks. FDI would serve the purpose of much needed capital and bring a boom in the Retail sector. As, some of the global retailers are already coming in through other channels there is no justification to keep FDI in Retail on hold. Retail is a sunshine sector with tremendous growth potential allowing them to invest in retail companies in the primary market will enable many of these emerging companies to increase operations, improve infrastructure, set up the latest systems, achieve critical mass and enhance employment opportunities. Another objective of FDI is to enhance infrastructure. While there is no dearth of potential investors in metro cities, the Tier-2 and lesser cities are getting sidelined. FDI should be initially allowed in Tier2 and lower cities to facilitate infrastructure building. The more such investment, the more incentives to operate in Metro cities. Models similar to airline operators and telecom operators need to be explored. With this the focus would be on incremental business and create a level playing field for all and not on cutthroat competition. The Government is already considering a host of conditions for bringing in FDI. One of them is to impose a minimum limit of 10,000 sq ft on the floor space of foreign retail chains and limit the number of stores to one per million once FDI in retail is allowed. This also serves to create level playing fields for all players. Also, inclusion of a clause for reserving at least 500-600 sq ft (out of 10,000 sq ft) of retail space for foods & processed foods alone will further help to protect the interests of certain sectors like agriculture and integrate them with the organized retail supply chain. These measures are to be applicable for a short while only, as the Department of Industrial Policy and Promotion (DIPP) is considering easing some of these restrictions with time. Hence, with an objective of enhancing Indian economy by increasing consumption, a recommended CII policy for introducing FDI in retail is as follows: The big Indian retail players looking to expand their operations include Shopper's Stop, Pantaloon, Lifestyle, Subhiksha, Food World, Vivek's, Nilgiris, Ebony, Crosswords, Caf Coffee Day, Wills Lifestyle, Raymond, Titan, and Bata Well-established business houses such as Wadia, Godrej, Tata, Hero, Malhotras, etc., are drawing up plans to enter the fast-growing organized retail market in India. The international players currently in India include McDonald's, Pizza Hut, Dominos, Levis, Lee, Nike, Adidas, TGIF, Benetton, Swarovski, Sony, Sharp, Kodak, and the Medicine Shoppe. Global players are entering India indirectly, via the licensee/franchisee route, since Foreign Direct Investment (FDI) is not allowed in the sector. Retail business s growing at 5-6 per cent per annum. The size of organized retailing was estimated around Rs 26,000 crore in 2004, about three per cent of the total. However, it is now set to grow at 25-30 per cent per
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annum. In developed countries, organized retailing makes for over 70 per cent of the total business. In China this segment accounts for 20 per cent of the overall business. Recently, the Government announced its intention to open up the retail sector to foreign investment. It is still, however, debating whether to allow 26 per cent or 49 per cent FDI in the sector. It is indeed unfortunate that this issue is hanging fire for nearly four years now, even as the government has allowed foreign investment in a number of sectors including banking, telecom and insurance. The fears expressed in certain quarters that FDI in retail sector will short-change the local kirana stores and smaller players and that there will be job losses are exaggerated. Even though organized retailing is set to grow at 25-30 per cent per annum over the next decade, it is unlikely to increase its share beyond 20 per cent. Since the total size of the retail trade is expected to grow at a robust pace in the coming years and the consumer segments patronizing the big malls are going to be different, the traditional outlets are unlikely to be affected. As of now, the Indian retail sector, largely due to its fragmented structure, suffers from limited access to capital, labor and suitable real estate options. In contrast, China, which allowed 49 per cent FDI in the retail sector since 1992, benefited immensely with foreign players bringing capital and new technologies and growing export market for domestic products. At present, around 40 foreign retail players account for almost 20 per cent of the organized retailing in that country. And the total size of the Indian retail industry is expected to touch the $300 billion mark in the next five years from the current $200 billion. Now one may ask where the grocer's shop in every colony figures in the scheme of things. If one looks at the domestic retail business, it can be broadly divided into two segments: food and apparel. Of this, grocery is the largest segment, accounting for over 70 per cent of the retail trade. And therein lies part of the fears of the trader's lobby. Instead, it is one of deciding on transparently opening up the FDI in retail trading, allowing foreign companies to operate freely instead of having to resort to back-door entry tactics. One of the fundamental facts is that the circle of economic activity cannot be completed until what is produced reaches the consumer. Hence, efficient distribution and retailing are very important. Presently, retail trade in India is highly unorganized and inefficient. The entry of the organized sector in retail trade is capable of mitigating the huge waste involved in the current system. It would simultaneously lead to better prices for the producers and lower prices for the consumers. The efficiency of organized sector in retailing is manifested in some of the newer supermarkets in urban/metropolitan India- the produce is cleaner, fresher, well packed, and often cheaper than the local shopkeeper. There are other benefits too of transforming retail sector into an organized sector. Firstly, a number of new jobs will be created, far better paid than the underage labor working in the local shops. Secondly, circulation of black money and tax evasion will be curbed, as big employers, as distinct from owner-managed chains, will have to keep proper records. Thirdly, the benefits to the producer and consumer through better prices, and through lesser wastage throwing up exportable surpluses, will also benefit the economy as a whole. Thus one can see that allowing foreign direct investment in retailing is beneficial to all the stakeholders
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involved.
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7. CONCLUSION
Many developing countries have made dramatic progress in promoting private sector participation in their infrastructure sectors, especially with the help of foreign investors. However, this has not been the case in Southern and Eastern Africa, which has been perceived as relatively unattractive locations for investment. This paper describes the state of infrastructure in the region, takes stock of actual and potential projects in the various sectors, and analyzes the main impediments to private investment in the region's infrastructure services. Legal frameworks tended to address traditional public-sector responsibilities and not investor concerns. Regulatory environments either did not exist or did not provide investors enough guarantees that their future operating environment would be sufficiently reliable. Although each country has unique policy problems, FIAS has encountered common features in key areas that pose stumbling blocks for private infrastructure investments. This study synthesizes this experience and derives lessons for facilitating and encouraging foreign direct investment in infrastructure.
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8. REFERENCES
[1] Business Line, 2008, Kamal Nath defends retail FDI policy, Feb-09-2008, available at http://www.thehindubusinessline.com/2008/02/09/stories/2008020952401000.htm, [21-Jan-2009] [2] Department of Commerce, Government of India, 23-Feb-2005, Press Release on FDI in Organised Retail to generate Employment, but should not displace ongoing Retail activities, available at
http://commerce.nic.in/PressRelease/pressrelease_detail.asp?id=1673, [21-Jan-2009] [3] Economic Survey (2007-08), Ministry of Finance, Government of India, New Delhi, 2008 available at http://indiabudget.nic.in/es2007-08/seconomy.htm [21-Jan-2009]. [4] Economic Times, 2007, No fault in Bharti-Wal-Mart deal: Govt, 15-Jan-2007, available at http://economictimes.indiatimes.com/articleshow/1202454.cms, accessed 06-Jan-2009 [5] Guruswamy, M. et al, (2005), FDI in Indias Retail Sector: More Bad than Good, , Economic and Political Weekly, Volume XL No 7, Feb 12-18,2005, pages 619 to 623. [6] Gupta, D., 2006, Retailing in India and the Role of the Marketing Mix, European Retail Digest, 2006, Oxford Institute of Retail Management [7] FDI by Marin Alexander (EDT) Marinoy-354 pages [8] European Union and the race for foreign-by Lars Oxelheim, Pervez N.ghauri-256 pages [9] U.S trade, FDI-by Rolf Hackmann [10] Foreign investors eyeing booming realty sector-Hindu [11] Govt may further ease FDI in retail-Rediff-17 Nov 2006 [12] Website: a. b. c. d. e. www.cpasind.com http://www.going-global.com/ http://www.oecd.org www.financialexpress.com/ http://www.iie.com