A STUDY OF FOREIGN DIRECT INVESTMENT (FDI) IN MULTIBRAND RETAIL WITH IMPLICATION

Abstract

Liberalization, Privatization and Globalization (LPG) led a structural and economic reforms
throughout the world, especially in underdeveloped countries like India. Globalization
broadened the linkages of national economies into a worldwide market for goods and services
especially capital. The most prominent phase of globalization is the rapid integration of
production and financial markets. Foreign direct investment (FDI) has been one of the core
features of globalization. In order to develop and modernize the economy, India adopted various
reforms such as encompassing deregulation, demonopolization, privatization and private
participation in the provision of infrastructure, and the reduction and simplification of tariffs.
The main criterion behind these reforms is to attract FDI. Retailing in India is one of the pillars
of its economy and accounts for 14 to 15 % of its GDP. In November 2011, India's central
government announced retail reforms for both multi-brand stores and single-brand stores which
paved the way for retail innovation and competition with multi-brand retailers such as Wal-Mart,
Carrefour and Tesco, as well single brand majors such as IKEA, Nike, and Apple. In this paper
the present study attempts to discuss the issues and implications of FDI in Multi-brand Retail on
Indian Economy. Implications of FDI in multi-brand retail sector discussed outweigh the issues
related to the new FDI policy reforms
Key words: FDI, globalization, retail.
Introduction

Retailing encompasses all the business activities that involves in selling goods and
services to end users for their personal, family, or household use. Retail is the last
link in the distribution channel as it deals directly to the consumers by connecting them to
the manufacturer. Indian retail industry has been ranked as the fifth most promising
nation for investment with the segregation of organised & unorganised retailing.
According to a study by Booz & Co and RAI Indian market is majorly dominated by the
unorganised sector & organised sector accounts for 8% of the total retail landscape. Over
the last few years Indian retail sector has witnessed a tremendous growth as traditional
markets are making path for new formats such as malls, departmental stores,
hypermarkets, supermarkets, discount stores and speciality stores. With the growing
market demand due to the change in demographic profile of the consumer and their taste
and preferences the Indian retail industry is expected to grow 9% in 2012-16, with
organised retail growing at 24%. According to the India Retail Report 2013 (IRIS

Research), the Indian retail market is estimated to exceed US$ 750 billion by 2015, which
shows strong prospects for foreign players to explore Indian market. With the Indian big
business houses like Pantaloons, Aditya Birla group, RPG, etc and the global players like
Adidas, KFC, Zara, Levis, etc the organized retailing looking for ahigher share in the
growing pie of the retail market in India.
FDI is an important source of investment in India
expecting from multinationals to create ample of
opportunities for growth, jobs and research &
development. In order to attract investment from foreign
investors, economic policy was introduced in the year
1991, since then many changes have been taken place to
increase foreign participation. Until 2011, the Indian
Central Government denied FDI in multi-brand retail &
single-brand retail was limited to 51percent. In late 2012,
the Government of India approved a FDI policy which allowed global retailers to own up
to 51percent in multibrand
retail & 100 percent in single brand retail. It is
expected that the organised retail will now have full access
to over 200 million urban consumers in India (approx.
47percent) of which are below the age of 30 with high
levels of consumption.
RESEARCH OBJECTIVE
Research objective are following
1. To study the government policy relating to multi-brand retailing.
2. To find out effectiveness of multi-brand retailing in india.

Research Methodology:
The kind Research being conducted here is ANALYTICAL RESEARCH, as it most suits the
purpose of the Research paper. In this Research the facts & the information as so gained from
various secondary sources have been used to make an analysis of the current multi brand retail
Sector & FDI with the driving forces behind these situations. That is analyzing the data &
extracting the relevant important data to complete the paper & make it relevant to the present
scenario of FDI in multi brand retailing. The data for the present study is collected from the
secondary sources are news papers, reference books, magazines.
.

RETAIL SECTOR :Retailing is defined as a set of all activities involved in selling goods or services directly to the
final consumer for their personal, non-business use by the way of shops, market, door-to-door
selling, and mail-order or over the internet where the buyer intends to consume the product.
Retail means a sale for final consumption compared to a sale for further sale or processing.
The phenomena of retailing involves a direct interface with the customer and the coordination of
business activities from end to end- from the concept or design stage of a product , to its
delivery and post-delivery service to the customer.
The Indian retail industry is generally divided into organized and unorganized retailing:
Organized retailing
Organized retailing refers to TRADING activities undertaken by licensed retailers, those who
have registered for sales tax, income tax, etc. These include corporate-backed hypermarkets and
retail chains, and also privately-owned large retail businesses.
Unorganized retailing
Unorganized retailing refers to the traditional forms of low-cost retailing, for example, local
kirana shops, owner-operated general stores, paan/beedi shops, convenience stores, hand cart
and street vendors, etc.

Evolution of Indian retail industry:The era of rural retail industry could be categorized into two formats: weekly MARKETS and
village fairs. Primarily weekly formats catered to the daily necessities of villagers. Village fairs
were larger in size with a wide variety of goods sold from food, clothing, cosmetics and small
consumer durables. The traditional era saw the emergence of the neighborhood Kirana store to
cater to convenience of the Indian consumers. The era of government support saw indigenous
franchise model of store chains run by Khadi & Village Industries Commission. The KVIC has a
countrywide chain of 7000 plus stores in India. This period also witnessed the emergence of
shopping centers with car parking facility. The Modern era has a host of small and large formats
with exclusive outlets showcasing a complete range of products. The department stores and
shopping malls targeting to provide a complete destination experience for all segments of the
society. The hyper and super markets are consistently trying to provide the customer with the 3
Vs. (Value, Variety and Volume).The evolution of retailing can be diagrammatically explained
below

Growth of Indian Retail Sector

The overall retail market in India is like to reach RS 47 trillion (US$ 792.84 billion) by FY
2017, presenting a strong potential for foreign retailers planning to enter India. India is the 5the
most favorable destination for international retailers. Of the total Indian retail market,8% is
made up by the organized retail segment. This confirms that India is at an early stage of
evolution in the organised retail space and has a huge growth potential This segment is estimated
to grow at a rate of almost 30% by 2016 and hence at a much faster pace than the overall retail
market which is forecast to grow by 16% in the same period. Retailing in India is one of the
business enterprises to its economy and accounts for 14 to 15 % of its GDP and contributes to 8
per cent of the total employment.. The Indian retail market, currently estimated at around US$
490 billion, is project to grow at a compound annual growth rate of 6% to reach US$ 865 billion
by 2023. India is one of the fastest growing retail markets in the world, with 1.2 billion people.
India is the fourth largest economy as far as purchasing power is concerned just behind, USA,
Japan and China. Even though 25 percent of the population lives below the poverty line, India
has a large and growing middle-income group of over 300 million, making it a strong emerging
market.
Until 2011, the Indian central government did not allow foreign direct investment in multi brand
retail. This prevented foreign groups from any ownership in supermarkets, convenience stores or
other retail outlets. In late 2012, the government of india introduced a foreign direct investment

policy which allows foreign retailers to own up to 51% in multi brand retail and 100% single
brand retail.
FDI :Foreign direct investment
FDI is investment directly into production in a country by a company located in another country,
either by buying a company in the target country or by expanding operations of an existing
business in that country. It is cross border investment, where foreign assets are invested into the
organizations of the domestic market excluding the investment in stock. 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, access to new
technology, products, skills and financing.
Foreign Direct Investment (FDI) is an advanced strategy for companies that wish to operate on a global basis with an
entrenched footprint. It refers to investment to acquire a lasting interest in an enterprise operating in an economy other than
that of the investor. Entry through FDI for corporate results in footprint which gives a degree of influence/control over the
management of the enterprise relative to the structure created. It usually involves transfer of management skills, technology,
systems, processes and expertise. For a country it is a sturdy and till date desirable source of capital inflows as opposed to FII
flows which include hot money. FDI being a feature of capital control are generally applicable in countries professing
capital control and the regulation varies from country to country

FDI Policy in India

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. This notification has
been amended from time to time.
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 FDI
policy is notified through Press Notes by the Secretariat for Industrial Assistance (SIA), Department of
Industrial Policy and Promotion (DIPP).
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 can come into India in two ways:
a. Direct route/Automatic route: It does not require prior approval either of Reserve Bank of India (RBI) or
government.
b. Government route: Government route means that investment in the capital of resident entities by non-resident
entities can be made only with the prior approval from Foreign Investment Promotion Board (FIPB).

Entry Options For Foreign Players prior to FDI Policy

Some of entrance routes used for FDI are discussed below:-

1. Franchise Agreements
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 licenses 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 limits in various sectors are

FDI Policy with Regard to Retailing in India

As part of the economic liberalization process set in place by the Industrial Policy of 1991, the
Indian government has opened the retail sector to FDI slowly through a series of steps
1995 World Trade Organizations general agreement on trade in services, which include
both wholesale and retailing services, came into effect
1997 FDI in cash and carry (wholesale) with 100% rights allowed under the
government approval route
2006 FDI in cash and carry (wholesale) brought under the automatic route
Up-to 51% investment in a single- brand retail outlet permitted
2011 100% FDI in single brand retail permitted
2012, Sep 51% FDI in multi- brand retail permitted

Types of FDI retailing in india

There are
1)Fdi in single brand retailing

single-brand retail generally refers to the selling of goods under a single brand
name. 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 and not the Reebok
brand, for which separate permission is required. If granted permission, Adidas could sell
products under the Reebok brand in separate outlets.
Up to 100% FDI is permissible in single-brand retail, subject to the Foreign
Investment Promotion Board (FIPB) sanctions and conditions mentioned that are:
Only single-brand products are sold (i.e. sale of multi-brand goods is not
allowed, even if
produced by the same manufacturer)
Products are sold under the same brand internationally
Single-brand products include only those identified during manufacturing
Any additional product categories to be sold under single-brand retail must
first receive
additional government approval

2) FDI in Multi Brand Retailing

The marketing of two or more similar and competing products, by the same firm under different
and unrelated brands is called as multi-brand retailing. In other words, Multi-brand retail means
selling different brand products under a single roof.
FDI in Multi Brand retail implies that a retail store with a foreign investment can sell multiple
brands under one roof. Opening up FDI in multi-brand retail will means that global retailers
including Wal-Mart, 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.
Restrictions on 51% FDI IN multiple-BRAND RETAIL:
India permitted 51% FDI in Multi-brand retail trading. With some conditions, they are as
follows:
1. There should be a minimum investment of US $ 100 million by the foreign investor.
2. 50% investment is to be in backend infrastructure development. Backend infrastructure
includes activities like processing, manufacturing, distribution, design improvement,
quality control, packaging, logistics, warehousing etc.
3. 30% of all raw materials have to be procured from Indias small and medium
industries, which have a total investment in plant & machinery not exceeding US $ 1.00
million
4. The permission to set up malls should be given to only those cities with a minimum
population of 10 lakhs as per 2011 census and may also cover an area of 10 kms around
the municipal/urban agglomeration limits of such cities.
5. The government has the first right to procure material from farmers.
6. Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh
poultry, fishery and meat products, may be unbranded.
7. Retail trading by means of e-commerce, would not be permissible, for companies with
FDI, engaged in the activity of multi-brand retail trading.
6. Products should be sold under same brand internationally.
7. Foreign investors should be the owner of the brand.
8. The above policy is an enabling policy only and the State Governments/Union Territories
would be free to take their own decisions in regard to implementation of the policy.
Clarifications on FDI IN multiple-BRAND RETAIL:
Post the release of 2013 circular 1the Department of Industrial Policy and Promotion (DIPP) has
brought out certain clarifications on FDI policy into MBRT are as follows .

On the issue relating to sourcing, the government has clarified that sourcing pertains only
to manufactured and processed goods and that it applies only in relation to front-end
stores. Further, the term small industry has been explained.
As regards back end infrastructure, it is clear that acquisition is not an option and the
retail entity would necessarily have to invest into green-field assets. Similarly, front-end
stores would need to be additional units and acquisition of existing stores is not
permitted.
Back-end infrastructure in non-FDI permitting States would also be counted as
compliance with the conditions for FDI in MBRT under the FDI Policy Circular.
Additionally, existing investments by investors into infrastructure or service companies
will not be accumulated or be counted towards investment in back-end infrastructure.
The wholesaling entity and the retailing entity should be different units. The entity
carrying on cash and carry business will not be allowed to enter into retailing even
where all conditions for FDI are satisfied. No franchising would be allowed. All front end
stores would have to be MBRT company owned and company operated only.

Comparision of multi brand and single brand retail

The major objections to FDI in Multi brand retail are:

Foreign retailers will kill local industry leading to closure of small retail shops across the
country and endanger livelihood of 40 million people and indirectly pressure on domestic
suppliers to cut costs.
Closure of independent retail will lead to massive job losses.
FDI may lead to unfair competition and ultimately result in large-scale exit of incumbent
domestic retailers.
Single foreign entity may become a dominant player, because of unlimited capital and expertise.
Farmers may be given remunerative prices initially, but eventually they will be at the mercy of
big retailers and try to procure at lowest possible rates.
Big players like wall mart will lower prices to dump goods, get competition out of way and will
become monopoly.
Small and medium enterprises will become victims of predatory pricing policies of
multinational retailers.
It will disintegrate established supply chains by encouraging monopolies of global retailers.
Imports will inundate the market and kill local small industries just as
they did in America, again resulting loss of employment.
Prices may come down initially, but once the global retail giants acquire
control over both ends of the market they will start dictating terms -procurement and marketing. Thus both producers and consumers will
lose ultimately.
Arguments For FDI in MBRT
The effect of branded retailing can already be seen with the Bharti-Wal-Mart collaboration,
which has joined forces with state governments to open training and development centers in
Amritsar, Delhi and Bangalore, preparing local youth for jobs in retail. Training is entirely free
and more than 5,600 local youth have already been trained. Retail jobs dont require higher
education or highly specialized abilities.

 Vastly reduces/eliminates the role of multiple intermediaries thereby helping farmers to

get better prices for their produce
Entry of new players will increase competition both for procuring goods as also for
selling to the consumer. Consumers benefit through lower prices and this in turn will help
fight inflation.
Worldwide large and small retailers are seen to co-exist. Competition in fact, forces the
traders and other retail outlets to upgrade and become more efficient, thereby providing
better services to consumers and better remuneration to the producers. Consumers also
benefit from the
imposition of better quality and safety standards by the retailers.
Both farmers and local small and medium enterprises will gain access to larger market -not just domestic but international market along with better technology and branding.
The economy would see infusion of large amount of foreign investment which is needed
both for its technology and management practices but also to help narrow the current
account deficit.
Creates large scale quality employment both in the front end retail as also in the supply
chain than displace people engaged in small stores.
Better revenue collection for the government.
Better ambience and shopping experience for the consumers.
FINDINGS
1. The government policies are effective in multi-brand retail.
2. Multi-brand is effective in retail through one roof more brand items selling.
3. Single brand retail is only one brand selling and multi-brand retail is selling alternative brands in one roof so it
is effective.
4. Easy to sell and easy to purchase goods at one place.

Conclusion
Today each and every nation is trying to liberalize its economic policies in order to attract FDI to
enhance a substantial level of
economic and social development. The Indian retail sector is in a boom period and attracting
global retail giants due to its market

opportunities. It can be observed from the above analysis that an entry of the global players in
retailing leads to inflow of latest
technical know-how, establishment of well integrated supply chains, availability of quality
products at cheaper prices to
consumers, the development of SSIs and SMEs, creation of more jobs, interest free capital,
benefits to farmers, control inflation
and contributes for capital formation to increase nations GDP. Taking into consideration, above
necessities, FDI in retailing
cannot be avoided in India.In nutshell FDI should be encouraged with strict, feasible and
mutually beneficial regulations. If done in the right manner, it can prove to be a boon and not a
curse. Then Surely FDI lead to the integration of Indian economy with the global ecomomy.