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INDIVIDUAL ASSIGNMENT:
Retail Marketing
Titled as:
Growth Drivers & FDI Analysis of Indian Retail
Submitted to:
Mrs. Ekta singhal
Submitted by:
Mr Harsh yadav (42)
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Introduction
The Indian retail industry has emerged as one of the most dynamic and fast-paced industries due
to the entry of several new players. Total consumption expenditure is expected to reach nearly
US$ 3,600 billion by 2020 from US$ 1,824 billion in 2017. It accounts for over 10 per cent of the
country’s Gross Domestic Product (GDP) and around 8 per cent of the employment. India is the
world’s fifth-largest global destination in the retail space.
Market Size
Retail market in India is projected to grow from an estimated US$ 672 billion in 2017 to US$
1,200 billion in 2021F. Online retail sales are forecasted to grow at the rate of 31 per cent year-on-
year to reach US$ 32.70 billion in 2018. India is expected to become the world’s fastest growing
e-commerce market, driven by robust investment in the sector and rapid increase in the number of
internet users. Various agencies have high expectations about growth of Indian e-commerce
markets. Luxury market of India is expected to grow to US$ 30 billion by the end of 2018 from
US$ 23.8 billion 2017 supported by growing exposure of international brands amongst Indian
youth and higher purchasing power of the upper class in tier 2 and 3 cities, according to Assocham.
Retail has played a major role in improving the productivity of the whole economy at large. The
positive impact of organized retailing could be seen in USA, UK, and Mexico and also in China.
Retail is the second largest industry in US. It is also one of the largest employment generators.
It is also important to understand that Argentina, China, Brazil, Chile, Indonesia, Malaysia, Russia,
Singapore and Thailand have allowed 100% FDI in multi brand retail. These countries benefited
immensely from it. Also small retailers co-exist. The quality of the services has increased. China
permitted FDI in retail in 1992 and has seen huge investment flowing into the sector.
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Farmers in India get only 10%-12% of the price the consumer pays for the agro-products. Coming
of organized retailing will benefit farmers in big way. Big retailers sell their product at very
competitive prices. So, they source it directly from the farmers. Middle man does not have any
place in this format of retailing. This will not only benefit farmers but also help in checking the
foodinflation.
Also India has very inadequate facilities to store the food grains and vegetables. As the investment
will flow into back end infrastructure, supply chain will get strengthened. Storage is a major
problem area and 20%-25% of the agro products get wasted due to improper storage.
PRODUCT WASTAGE
TOMATOES 35%
MANGOES 30%
POTATOES 25%
Another area which is also the cause of concern is movement of vegetable and other perishable
agri item from one place to another. Lack of proper transportation forces the farmer to sell their
produce in local market. This results in the lower realization on the produce.
As per the central government, only 51% FDI is allowed and for that also, one needs permission
from government unlike in the case of single brand retail trading where only compliances have to
be proved; no permission from any governmental authority is required. There are certain
conditions over 51% cap which are explained as below:
A minimum amount of US $ 100 million i.e. approx 700 crores INR has to be invested in
India. They can only open their establishments/stores in an area having minimum 10 lakhs
population.
50% of total FDI has to be invested in ‘back-end infrastructure’ within three years. Back-
end infrastructure as defined in the policy will include capital expenditure on all activities,
excluding that on front-end units. Back-end infrastructure will include processing,
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manufacturing, distribution, design improvement, quality control, packaging, logistics,
storage, ware-house, agriculture market produce infrastructure etc.
30% of the goods should at least be procured from Indian domestic sector especially in
micro, small and medium enterprises, agricultural co-operatives and farmers co-operatives.
Even if an enterprise during the course of sourcing the goods stops being micro, small or
medium enterprises, they will still be considered as small enterprises. Process of
determination is same as in single-brand retail.
Unlike single-brand retail trading, multi-brand retail traders are in no way allowed to trade
by means of e-commerce.
Fresh agricultural and meat produce sold at these multi-brand retail shops can be
unbranded.
Purchasing power of Indian urban consumer is growing and branded merchandise in categories
like Apparels, Cosmetics, Shoes, Watches, Beverages, Food and even Jewellery, are slowly
becoming lifestyle products that are widely accepted by the urban Indian consumer.
POSITIVE IMPACT
It will cut intermediaries between farmers and the retailers, thereby helping them get more
money for their produce.
It will help in bringing down prices at retail level and calm inflation
Big retail chains will invest in supply chains which will reduce wastage, estimated at 40
percent in the case of fruits and vegetables.
Helps in transfer of new technologies, management skills, intellectual property
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Small and medium enterprises will have a bigger market, along with better technology and
branding.
Increases tax revenues
It will bring much-needed foreign investment into the country, along with technology and
global best-practices.
It will actually create employment than displace people engaged in small stores.
It will induce better competition in the market, thus benefiting both producers and
consumers.
NEGATIVE IMPACT
It will lead to closure of tens of thousands of mom-and-pop shops across the country and
endanger livelihood of 40 million people.
It may bring down prices initially, but fuel inflation once multinational companies get a
stronghold in the retail market
Farmers may be given remunerative prices initially, but eventually they will be at the mercy
of big retailers
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
Government has less control over the functioning of such companies as they usually work
as wholly owned subsidiary of an overseas company
Such foreign companies invest more in machinery and intellectual property than in wages
of the local people
2. Brand Consciousness
Factors like young demographic composition, increasing personal disposable income, more
preference towards affordable luxury and rising middle class population are developing
preferences for specific brands
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Consumers have become more comfortable using online services due to demonetization
Online retail segment provides various credit and payment options driven by increasing
internet penetration, speed, 24hour accessibility and convenient and secured transactions
4. FDI Approvals
Department for Promotion of Industry and Internal Trade approved three foreign direct
investments Mountain Trail Food, Kohler India Corporation, and Merlin Entertainments
India in the single brand retail sector.
The DPIIT has approved two FDI proposals worth more than Rs 400 crore (US$ 62. 45
million) within the retail sector
5. Investments
India’s retail sector investments doubled to reach Rs 1,300 crore (US$ 180.18 million) in
2018.
As of January 2019 Future Supply Chain Solutions will invest Rs 1000 crore (US$ 138.60
million) to set up India Food Grid with a network of 38 food distribution centers
Beccos, a South Korean designer brand is set to enter the Indian market with an investment
of about Rs 100 billion (US$ 14.25 million) and open 50 stores by June 2019.
6. Emergence of organized retail
7. Emergence of nuclear families
8. Rising income and purchasing power
9. Increasing urbanization
10. Large working population
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TIME HORIZON- PAST, PRESENT
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