Introduction

Widespread liberalization and deregulation of financial markets, cross-border mergers and

acquisitions (M&As), increasing role of investors willing to invest abroad, rapid advances in modern
telecommunication and computer network – have all resulted in a tremendous upsurge of
international capital flows in India, particularly private capital flows, as compared to official capital
flows over the last two decades. Among the various forms of foreign investment, foreign direct
investment (FDI) flows are usually preferred over other forms of external finance because they are
non-debt creating, non-volatile and their returns depends on the performance of projects financed
by the investors. In fact, FDI provides a win – win situation to both the host and the home countries.
The „home‟ countries want to take the advantage of the vast markets opened by industrial growth.
On the other hand the „host‟ countries want to acquire technological and managerial skills and
supplement domestic savings and foreign exchange. Moreover, in order to overcome the
deficiencies of all kinds of resources viz. financial, capital, entrepreneurship, technological know-
how, skills and practices, access to markets-abroad - in their economic development, developing
nations accepted FDI as a sole visible panacea for all their scarcities. Economic
development, rise in purchasing power, growing consumerism and brand proliferation has led to
retail modernization in India. With high economic growth, per capita income increases; this, in turn,
leads to a shift in consumption pattern from necessity items to discretionary consumption.
Furthermore, as the economy liberalizes and globalizes, various international brands enter the
domestic market. Consumer awareness increases and consumers tend to experiment with different
international brands. The proliferation of brands leads to increase in retail space. Retail
modernization in India depicts a similar story. According to A.T. Kearney‟s Annual Global
Retail Development Index (GRDI) for the year 2012, India has been placed at fifth rank (after Brazil,
Chile, China and Uruguay) on the basis of retail investment attractiveness. The growing Indian
market has attracted a number of foreign retailers and domestic corporate to invest in this sector.
Being encouraged by India‟s growing retail boom many multinational companies also started to
enter India‟s retail market. According to the Investment Commission of India, the retail sector is
expected to grow almost three times its current levels to $660 billion by 2015. FDI in the retail sector
can expand markets by reducing transaction and transformation costs of business through adoption
of advanced supply chain and benefit consumers, and suppliers (farmers). Opposition to liberalizing
FDI in this sector raises concerns about employment losses, promotion of unhealthy competition
among organized domestic retailers resulting in exit of small domestic retailers from the market and
distortion of urban cultural development.

IIObjective Of The Study And Methodology The objective of our

study is to analyze the current retail scenario in India, investigate the controversial views of the
various stakeholders and evaluate the likely challenges and threats of FDI in both single and
multibrand retail in India. The whole paper is based on descriptive arguments, statistical data, case
studies, comparative study and analytical logic developed through the understandings from various
research papers, reports, books, journals, newspapers and online data bases.
 indian retail sector an overview of current position
meaning of retail
It is defined as all activities involved in selling goods or services directly to the final consumer for
their personal, non-business use via shops, market, door-to-door selling, and mail-order or over the
internet where the buyer intends to consume the product. In 2004, The High Court of Delhi defined
the term „retail‟ as a sale for final consumption in contrast to a sale for further sale or processing.
Retailing involves a direct interface with the customer and the coordination of business activities
from end to end- right from the concept or design stage of a product or offering, to its delivery and
post-delivery service to the customer.

1.2 Evolution of Indian Retail Industry

It is interesting to focus on the evolution of the retail sector in India. Historically they evolved as a
source of entertainment (in the form of village fairs, melas etc.) which was within the rural reach.
Later on these were transformed Mom and Pop/ Kirana stores which are of traditional variety
neighbourhood shops. Then came the government supported PDS outlets, khadi stores, cooperatives
etc. Finally shopping malls, supermarkets, departmental stores etc has brought a great revolution to
the Indian retail market (figure-1) Figure- (1)

Source: Technopak Research

1.3 Distinction of Indian Retail

The Indian trading sector, as it has developed over centuries, is very different from that of the
developed countries. In the developed countries, products and services normally reach consumers
from the manufacturer/producers through two different channels: (a) via independent retailers
(„vertical separation‟) and (b) directly from the producer („vertical integration‟). In India, however,
the above two modes of operation are not very common. Small and medium enterprises dominate
the Indian retail scene. The trading sector is highly fragmented, with a large number of
intermediaries. So also, wholesale trade in India is marked by the presence of thousands of small
commission agents, stockiest and distributors who operate at a strictly local level. Retail giants like
US-based Wal-Mart and French Carrefour are very keen to enter in the segment. Bharti Enterprises
and Wal-Mart Stores entered into a joint venture in August 2007 and started cash-and-carry stores
named 'Best Price Modern Wholesale' in 2009.

1.4 Division of Indian Retail Industry

The Indian retail industry is generally divided into two major segments – organized retailing

and unorganized retailing. (a) Organized Retailing - refers to trading activities

undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc.
These include the corporate-backed hypermarkets and retail chains, and also the privately owned
large retail businesses. (b) Unorganized Retailing - refers to the traditional formats
of low-cost retailing, for example, the local kirana shops, owner manned general stores, paan/beedi
shops, convenience stores, hand cart and pavement vendors, etc.

1.5 Types of Retailing in India)

Single Brand- Single brand implies that foreign companies would be allowed to sell goods
sold internationally under a „single brand‟, viz., Reebok, Nokia and Adidas. 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.

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 mean 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.

The approval for single and multi brand includes a set of riders for the foreign investors, aimed
at ensuring that the foreign investment makes a genuine contribution to the development of Indian
infrastructure and logistics, at the same time facilitating integration of small retailers into the
upgraded value chain. While the minimum capital requirement of US$ 100 million is unlikely to be
an issue for the large foreign players vying to enter India in the supermarket/ hypermarket segment,
it could make it difficult for foreign investors planning to enter specialty formats such as music,
mobile, electronics goods, among others, as these formats require relatively lower investments.
Further, the approval requirements from State Governments could limit the cities that FDI backed
retailers can operate in.

1.6 Rationale Behind Allowing FDI in Retail Sector

FDI can be a powerful catalyst to spur competition in the retail industry, due to the current scenario
of low competition and poor productivity. Permitting foreign investment in food-based retailing is
likely to ensure adequate flow of capital into the country, & its productive use in a manner likely to
promote the welfare of all sections of society, particularly farmers and consumers. It would also help
bring about improvements in farmers‟ income & agricultural growth and assist in lowering consumer
prices inflation.10 Apart from this, by allowing FDI in retail trade, India will significantly flourish in
terms of quality standards and consumer expectations, since the inflow of FDI in retail sector is
bound to pull up the quality standards and costcompetitiveness of Indian producers in all the
segments. It is therefore obvious that we should not only permit but encourage FDI in retail trade.
Indian Council of Research in International Economic Relations (ICRIER) has projected the worth of
Indian retail sector to reach $496 billion by 2011-12 and ICRIER has also come to the conclusion that
investment of „big‟ money (large corporate and FDI) in the retail sector would in the long run not
harm interests of small traditional retailers.

The Opportunities and Challenges of FDI in Retail in India

1.7 Entry Options for Foreign Players Prior to FDI Policy

(2006) Although prior to Jan 24, 2006, FDI was not authorized in retailing, most
general players had been operating in the country. Some of entrance routes used by them have
been discussed in sum as below:-

(a) Franchise Agreements: It is an easiest track to come in the Indian

market. 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.

(b) 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.

(c) Strategic Licensing Agreements: Some foreign brands give

exclusive licences 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.

(d) 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. 1.8 Current Position and FDI Norms in Indian Retail In 2010,
the Indian retail market was valued at $435 billion of which the share of modern retail was 7 per
cent. The sector is expected to grow to $535 billion by 2013 with the share of modern retail at 10

per cent. In 2007, India was ranked the twelfth largest consumer market and it is expected to be the
fifth-largest consumer market by 2025 after the US, Japan, China and the UK (McKinsey & Company
2007). In 2010, India attracted the largest number of new retailers among emerging and mature
markets (CBRE 2011). According to study conducted by ICRIER, total retail business in India will grow
at 13% annually, from US $322 billion in 2006-07 to US $590 billion in 2011-12 and further US $1
trillion by 2016-17 (figure-2)

Figure- (2)

Source: Technopak Analysis, CSO and other sources.

Being aware of the large market, growing consumerism and brand-

consciousness and to provide a greater fillip to high economic growth, in 1997, the Indian retail
sector witnessed the first footprints of FDI with

The Opportunities and Challenges of FDI in Retail in India

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100% FDI being permitted in cash & carry wholesale trading under the government approval route,
subsequently brought under the automatic route in 2006. As a step ahead, FDI in single brand retail
was permitted to the extent of 51% in 2006, while FDI in multi-brand retail remained prohibited till
recently. Despite changes in consumer behaviour and retail modernization, India is one of the few
countries where FDI was prohibited in multi-brand retail (until 2011), primarily to protect the
traditional mom-and-pop retailers. This policy restricts global low-cost multi-brand retailers such as
Wal-Mart, Tesco and Metro AG from catering directly to Indian consumers. Within the country,
there has been significant debate on whether FDI should be allowed in multi-brand retail. In July
2010, the Department of Industrial Policy and Promotion (DIPP) released a Discussion Paper on
‘Foreign Direct Investment (FDI) in Multi-Brand Retail Trading’ to facilitate discussion and debate on
whether FDI should be allowed in multi-brand retail and, if so, what conditions should be imposed
on FDI. Although a number of issues have been discussed in the Discussion Paper, the implications of
the liberalization for Indian consumers have not been discussed. The Economic Survey of 2010-11
mentioned that a phased opening of FDI in multi-brand retail is likely to benefit the consumers, but
did not state the exact benefits. In July 2011, a Committee of Secretaries (CoS) had cleared the
proposal to allow up to 51% FDI in multi-brand retail, which has been approved by the Union Cabinet
in November 2011, albeit with a few riders to set up the supply chain and reduce inflation. The
Union Cabinet has also approved increasing the FDI limit in single brand retail to 100% with
government approval. While no parliamentary approval is needed for the decision, State
Governments have the prerogative to disallow the same in their respective states. As a
part of the economic liberalization process set in place by the Industrial Policy of 1991, the
government of India opened up the retail sector to FDI through a series of steps: 1995 – World
Trade Organization‟s (WTO) General Agreement on Trade in Services (GATS) which included both
wholesale and retail trade in services came into effect. 1997 – FDI in cash and carry (wholesale)
allowed up to 100% under the government approval route. 2006 - FDI in single brand retail was
permitted to the extent of 51%; FDI in cash and carry brought under automatic route. 2011 – 100%
FDI in single-brand retail permitted with government approval; 51% FDI in multi-brand retail with
few conditions.
IV. Opportunities And Threats Of Fdi In Retail In India
Market liberalization, a growing middle-class, and increasingly assertive consumers are sowing the
seeds for a retail transformation that will bring more Indian and multinational players on the scene.
India is tipped as the second largest retail market after China, and the total size of the Indian retail
industry is expected to touch the $300 billion mark in the next five years from the current $200
billion. But the recent debate has centered on the issue of whether FDI in retail in India will be a
“boon or a bane”. Many studies and surveys were conducted to analyze the impact of FDI in retail
sector in various segments of the economy. According to a policy paper prepared by the Department
of Industrial Policy and Promotion (DIPP, 2010), FDI in retail must result in backward linkages of
production and manufacturing and spur domestic retailing as well as exports. According to the
World Bank, opening the retail sector to FDI would be beneficial for India in terms of price and
availability of products. While FDI in multi-brand retail has been opposed by several in the past
citing fears of loss of employment, adverse impact on traditional retail and rise in imports from
cheaper sources like China, adherents of the same indicate increased transfer of technology,
enhanced supply chain efficiencies and increased employment opportunities as the perceived
benefits. Key Perceived Opportunities

The following may be regarded as major perceived benefits of allowing FDI in retail in India:

1. Capital Infusion- This would provide an opportunity for cash-deficient domestic retailers
to bridge the gap between capital required and raised. In fact FDI is one of the major sources of
investments for a developing country like India wherein it expects investments from Multinational
companies to improve the countries growth rate, create jobs, share their expertise, back-end
infrastructure and research and development in the host country.

2. Boost Healthy Competition and check inflation- Supporters of FDI argue

that entry of the many multinational corporations will obviously promise intensive competition
between the different companies offering their brands in a particular product market and this will
result in availability of many varieties, reduced prices, and convenient distribution of the marketing
offers.

3. Improvement in Supply Chain- Improvement of supply chain/ distribution

efficiencies, coupled with capacity building and introduction of modern technology will help arrest
wastages (in the present situation improper storage facilities and lack of investment in logistics have
been creating inefficiencies in food supply chain, leading to significant wastages).

4. Improvement in Customer Satisfaction- Consumers in the organized retail will

have the opportunity to choose between a numbers of internationally famous brands with pleasant
shopping environment, huge special product display, maintenance of hygiene and better customer
care. There is a large segment of the population which feels that there is a difference in the quality
of the products sold to foreign retailers and the same products sold in the Indian market. There is an
increasing tendency to pay for quality and ease and access to a “one-stop shop” which will have a
wide range of different products. If the market is opened, then the pricing could also change and the
monopoly of certain domestic Indian companies will be challenged.

5. Improved technology and logistics:- proved technology in the sphere of

processing, grading, handling and packaging of goods and further technical developments in areas
like electronic weighing, billing, barcode scanning etc. could be a direct consequence of foreign
companies opening retail shops in India,. Further, transportation facilities can get a boost, in the
form of increased number of refrigerated vans and pre-cooling chambers which can help bring down
wastage of goods.

6. Benefits for the Farmers- Presumably, with the onset of multi-brand retail, the food
and packaging industry will also get an impetus. Though India is the second largest producer of fruits
and vegetables, it has a very limited integrated cold-chain infrastructure. Lack of adequate storage
facilities causes heavy losses to farmers, in terms of wastage in quality and quantity of produce in
general, and of fruits and vegetables in particular. With liberalization, there could be a complete
overhaul of the currently fragmented supply chain infrastructure. Extensive backward integration by
multinational retailers, coupled with their technical and operational expertise, can hopefully remedy
such structural flaws. Also, farmers can benefit with the “farm-to fork” ventures with retailers which
helps (i) to cut down intermediaries ; (ii) give better prices to farmers, and (iii) provide stability and
economics of scale which will benefit, in the ultimate analysis, both the farmers and consumers.

7. Creation of More And Better Employment Opportunities- The entry of

foreign companies into Indian Retailing will not only create many employment opportunities but,
will also ensure quality in them. This helps the Indian human resource to find better quality jobs and
to improve their standard of living and life styles on par with that of the citizens of developed
nations. Key Potential Threats Critics of FDI feel that liberalization would jeopardize the
unorganized retail sector and would adversely affect the small retailers, farmers and consumers and
give rise to monopolies of large corporate houses which can adversely affect the pricing and
availability of goods. They also contend that the retail sector in India is one of the major
employment providers and permitting FDI in this sector can displace the unorganized retailers
leading to loss of livelihood. The major threats to the domestic retailers in India are specified below:
1. Domination of Organized Retailers- FDI in single-brand retail will strengthen organized retail in the
country. These organized retailers will tend to dominate the entire consumer market. It would lead
to unfair competition and ultimately result in large-scale exit of domestic retailers, especially the
small family managed outlets (local “mom and pop” stores will be compelled to close down). 2.
Create Unemployment- Retail in India has tremendous growth potential and it is the second largest
employer in India. Any changes by bringing major foreign retailers who will be directly procuring
from the main supplier will not only create unemployment on the front end retail but also the
middleman who have been working in this industry will be thrown out of their jobs. 3. Loss of Self
Competitive Strength- The Indian retail sector, particularly organized retail, is still underdeveloped
and in a nascent stage and that, therefore the companies may not be able to compete with big
global giants. If the existing firms collaborate with the global biggies they might have to give up at
the global front by losing their self competitive strength. 4. Indirectly Leads to Increase in Real
Estate Cost- It is obvious that the foreign companies which enter into India to open up their malls
and stores will certainly look for places in the heart of the cities. There shall be a war for place,
initiated among such companies. It will result in increase in the cost of real estate in the cities that
will eventually affect the interest of the ordinary people who desire to own their houses within the
limit of the cities. 5. Distortion of Culture: Though FDI in Indian retail will indirectly or directly
contribute for the enhancement of Tourism, Hospitality and few other Industries, the culture of the
people in India will slowly be changed. The youth will easily imbibe certain negative aspects of
foreign culture and lifestyles and develop inappropriate consumption pattern, not suited to our
cultural environment.

V. Impact Of Fdi On Various Stakeholders: The Confederation of Indian Industry (CII)

conducted a survey during December 2011 to January 2012 on the impact of FDI on Small and
Medium Enterprises (SMEs) based on a large sample size of 250 companies covering different
categories of SMEs according to sales turnover. A majority of the SME companies, surveyed have
supported the government‟s decision and the notification allowing 100% FDI in single brand retail
and about 52 percent of respondents hope for early implementation of 51% FDI in multi

brand retail. On the question how the SME industry consider entry of MNC retailers as a threat or
opportunity, majority of respondents (66.7%) see it as an opportunity for their sector while around
21 % of respondents perceive it as a threat. About 12.5 percent of respondents are of the opinion
that the decision would have little or no impact on their company.

1. Effect on Traditional Mom and Pop Stores- Traditional retailing has been established in India for
many centuries, and is characterized by small, family-owned operations. Because of this, such
businesses are usually very low-margin, are owner-operated, and have mostly negligible real estate
and labour costs. Such small shops develop strong networks with local neighbourhoods. The
informal system of credit adds to their attractiveness. Moreover, low labour costs also allow shops
to employ delivery boys, such that consumers may order their grocery list directly on the phone.
These advantages are significant, though hard to quantify. In contrast, players in the organized
sector have to cover big fixed costs, and yet have to keep prices low enough to be able to compete
with the traditional sector. Getting customers to switch their purchasing away from small
neighbourhood shops and towards large-scale retailers may be a major challenge. The experience of
large Indian retailers such as Big Bazaar shows that it is indeed possible. The oppositions, on the
other hand, believe that local kirana shops will not be affected. The kirana stores operate in a
different environment catering to a certain set of customers and they will continue to find new ways
to retain them.

Case Study of China: FDI in retailing was permitted in China for the first time in 1992.
Foreign retailers were initially permitted to trade only in six Provinces and Special Economic Zones.
Foreign ownership was initially restricted to 49%. Foreign ownership restrictions have progressively
been lifted and, and following China„s accession to WTO, effective December, 2004, there are no
equity restrictions. Employment in the retail and wholesale trade increased from about 4% of the
total labour force in 1992 to about 7% in 2001. The numbers of traditional retailers were also
increased by around 30% between 1996 and 2001. In 2006, the total retail sale in China amounted to
USD 785 billion, of which the share of organized retail amounted to 20%. Some of the changes which
have occurred in China, following the liberalization of its retail sector, include: (i) Over 600
hypermarkets were opened between 1996 and 2001 (ii) The number of small outlets (equivalent to
“kiranas‟) increased from 1.9 million to over 2.5 million. (iii) Employment in the retail and wholesale
sectors increased from 28 million people to 54 million people from 1992 to 2000. Thus the
above discussion and case of China suggest that it is too early to predict the erosion of mom and pop
stores in India with opening of multi-brand retail sector in India to foreign investors.

2. Effect on Farmers- It is being claimed by the advocates of FDI in retail that the elimination of
intermediaries and direct procurement by the MNCs would secure better prices for the farmers. The
fact is that the giant retailers would have far greater buyer power vis-à-vis the farmers compared to
the existing intermediaries. The entry of giant MNCs into agricultural procurement would make the
problems worse for the farmers. As against the „mandis‟ that operate today, where several traders
have to compete with each other in order to buy the farmers‟ produce, there will be a single buyer
in the case of the MNCs. This will make the farmers dependent on the MNCs and vulnerable to
exploitation. On the contrary, the advocates of FDI believe that FDI in retail in the agriculture will
help in improving supply chain, infrastructure and ensure economic security for farmers through the
elimination of middlemen in the country.

Case Study: Case 1- PepsiCo India- Helping Farmers Improve Yield and Income- Today
PepsiCo India„s potato farming programme reaches out to more than 12,000 farmer families across
six states. We provide farmers with superior seeds, timely agricultural inputs and supply of
agricultural implements free of charge. They have an assured buy-back mechanism at a prefixed rate
with farmers. This insulates them from market price fluctuations. Through our tie-up with State Bank
of India, we help farmers get credit at a lower rate of interest. They have arranged weather
insurance for farmers through our tie-up with ICICI Lombard.

Case 2- Bharti Walmart initiative through Direct Farm Project- Corporate Social
Responsibility (CSR) initiatives in Bharti Walmart are aimed at empowerment of the community
thereby fostering inclusive growth. They focused on enhancing opportunities in the areas of
education, skills training and generating local employment, women empowerment and community
development.

In conjunction with the farmers‟ development program in Punjab, community-building activities

have been implemented in village, Haider Nagar. Due to lack of sanitation facilities, households
tend to use the farm fields, thereby affecting yields and impacting the produce that is being supplied
to stores. In order to improve the yields and the community„s way of life, we are working on the
issues of Sanitation and Biogas, Education, Awareness Building and Health and Hygiene. 3. Effect on
Consumers- With liberalization, economic growth and changes in Indian consumers‟ demographic
and economic profile and their shopping behaviour, the retail sector is undergoing changes. At
present, foreign retailers operate in India through both store and non-store formats. In terms of the
shopping behaviour of Indian consumers across different retail outlets, traditional outlets are
preferred as consumers can bargain while modern outlets are preferred because they link
entertainment with shopping. Those who purchase at modern outlets have reported better product
quality, lower prices, one-stop shopping, choice of more brands and products, better shopping
experiences with family and fresh stocks as some of the reasons for their choice of outlet. On the
other hand, proximity to residence, goodwill, credit availability, possibility of bargaining, choice of
loose items, convenient timings, home delivery, etc., are some of the benefits of traditional outlets
(Joseph and Soundararajan 2009). Consumers are the major beneficiaries of the retail boom as
organized retailers are initiating measures such as tracking of consumer behaviour and consumer
loyalty programmes to retain their market share (Mukherjee and Patel (2005)). Authors of
ICRIER Policy series paper (August, 2011) and various other surveys have pointed out that most
consumers are willing to experiment to different brands and so they are in favour of allowing FDI in
retail. Apart from providing Indian consumers more choices in the form of reputed, good quality
brands, liberalizing multi-brand retailing in India is likely to facilitate much greater inflows of
investments. This, in turn, will lead to the development of more efficient and lower cost supply
chains, resulting in better quality as well as lower-priced products for Indian consumers. This will
increase consumer spending, which in turn, will drive growth in all sectors of the economy in a
virtuous cycle. Case Study: Consumers of Indian Telecommunication and Automobile
Retail Sector have benefited a lot from liberalizing FDI. In the telecommunication sector, it has led to
more access, better quality, better services and lower prices for consumers. The entry of foreign
players in the automobile sector has made the domestic industry globally competitive and even
middle and low-income consumers in India can now afford to own cars. Global experiences show
that FDI in retail can sometimes negatively impact consumers if corporate retailers adopt anti-
competitive practices such as predatory pricing. In India, the Competition Act 2002 has provisions to
check abuse of dominant position by major players, including predatory pricing.

4. Effect on Existing Indian Organized Retail Firms- The existing Indian organized retail firms (such as
Spencer's, Foodworld Supermarkets Ltd, Nilgiri's and ShopRite) support retail reforms and consider
international competition as a blessing in disguise. They expect a flurry of joint ventures with global
majors for expansion capital and opportunity to gain expertise in supply chain management.
Case Study: Case 1: Spencer's Retail with 200 stores in India, and with retail of fresh vegetables
and fruits accounting for 55% of its business claims retail reform to be a win-win situation, as they
already procure the farm products directly from the growers without the involvement of middlemen
or traders. Spencer„s claims that there is scope for it to expand its footprint in terms of store
location as well as procuring farm products. Case 2: Foodworld, which operates over 60 stores,
plans to ramp up its presence to more than 200 locations. It has already tied up with Hong Kong-
based Dairy Farm International. With the relaxation in international investments in Indian retail,
India„s Foodworld expects its global relationship will only get stronger. Though it is too early to
assess the true impact of allowing FDI in single-brand and multi-brand retailing in India, but still the
Govt. argues strongly in favour on the ground that it will provide huge gainful employment in agro-
processing, marketing and logistics, help farmers‟ secure remunerative prices by eliminating
exploitative middlemen, ensure supply chain efficiencies, bring investment in back-end
infrastructure and also create a multiplier effect for employment, technology up gradation and
income generation by sourcing of a minimum of 30% from Indian micro and small industry. The
opposition, however, argues that there will be a large-scale job loss according to international
experience and global retail giants will resort to predatory pricing to create monopoly/oligopoly. So,
opening up of FDI in multi-brand retail in India could potentially be a mixed blessing for domestic
players. Hence adequate safeguards should be built in so that it does not end up in a losing
proposition.

VI. Policy Suggestions Many foreign companies have already entered into Indian market
through the available modes such as, Franchising and Exporting. They are much eager to change
their entry to FDI that would strengthen their operations in India. However, if FDI in retail is
liberalized by considering the following suggestions it is expected bring in more of benefits than
threats to the country. FDI should be initially allowed in less sensitive sectors and also in the
sectors wherein the domestic companies are established strongly. Then FDI in retail should be
liberalized in a phased manner like the case with China. Entry of foreign players must be gradual
with social safeguards so that the effects of labor dislocation can be minimized. Adequate
attention should be paid to procuring, staff recruitment, investments in warehouse, cold storage,
infrastructure, competition and retail formats so that not only does the money comes in but also it's
a winwin situation for the current national retailer as well as “mom and pop” stores who account for
70% of the retail business even after the arrival of national retailers from the corporate giants like
the Tata, Reliance, Future Group and the Birla's. The government should take initiatives to improve

the manufacturing sector. If the manufacturing is strengthened, the displaced employees of the
retail industry could be well accommodated there. \ A National Commission should be set up to
study the problems of the retail sector which should also evolve a clear set of conditionality on
foreign retailers on procurement of farm produce, domestically manufactured merchandise and
imported goods. This conditionality must state minimum space, size and other details like
construction and storage standards.

VII. Conclusion
Debates, discussions and conflicting views exit among policy makers, economists and social
thinkers on the issue of estimating the costs and benefits of allowing FDI in both single and multi-
brand retail in India. A recent study by University of North Carolina economist Anusha Chari and T C
A Madhav Raghavan (of ISI, New Delhi), March 2011, shows that the potential benefits of allowing
large retailers into the country significantly outweigh the costs. These benefits largely accumulate
through productivity gains. With respect to the impact of entry by big-box stores such as Wal-Mart
on retail employment and earnings, evidence from the United States is mixed. Using county-level
data, a recent study finds that Wal-Mart entry increases retail employment in the year of entry
(Basker, 2005a) while contrasting evidence indicates that each Wal-Mart worker replaces
approximately 1.4 retail workers representing a 2.7 percent reduction in average retail employment
(Neumark, Zhang and Ciccarella, 2008). While describing the retail experience in Thailand Sarma
(2005) shows how traditional shopkeepers continued to suffer even when the Thai economy
recovered, after the Asian crisis of the late 1990s. Foreign-owned retailers, he argues, “grabbed a big
share of the retail market, often through unethical means.” The UK Competition
Commission found in a 2000 study6 of major retail chains including Marks & Spencer, Sainsbury and
Tesco that “the burden of cost increases in the supply chain has fallen disproportionately heavily on
small suppliers such as farmers.” Apart from prices, the report states that smaller farmers came
under severe pressure from supermarkets due to the latter‟s requirement for large volumes of each
product, pushing farmers to grow single crops rather than the multiple produce they would usually
grow to minimize risk. Observed supermarket practices too may work against the interests of
incumbent retailers, even organized ones. Supermarket chains routinely sell some products at lower
than market prices, which appears to benefit consumers, but this puts pressure on small local stores
and has an adverse impact on low-income and elderly consumers who rely on local shops.
The Indian Government, however, recommends that retail firms source a percentage of
manufactured products from the small and medium domestic enterprises (DIPP Report, 2010). With
a restriction of this sort, the opening up of the retail sector to FDI could therefore provide a boost to
small-and medium enterprises. Moreover, expansion in the retail sector could also generate
significant employment potential, especially among rural and semi-urban youth. So it is very difficult
to predict the future of Indian retail sector. But the government of India must be cautious about the
apprehensions raised by the critics and adequate safeguards must be taken so that the positive
effects may outweigh the negative ones and the traditional retailers coexist even after big foreign
retailers enter the market.