FDI IN RETAIL SECTOR OF INDIA: A REVIEW

(This paper was presented in the National Seminar at   Kakatiya University, Warangal- AP-India on 30-03-2013)   

                                                                                                                               

                                                                                                   ABSTRACT

                                                                 FDI IN RETAIL SECTOR OF INDIA: A REVIEW

                                                                                                                                                  

                    The Indian economy in the liberalized environment since 1991 with changes in income levels, lifestyles, tastes and habits of consumers with preference for superior quality and branded products, vast domestic market with a very competitive manufacturing base, a major retail boom in recent years have been attracted by many multinational companies and started making beeline to enter India’s retail market. On 7 December 2012, the Government of India allowed 51% FDI in multi-brand retail and 100% in single brand retail and managed to get the approval in the parliament despite heavy uproar from the opposition.

Concerns of the Opposition: (a) Government does not have any clear stands on the FDI in Retail. (b) They have not done any survey and cost benefit analysis of this issue. (c) People lose jobs and claim that millions of retailers have to shut their shops (d) it will not bring down prices.

Government Support for FDI in Retail: (a) FDI in retail will create 80 lakhs jobs. (b) It will bring growth and prosperity. (c) Prices of products will come down. This will tame inflationary pressure in the economy.

Global Retailing Scenario: 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. It has not affected the small or domestic retail chains on the contrary small retailers have increased since 2004 from 1.9 million to over 2.5 million. In Indonesia where still 90% of the business still remains in the hand of small traders.

Growth Drivers of Indian Retail Sector: (a) Rising Income and increase in convergence of consumer taste and preferences. (b) Dual family Income. (c) Knowledge about different product through different medium like Internet, Television etc. (d) Knowledge about the latest trend and fashion. (e) 47% of the India’s population is under the age of 30. This category is driving the consumption story. (f) Emergence of new retailing format. (g) Availability of Credit Facilities.

Side Effects of FDI and Solution: (a) Predatory pricing could strangulate the domestic retailers.  (b) It has been seen MNCs retailers uses there big size to kill competitors. (c) In order to bring goods at lowest possible price for customers they squeeze the margins of their suppliers. (d) So as claimed by thousand that suppliers will benefit, it still doubted. In order to correct these anomalies, India need to have strong regulator for the sector. (e) And at the same time strengthen the Competition Commission of India before these Big Retailers prowls into the Indian Territory.

Challenges: To become a truly flourishing industry, retailing in India needs to cross the following hurdles: Automatic approval is not allowed for foreign investment in retail. Regulations restricting real estate purchases, and cumbersome local laws. Taxation, which favors small retail businesses. Absence of developed supply chain and integrated IT management. Lack of trained work force. Low skill level for retailing management. Lack of Retailing Courses and study options. Intrinsic complexity of retailing – rapid price changes, constant threat of product obsolescence and low margins.

Recommendations: (a) Preparation of a legal and regulatory framework and enforcement mechanism to ensure that large retailers are not able to dislocate small retailers by unfair means. (b) Extension of institutional credit, at lower rates, by public sector banks, to help improve efficiencies of small retailers; undertaking of proactive programme for assisting small retailers to upgrade themselves. (c) Enactment of a National Shopping Mall Regulation Act to regulate the fiscal and social aspects of the entire retail sector. (d) Formulation of a Model Central Law regarding FDI of Retail Sector.

Conclusion: Let us wish row over FDI in retail gets over soon and India should embrace new era of retailing. And Government makes right kind of body to vigil these giants. The movement of retailing sector into the FDI regime will require more involved and informed support from the government. One hopes that the government would stand up to its responsibility, because what is at stake is the stability of the vital pillars of the economy - retailing, agriculture, and manufacturing. In short, the socio economic equilibrium of the entire country.