India considering 100% FDI in multi-brand retail, with riders
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Retailing in India is one of the pillars of its economy and accounts for about 10 percent of its GDP. India is one of the fastest growing retail markets in the world, with 1. As ofIndia's retailing industry was essentially owner manned small shops. Inlarger format convenience stores and supermarkets accounted for about 4 percent of the industry, and these were present only in large urban centers.
India's fdi in retail trading in india and logistics industry employs about 40 million Indians 3. UntilIndian central government denied foreign direct investment FDI in multi-brand retailforbidding foreign groups from any ownership in supermarkets, convenience stores or any retail outlets.
In NovemberIndia's central government announced retail reforms for both multi-brand stores and single-brand stores. These market reforms paved the way for retail innovation and competition with multi-brand retailers such as WalmartCarrefour and Tescoas well single brand majors such as IKEANikeand Apple. In Decemberunder pressure from the opposition, Indian government placed the retail reforms on hold till it reaches a consensus. Indian government continues the hold on retail reforms for multi-brand stores.
On 14 Septemberthe government of India announced the opening of FDI in multi-brand retail, subject to approvals by individual states. On 20 Septemberthe Government of India formally notified the FDI reforms for single and multi fdi in retail trading in india retail, thereby making it effective under Indian law. The government managed to get the approval of multi-brand retail in the parliament despite heavy uproar from the opposition the NDA and leftist parties.
Organised retailing, in India, refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the publicly traded supermarkets, corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses.
Organised retailing was absent in most rural and small towns of India in Most Indian shopping happens in open markets fdi in retail trading in india numerous small grocery and retail shops. Shoppers typically wait outside the fdi in retail trading in india, ask for what they want, and can not pick or examine a product from the shelf.
Once the shopper requests the food staple or household product they are looking for, the shopkeeper goes to the container or shelf or to the back of the store, brings it out and offers it for fdi in retail trading in india to the shopper.
Often the shopkeeper may substitute the product, claiming that it is similar or equivalent to the product the consumer is asking for. The product typically has no price label in these small retail shops; all packaged products must display the maximum retail price MRP above which the product cannot be sold.
It is a criminal offence to sell a product beyond the MRP of a product. The shopkeeper can price the food staple and household products arbitrarily, and two consumers may pay different prices for the same product on the same day but never will those price be above the maximum retail price.
Price is rarely negotiated between the shopper and shopkeeper. The shoppers usually do not have time to examine the product label, and do not have a choice to make an informed decision between competitive products. Fdi in retail trading in india retail and logistics industry, organised and unorganised in combination, employs about 40 million Indians 3. India has about 11 shop outlets for every people. Vast majority of the unorganised retail shops in India employ family members, do not have the scale to procure or transport products at high volume wholesale level, have limited to no quality control or fake-versus-authentic product screening technology and have no training on safe and hygienic storage, packaging or logistics.
The unorganised retail shops source their products from a chain of middlemen who mark up the product fdi in retail trading in india it moves from farmer or producer to the consumer. The unorganised retail shops typically offer no after-sales support or service. Finally, most transactions at unorganised retail shops are done with cash, with all sales being final.
Until the s, regulations prevented innovation and entrepreneurship in Indian retailing. Some retails faced complying with over thirty regulations such as "signboard licenses" and "anti-hoarding measures" before they could open doors. There are taxes for moving goods to states, from states, and even within states in some cases. Farmers and producers had to go through middlemen monopolies.
The logistics and infrastructure was very poor, with losses exceeding 30 percent. Through the s, India introduced widespread free market reforms, including some related to fdi in retail trading in india.
Between andconsumers in select Indian cities have gradually begun to experience the quality, choice, convenience and benefits of organised retail industry.
India in allowed foreign direct investment FDI in cash and carry wholesale. Then, it required government approval. The approval requirement was relaxed, and automatic permission was granted in Single brand retailing fdi in retail trading in india 94 proposals between andof which 57 were approved and implemented.
Indian retail has experienced limited growth, and its spoilage fdi in retail trading in india food harvest is amongst the highest in the world, because of very limited integrated cold-chain and other infrastructure.
India has only stand-alone cold storages, having a total capacity of However, 80 percent of this storage is used only for potatoes. Indian laws already allow foreign direct investment in cold-chain infrastructure to the extent of percent. There has been no interest in foreign direct investment in cold storage infrastructure build out.
Experts claim that cold storage infrastructure will become economically viable only when there is strong and contractually fdi in retail trading in india demand from organised fdi in retail trading in india. The risk of cold storing perishable food, without an assured way to move and sell it, puts the economic viability of expensive cold storage in doubt.
In the absence of organised retail competition and with a ban on fdi in retail trading in india direct investment in multi-brand retailers, foreign direct investments are unlikely to begin in cold storage and farm logistics infrastructure. Untilintermediaries and middlemen in India have dominated the value chain.
Due to a number of intermediaries involved in the traditional Indian retail chain, norms are flouted and pricing lacks transparency. India has had years of debate and discussions on the risks and prudence of allowing innovation and competition within its retail industry. For example, in an invited address to the Indian parliament in DecemberJagdish BhagwatiProfessor of Economics and Law at the Columbia University analysed the relationship between growth and poverty reduction, then urged the Indian parliament to extend economic reforms by freeing up of the retail sector, further liberalisation of trade in all sectors, and introducing labour market reforms.
Such reforms Professor Bhagwati argued will accelerate economic growth and make a sustainable difference in the life of India's poorest. A report noted that an increasing number of people in India are turning to the services sector for employment due to the relative low compensation offered by the traditional agriculture and manufacturing sectors. The organised retail market is growing at 35 percent annually fdi in retail trading in india growth of unorganised retail sector is pegged at 6 percent.
The Retail Business in India is currently at the point of inflection. India has topped the A. The predictions for is 7. Property developers are creating retail real estate at an aggressive pace and bymalls are estimated to be operational in the country. BeforeIndia had prevented innovation and organised competition in its consumer retail industry. Several studies claim that the lack of infrastructure and competitive retail industry is a key cause of India's persistently high inflation.
Furthermore, because of unorganised retail, in a nation where malnutrition remains a serious problem, food waste is rife. The opening of retail industry to free market competition, some claim will enable rapid growth in retail sector of Indian economy.
It might be true that Fdi in retail trading in india has the largest number of shops per inhabitant. However, there are detailed figures for Belgium, the Netherlands and Luxemburg. In Belgium, the number of outlets is approximately 8 per 1, and in the Netherlands it is 6. So the Indian number must be far higher. Indian market has high complexities in terms of a wide geographic spread and distinct consumer preferences varying by each region necessitating a need for localization even within the geographic zones.
Geographically dispersed population, small ticket sizes, complex distribution network, little use of IT systems, limitations of mass media and existence of counterfeit goods. A number of merger and acquisitions have begun in Indian retail market.
Some examples are in the following table. A McKinsey study claims retail productivity in India is very low compared to international peer measures. This about a third of levels in United States and Europe; and about half of levels in other emerging economies. A complete expansion of retail sector to levels and productivity similar to other emerging economies and developed economies such as the United States would create over 50 million jobs in India.
Training and development of labour and management for higher retail productivity is expected to be a challenge. In Novemberthe Indian government announced relaxation of some rules and the opening of retail market to competition. UntilIndian central government denied foreign direct investment FDI in multi-brand Indian retail, forbidding foreign groups from any ownership in supermarkets, convenience stores or any retail outlets, to sell multiple products from different brands directly to Indian consumers.
The government of Manmohan Singh, prime minister, announced on 24 November the following: The opening of retail industry to global competition is expected to spur a retail rush to India.
It has the potential to transform not only the retailing landscape but also the nation's ailing infrastructure. A Wall Street Journal article claims that fresh investments in Indian organised retail will generate 10 million new jobs between —, fdi in retail trading in india about five to six million of them in logistics alone; even though the retail market is being opened to just 53 cities out of about towns and cities in India.
Reuters reports that this risked a possible dilution of the policy rather than a change of heart. Several newspapers claimed on 6 December that India parliament is expected to shelve retail reforms while the ruling Congress party seeks consensus from the opposition and the Congress party's own coalition partners. Suspension of retail reforms on 7 December would be, the reports claimed, an embarrassing defeat for the Indian government, suggesting it is weak and ineffective in implementing its ideas.
Anand Sharma, India's Commerce and Industry Minister, after a meeting of all political parties on 7 December said, "The decision to allow foreign direct investment in retail is suspended till consensus is reached with all stakeholders. On 19 Feb Tamil Nadu became the first state in the country to stoutly resist MNC 'invasion' into the domestic retail sector.
It reasoned that the sources of domestic retail are primarily local whereas international retail affects domestic manufacturing activity and hence reduces employment opportunities. On 11 JanuaryIndia approved increased competition and innovation in single-brand retail. The reform seeks to attract investments in operations and marketing, improve the availability of goods for the consumer, encourage increased sourcing of goods from India, and enhance competitiveness of Indian enterprises through access to global designs, technologies and management practices.
IKEA in the near term, plans to focus expansion instead in China and Russia, where such restrictions do not exist. The November retail reforms in India have sparked intense activism, both in opposition and in support of the reforms.
Critics of deregulating retail in India are making one or more of the following claims: Supporters claim none of these objections has merit. Opposition parties claim supermarket chains are ill-advised, unilateral and unwelcome.
The opposition claims the entry of organised retailers would lead to their dominance that would decimate local retailers and force millions of people fdi in retail trading in india of work. Fdi in retail trading in india Banerjee, the chief minister of West Bengal and the leader of the Trinamool Congress, announced her opposition to retail reform, claiming "Some people might support it, but I do not support it. You see America is America … and India is India.