FDI in Retail

FOREIGN INVESTMENT
Any investment flowing from one country into another is foreign investment Classification of foreign investment (Govt. of India): Foreign direct investment (FDI) Foreign institutional investment (FII) Non-resident Indian (NRI) Person of Indian origin (PIO) investment
FDI or Foreign Direct Investment is an investment that a parent company makes in a foreign country Any company of one country investing in industries of another country
Automatic Route
Government
No permission required
Approval /License required.
Modes of FDI
Mergers and Acquisitions Horizontal FDI Vertical FDI *Backward Vertical FDI *Forward Vertical FDI
By Target
By Motive
Resource-Seeking Market-Seeking Efficiency-Seeking Strategic-Asset-Seeking
By Direction
Inward outward
Demographics
INDIA
A large emerging market Increase in disposable income of a family
Increase in consumer class Consumer class will grow from 50 million at present to 583 million by 2025
Consumer Class Shift
Upper class Middle class
With more than 23 million people taking their place among the worlds wealthiest citizens
Lower class
Consumer Behaviour
Wide demographics Avg. age of 25 yrs Brand consciousness 60 % of population below age of 30 Awareness through World Wide Web Changing consumer mindset Focus shifting from low price to convenience, value and a superior shopping
experience
Small Basket Size Shaping of Consumption
Upper class
Easy consumer credit
EMI & loan via credit cards -easy for Indian consumers to afford expensive products
Middle class
Lower class
Note: BOP C.K.Prahalad.
Employment generation Second-largest employer after agriculture Retail trade employing 35.06 million Wholesale trade generating an additional employment of 5.48 million
Additional 1.6 mn jobs
Technology Better use of resources and goods Wastage and Storage problems will be resolved Efficient logistics, production, and distribution channels Digital records
FDI in Retail sector will resolve problems regarding foreign exchange in India
The life-long basic needs will keep on driving the Retail Industry
Major challenge faced by Organized retail sector: In Retail, over 70 per cent of the labor force in both sectors combined (organized and unorganized) is either illiterate or educated below the primary level
A strong competition from Kirana Stores
Easily accessible & approachable

Provide services like Free home delivery and goods on credit
They change consumer focus
Market power is in hands of unorganized retail
Unorganized 95%
Organized
5%
Potential of Indian Market is US$ 200 billion whereas India is just earning its 3%
Shrinkage
Lack of logistic Infra.
Corruption
Additional Intermediaries
Technology Hurdles
In India every year there is pilferage of US$ 65 billion whereas in USA it is just 1-2%
Due to lack of proper storage infrastructure post-harvest losses of farm produce is Rs. 1 trillion cr. annually
In terms of corruption India stands at 85th position
Because of paper work, corruption is present along the entire supply chain
In India, there are additional 2-3 intermediaries as compared to USA i. ii. They dominate the value chain They flout mandi norms & their pricing lacks transparency
India is still in developing stage in installing and managing an effective IT system especially in rural areas which hampers the overall growth of organized retail sector
Banks are reluctant to finance retailers because of falling demand of organized retailers in India as it has witnessed failure of many stores like Spencer's, Subhiksha, etc.
Taxation laws in India favors only small retail businesses

Implementation of non-uniform VAT across states Octroi and entry tax in some states
ADVANTAGES
Inflow of exchanges Increased margin to farmers Reduction of prices Lowering inflation Improving Distribution and Warehousing Technologies Transfer of technology Reduction in poverty and unemployment Easy capital formation Higher revenue for government Global exposure for local companies in case of joint venture

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FOREIGN INVESTMENT

Approval /License required.

Resource-Seeking Market-Seeking Efficiency-Seeking Strategic-Asset-Seeking

A large emerging market Increase in disposable income of a family

Consumer Class Shift

Upper class Middle class

Note: BOP C.K.Prahalad.

Additional 1.6 mn jobs

A strong competition from Kirana Stores

Easily accessible & approachable

They change consumer focus

Market power is in hands of unorganized retail

Lack of logistic Infra.

In terms of corruption India stands at 85th position

Taxation laws in India favors only small retail businesses

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