Globalisation of Retail Market

SAJMMR Volume 2, Issue 7 (July, 2012) ISSN 2249-877X
Pub lis hed by : So u th As i a n Aca de mic Re sea r ch J o urna l s
SAJMMR:
South Asian Journal of
Marketing & Management
Research
GLOBALIZATION IN RETAIL CULTURE

FDI IN RETAIL, OPPORTUNITIES, CHALLENGES TO DEMOCRATIC
ELEMENT IN INDIA
AMIT ROHILLA*; MANOJ BANSAL**
*Assistant Professor,
Department of Commerce,
Gargi College, South Campus, University of Delhi,
Siri Fort Road, New Delhi – 110049, India.
**Lecturer,
Department of Commerce,
R. K. S. D. (P. G.) College, Kurukshetra University,
Ambala Road, Kaithal - 136027, Haryana, India.
ABSTRACT
India is a democratic country where everyone is free to choose his/her livelihood

sources. Retail is field which has been chosen by very large number of people (more
than one retailer for every hundred people) in India for their livelihood. And most of
the retail trade in India is forced, unorganized and fragmented. Certain bad effects
of this fragmentation are there to the democratic element in India and there is need
of fragmentation. Efforts are being made to convert this unorganized market to
organized one by the Government especially by allowing FDI. With the livelihoods
of small traders and hawkers in threat due to the corporate entry in retail the
resistance against the later is growing in almost every part of the country. Up to
what extent this FDI poses threat to the existing unorganized retail culture and what
are the various opportunities available to the democratic element in India, masses
and other bodies? Whether the problem of unemployment can be solved with the FDI
in retail trade? What efforts Government will take to give jobs to the unemployed
masses if this unemployment happens because of the FDI? These are the questions
the answer of which lies in the following discussion
KEYWORDS: Retailing, FDI, Organized Retailing, Unorganized Retailing.

______________________________________________________________________________
South Asian Academic Research

Journals http://www.saarj.com
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1. INTRODUCTION TO RETAILING AND INDIAN SCENARIO
First of all–what is retailing? It is an interface between the manufacturer and the individual
consumer buying for personal consumption. This excludes direct interface between the producer
and institutional buyers such as the government and other bulk customers. A retailer is one who
stocks the manufacturer‟s goods and is involved in the act of selling it to the individual
consumer, at a margin of profit. So in a nutshell it can be said that, retailing is the last link that
connects the individual consumer with the manufacturing and distribution chain.
Retailing in an important social institution because about 30 percent of what a customer

spends goes on products & services that they buy from retailers. India‟s retail sector is globally
recognized as the sunrise industry. AT Kearney, the well-known international management
consultancy, recently identified India as the „second most attractive retail destination‟ globally
from among thirty emergent markets. It has made India the cause of a good deal of excitement
and the cynosure of many foreign eyes. With a contribution of 14% to the national GDP and
employing 7% of the total workforce (only agriculture employs more) in the country, the retail
industry is definitely one of the pillars of the Indian economy (Singhal & Arvind, Indian Retail:
The road ahead, Retail biz) (see TABLE 1).
TABLE 1: COMPONENTS OF SERVICE SECTOR IN INDIA
Components Share % in GDP (2002- Growth during

03)
2002-03
Construction 5.3 7.3
Trade 14.0 4.5
Hotels & Restaurants 1.1 4.0
Railways 1.1 5.7
Other Transport 4.3 6.0
Storage 0.1 -7.8
Communications 3.5 22.0
Banking & Insurance 6.9 11.6
Real Estate, Business/Legal Services 6.1 5.9
Defense 5.9 5.3
Other Community & Social Services 7.8 6.2

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Total 56.1 7.2
Source: Presentation to FICCI by MBN Rao (Chairman, Indian Bank): “Strategy for Financing
th
Service Sector” (September 15 , 2004)
GRAPH 1: COMPONENTS OF SERVICE SECTOR IN INDIA SHARE % IN

GDP (2002-03)
16
14
14
12
10
7.8
8 6.9
5.3 6.1 5.9
6 4.3
3.5
4
2 1.1 1.1
0.1
0
The retail industry is divided in to two parts i.e. organized and unorganized. Organized
retailing refers to trading activities undertaken by licensed retailers, that is, those who are
registered for sales tax, income tax, etc. Unorganized retailing, on the other hand, 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.
(Chengappa, Achoth, Mukherjee, Ramachandra Reddy, & Ravi, 2003) (see

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TABLE 2)

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TABLE 2: GROWTH OF RETAIL OUTLETS IN INDIA („000)
Outlets 1996 1997 1998 1999 2000 2001
Food Retailers 2769.0 2943.9 3123.4 3300.2 3480.0 3682.9
Non-Food Retailers 5773.6 6040.0 6332.2 6666.3 7055.5 7482.1
Total Retailers 8542.6 8983.6 9455.6 9966.5 10534.4 11165.0
Source: P.G. Chengappa, Lalith Achoth, Arpita Mukherjee, B.M. Ramachandra Reddy and
th
P.C. Ravi, Evolution of Food Retail Chains: The Indian Context, 5-6 November 2003,
www.ficci.com
GRAPH 2: GROWTH OF RETAIL OUTLETS IN INDIA („000)

7055.5
7482.1
8000
6666.3
6332.2
7000
5773.6
6040
6000
5000
3682.9
3300.2
3123.4
3480
2943.9
4000
2769
3000
2000
1000
0
1996 1997 1998 1999 2000 2001
Food Retailers Non-Food Retailers

Unorganized retailing is by far the prevalent form of trade in India–constituting 98% of total
trade, while organized trade accounts only for the remaining 2%. Estimates vary widely about
the true size of the retail business in India. AT Kearney estimated it to be Rs.4,00,000 crores and
poised to double in 2005 (Ganguly & Saby). On the other hand, if one used the Government‟s
figures the retail trade in 2002-03 amounted to Rs.3,82,000 crores. One thing all consultants are
agreed upon is that the total size of the corporate owned retail business was Rs.15,000 crores in
1999 and poised to grow to Rs.35,000 crores by 2005 and keep growing at a rate of 40% per
annum (Singhal & Arvind, Technopak Projections, Changing Retail Landscape, 1999). In a
recent presentation, FICCI has estimated the total retail business to be Rs.11,00,000 crores or
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44% of GDP (Chengappa, Achoth, Mukherjee, Ramachandra Reddy, & Ravi, 2003). According
to this report dated November 2003, sales account for 44% of the total GDP and food sales
account for 63% of the total retail sales, increasing to Rs.100 billion from just Rs.38.1 billion in
1996. Food retail trade is a very large segment of the total economic activity of our country and
due to its vast employment potential; it deserves very special focused attention. Efficiency
enhancements and increase in the food retail sales activity would have a cascading effect on
employment and economic activity in the rural areas for the marginalized workers. Thus even
without FDI driving it, the corporate owned sector is expanding at a furious rate. The question
then that arises is that since there is obviously no dearth of indigenous capital, what is the need
for FDI? It is not that retailing in India is in the need of any technology special to foreign chains.
2. EMPLOYMENT IN RETAIL SECTOR
In India the share of retailing in employment is 8% as compared to 16% in USA, 15% in Brazil,
12% in Poland, and 7% in China (Rosling(Chairman Jardine Matheson)). A simple glance at the
employment numbers is enough to paint a good picture of the relative sizes of these two forms of
trade in India–organized trade employs roughly 5 lakh people, whereas the unorganized retail
trade employs nearly 3.95 crores (Iyengar & Jayanthi, 2004).
3. RETAIL TRADE IN INDIA AND SOUTH EAST ASIA
The TABLE 3 gives the quantum of trade in India and South East Asia in organized and
unorganized retail. From the TABLE 3 it is clear that India occupies first place in the
unorganized retail trade and there is ample scope of converting it to organized trade.
TABLE 3: RETAIL TRADE IN INDIA & SOUTH EAST ASIA
Countries Organized Unorganized
India 2 98
China 20 80
South Korea 15 85
Indonesia 25 75
Philippines 35 65
Thailand 40 60
Malaysia 50 50
Source: CRISIL (Sasi, 2004)

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Volume 2, Issue 7 (July, 2012) ISSN 2249-877X
GRAPH 3: RETAIL TRADE IN INDIA & SOUTH EAST ASIA
120
98
100
85
80
80 75
65
60
60
50 50
40
40 35
25
20
20 15
2
0
India ChinaSouth Korea IndonesiaPhilippines ThailandMalaysia
Organized Unorganized
Further in India the organized retail industry is growing at more than 30%per annum. (see
TABLE 4).
TABLE 4: GROWTH IN ORGANIZED RETAILING
GDP (Billion $) Retail Market (Billion $)
2006 804 300
2010 1133 427
2015 1721 637
Source: Technopak Analysis, CSO, BRIC Report

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GRAPH 4: GROWTH IN ORGANIZED RETAILING
2000
1800 1721
1600
1400
1133
1200
1000
804
800
637
600
427
400 300
200
0
2006 2010 2015
GDP (Billion $) Retail Market (Billion $)
4. WHY RETAILING IS A FORCED EMPLOYMENT SECTOR IN INDIA
In India, still the traditional format of retailing is prevailing, that is, paan/beedi shops, local
kirana shops, hardware stores, vegetable shops, weekly bazaars (like in Delhi–Budh Bazaar,
Friday Market, Shani bazaar, etc.). Indian retail market is highly fragmented and more than 11
million outlets are operating in the country out of which only 4% are of more than 500 square
feet in size. According to an estimate in 2001 there were 11 outlets for every 1,000 people
(Singhal & Arvind, A Strong Pillar of Indian Economy). Further, a report prepared by McKinsey
& Company and the Confederation of Indian Industry (CII) predicted that global retail giants
such as Tesco, Kingfisher, Carrefour and Ahold were waiting in the wings to enter the retail
arena. This report also states that the Indian retail market holds the potential of becoming a $300
billion per year market by 2010, provided the sector is opened up significantly (Iyengar &
Jayanthi, 2004). It does not talk about creating additional jobs however, which should be the
prime concern of the policy maker.
One of the major reasons behind the explosion of retail and its fragmented nature in the
country is that retailing is probably the primary form of disguised
unemployment/underemployment in the country. Given the already over-crowded agriculture
sector, and the stagnating manufacturing sector, and the hard nature and relatively low wages of
jobs in both, many million Indians are virtually forced into the services sector. Here, given the
lack of opportunities, it is almost a natural decision for an individual to set up a small shop or
store, depending on his or her means and capital. And thus, a retailer is born, seemingly out of

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circumstance rather than choice. This phenomenon quite aptly explains the millions of kirana
shops and small stores. The explosion of retail outlets in the more busy streets of Indian villages
and towns is a visible testimony of this. And the worst thing is that, there are no opportunities
provided by the policy makers to these small retailers if they want to expand their businesses.
For every hundred people there is more than one retailer present in the country and hence
limited access to capital, labor and real estate options. Retailing is by far the easiest business to
enter, with low capital and infrastructure needs, and as such, performs a vital function in the
economy as a social security net for the unemployed. India, being a free and democratic country,
provides its people with this cushion of being able to make a living for oneself through self-
employment, as opposed to an economy like China, where employment is regulated. Yet, even
this does not annul the fact that a multitude of these so-called „self-employed‟ retailers are
simply trying to chase together a living, in the face of limited opportunities for employment. In
this light, one could call this sector as one of “forced employment”, where the retailer is pushed
into it, purely because of too many opportunities in other sectors.
5. QUEUE OF BIG GIANTS WITH BAGS FULL OF FOREIGN EXCHANGE

ARMORS–WAITING FOR OPENING UP OF DOORS OF INDIAN RETAIL
1
INDUSTRY AND READY TO PRESENT COMPETITION TO LOCAL RETAILERS
Wal-Mart Indian Retailer
The largest retailer in the world with Had a turnover of Rs.1,86,075 only
annual turnover-$ 256 billion and
annual growth-12-13% Only 4% of the 12 million retail outlets
were larger than 500 square feet in size
Net Profit in 2004-$ 9,000 million
Total turnover of the unorganized retail
Employing more than 1.4 million sector was Rs.7,35,000 crores
persons
Employing 39.5 million persons
More than 4,800 stores and more than
1,400 are outside USA
Average size of a Wal-Mart is 85, 000

square feet
Average turnover per store was about $

51 million and turnover per employee
was averaged at $ 1,75,000
In 2004 the return on assets was 9%

and return on equity was 21%
1
This section throws light on the various challenges of FDI in retail trade in India.
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(Wal-Mart_Corporation, 2004)
From the perusal of the above one can imagine the situation when a big firm like Wal-Mart
comes to India. Would the Indian Organized Retail sector be able to cope up with the
competition given by such big giants? Would the Indian Organized Retail sector be able to suffer
the losses whereas the big firms like Wal-Mart have deep pockets full of billions and are able to
sustain the losses for many years till the competition is wiped out? Where the unemployed
persons will go? These are some questions which are sufficient enough to make us think of
challenges which these giants can put before us.
Further India has 35 towns each with a population over 1 million. If Wal-Mart were to open
an average Wal-Mart store in each of these cities and they reached the average Wal-Mart
performance per store–we are looking at a turnover of over Rs.80,330 million with only 10,195
employees. Extrapolating this with the average trend in India, it would mean displacing about
4,32,000 persons. If large FDI driven retailers were to take 20% of the retail trade, as the now
somewhat hard-pressed Hindustan Unilever Limited anxiously anticipates, this would mean a
turnover of Rs.800 billion on today‟s basis. This would mean an employment of just 43,540
persons displacing nearly eight million persons employed in the unorganized retail sector.
Now from the perusal of the above discussion there are sufficient grounds that prudence
should go in to the policy making. Rather we seem to moving towards a policy steamrolled
obviously by vested interests acting in concert with the CII & FICCI. We need to take a deep
hard look at FDI in the retail sector. In this context we must be concerned about the statement the
Finance Minister, Mr. P. Chidambaram, made while making the mid-year review for 2004-05.
“On retail, the review notes that creating an effective supply chain from the producer to the
consumer is critical for development of many sectors, particularly processed and semi-processed
agro-products. In this context, it says, the role that could be played by organized retail chains,
including international ones merits careful attention.”(Chidambaram, 2004)
5.1. FDI IN RETAIL SECTOR!
The recent initiatives of Government for opening up of retail sector for Foreign Direct
Investment become a very sensitive issue. Arguments are there on both sides. It is a well-known
fact that FDI can have some positive results on the economy not in short-term but in the long-
term. Further it triggers a series of reactions that leads to the greater efficiency and improvement
of standard of living. The supporters of FDI in retail trade argue that it brings benefits to
consumers in term of price reduction, increased and improved selection base, high quality
technique of the foreign players in the market. Further it can increase the domestic consumption
level.
Those who oppose the FDI in retail trade argue that the FDI brings the modern retailing
culture and thus displace the labor up to great extent and destroy the traditional retail sector.
Unless we are able to provide ample jobs in the manufacturing sector we should not think of a
policy which results in elimination of jobs in the unorganized retail sector. In India the primary
task of the Government is to provide livelihood to the mass and not create so called efficiency of
scale by creating redundancies. As per present regulations, no FDI is permitted in retail trade in

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India. Allowing 49% or 26% FDI (which have been the proposed figures till date) will have
immediate and dire consequences. Entry of foreign players now will most definitely disrupt the
current balance of the economy; will render millions of small retailers jobless by closing the
small slit of opportunity available to them.
Imagine if Wal-Mart, the world‟s largest retailer sets up operations in India at prime
locations in the 35 metro cities and towns that house more than 1 million people(Census, 2001).
The supermarket will typically sell everything, from vegetables to the latest electronic gadgets, at
extremely low prices that will most likely undercut those in nearby local stores selling similar
goods. Wal-Mart would be more likely to source its raw materials from abroad, and procure
goods like vegetables and fruits directly from farmers at preordained quantities and
specifications. This means a foreign company will buy big from India and abroad and be able to
sell low–severely undercutting the small retailers. Once a monopoly situation is created, this will
then turn into buying low and selling high. Further this will disintegrate the already established
supply chain. As Nick Robbins wrote in the context of the East India Company,–“by controlling
both ends of the chain, the company could buy cheap and sell dear” (Robbins, 2004).
From the above discussion it is clear that how the entry of a single big giant like Wal-Mart
can destroy the whole economy. The examples of various countries like China, Malaysia and
Thailand are there who first opened up the retail sector for FDI and then they enacted various
laws to restrict the fast expansion on foreign malls and hypermarkets (Tarun & Vijay, 2004).
No doubt that a big domestic retailer or any new foreign player will be able to provide their
merchandise at cheaper rates than a smaller retailer, but somebody should not stop an Indian
retailer from growing bigger. Further it is the right of consumer to buy the best thing at the
lowest rate but this is privilege for an individual consumer and it cannot, in any circumstance,
override the responsibility of any society to provide economic security for its population.
Obviously collective well-being must take precedence over individual benefits.
Opening the retailing sector to FDI means, dislocating millions from their occupation, and
pushing a lot of families under the poverty line. This will increase efficiency but it is beneficial
in developed countries but not in developing countries like India. This will increase social
tension in a developing country like India where still millions of people are seeking for a gainful
employment. Further, how to accommodate this dislocated and unemployed work force? There is
a slowdown in the manufacturing industry so we can‟t move this workforce over there. So far as
agriculture is concerned-60% workforce is busy over there. All sectors are already full, so which
sector is there to absorb this unemployed work force? (see

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TABLE 5) (FICCI & NSS)

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TABLE 5: SECTORAL GDP, EMPLOYMENT & GROWTH RATES (%)
Sectors Share % in GDP Employment Cumulative average Growth Rate during

(2004) 1994-2004
Agriculture 22.10 60.50 2.70
Industry 21.70 16.80 6.53
Service 56.20 22.70 7.90

th
Source: FICCI (2004) & NSS 55 Round Employment Survey (1999-2000)
GRAPH 5: SECTORAL GDP, EMPLOYMENT & GROWTH RATES (%)
70
60.5
60 56.2
50
40
30
22.1 21.7 22.7
20 16.8
10 6.53 7.9
2.7
0
Share % in GDP (2004) Employment Cumulative average Growth
Rate during 1994-2004
Agriculture Industry Service
From the perusal of the

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TABLE 5and GRAPH 5 it is clear that service sector contributes 56% of our GDP and over
the last 5 years service sector‟s contribution to the increase of GDP has been 63.9%. Does it
signify that ours is developed economy because this much contribution of service sector to the
GDP is a sign of a developed economy? We have to rethink. The problem is that unlike other
counties like China where the manufacturing sector accounts for a significant share in the GDP,
in India this is not so (only 23.1% of GDP see TABLE 6) and moreover the growth of the
manufacturing sector is very slow and below the estimates of the Government.
TABLE 6: INDIAN ECONOMY: SECTORAL SOURCES OF GROWTH (%

CONTRIBUTIONS TO INCREASE IN GDP)
1992-93 to 1996-97 1997-98 to 2003-04
Agriculture & allied sectors 20.30 13.00
Manufacturing, construction & 30.90 23.10

quarrying
Services 48.80 63.90

st
Source: Bhanoji Rao–“Industry, Ugly Duckling”, (December 1 , 2004) The Economic Times

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GRAPH 6: INDIAN ECONOMY: SECTORAL SOURCES OF GROWTH

(PERCENTAGE CONTRIBUTIONS TO INCREASE IN GDP)
70
63.9
60
48.8
50
40
30.9
30
23.1
20.3
20
13
10
0
Agriculture & allied sectors Manufacturing, construction & Services
quarrying
1992-93 to 1996-97 1997-98 to 2003-04
Now, if Government thinks that retail is the only thing that can increase the GDP then
Government should not forget that retailing is an activity which does not boost the GDP itself but
it is a process of value addition. If there are no goods being manufactured then how one can sold
them in the market through the retailing process. This underlines the importance of the
manufacturing in the country. Only until the tardy growth of the manufacturing sector is
addressed properly and its productivity chart starts to look prettier, could one begin thinking of
dislocating some of the retailing workforce into this space.
6. OPPORTUNITIES TO DEMOCRATIC ELEMENT IN INDIA
A number of views have been expressed regarding the subject of FDI in the retail trade sector
and benefits of this. Various issues have also been raised on the possible approach to opening the
retail trade sector for FDI. Some of the views expressed in various studies are summarized
ahead.
Skyzz Multi cuisine veg restaurant Roof top,6th floor,blue city mall, near circuit house jodhpur

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6.1. FICCI AND ICICI: “A POLICY PERSPECTIVE, PREPARED BY FICCI AND

ICICI PROPERTY SERVICES IN FEBRUARY, 2005”
1. Competition within the host country sector is a critical driver of improvements in sector
performance as a result of FDI.
2. However, FDI‟s potential for impact can be greater because of the combination of scale,
capital, and global capabilities which allow MNCs to close existing large productivity
gaps more aggressively.
3. FDI can be a powerful catalyst to spur competition in industries characterized by low

competition and poor productivity. Examples include the cases of consumer electronics in
Brazil and India, food retail in Mexico, and auto in China, India, and Brazil.
4. Competition is also a key to diffusing FDI-introduced innovation across an industry. In

Brazilian food retail, high competitive intensity caused by informal players forced all
modern retailers to rapidly increase productivity; in Mexican and Brazilian auto cases,
increasing competition from imports induced foreign players themselves to increase their
productivity.
5. Increasingly, foreign direct investment is integrating developing countries into the global
economy, creating large economic benefits to both the global economy and to the
developing countries themselves. Industry restructuring enables global growth as
companies reduce production costs and create new markets. For the large developing
countries, integrating into the global economy through foreign direct investments
improves standards of living by improving productivity and creating output growth. The
biggest beneficiaries from this transition are consumers - both global consumers that reap
the benefits from global industry restructuring, and consumers in the host countries that
see their purchasing power and standards of living improve.
6. FDI can be a powerful catalyst to spur competition in the retail industry, due to the
current scenario of low competition and poor productivity. It can bring about:
(a) Supply Chain Improvement
(b) Investment in Technology
(c) Manpower and Skill development
(d) Tourism Development
(e) Greater Sourcing From India
(f) Up-gradation in Agriculture
(g) Efficient Small and Medium Scale Industries

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(h) Growth in market size
(i) Greater Productivity
(j) Benefits to government: through greater GDP, tax income and employment
generation
7. The report inter alia made the following recommendations:
(a) Permit FDI in retail
(b) Remove Bottlenecks in the supply chain
(c) Relax SSI Reservation
(d) Remove distribution constraints
(e) Organize market for real estate
(f) Increase land supply
6.2. CENTRE FOR POLICY ALTERNATIVES: “FDI IN INDIA‟S RETAIL SECTOR:

MORE BAD THAN GOOD?”
1. The retail sector is severely constrained by limited availability of bank finance. The
Government and the RBI need to evolve suitable policies to enable retailers in the
organized and unorganized sector to expand and improve efficiencies.
2. A National Commission should be set up to study the problems of the retail sector which
should also evolve a clear set of conditionalities on foreign retailers on procurement of
farm produce, domestically manufactured merchandise and imported goods. These
conditionalities must state minimum space, size and other details like construction and
storage standards.
3. Entry of foreign players must be gradual with social safeguards so that the effects of
labor dislocation can be analyzed and policy fine tuned. Foreign players should initially
be allowed only in metros.
4. Manufacturing sector in India must be developed to address the dislocation of existing

retailers.
6.3. ICRIER STUDIES ON: (I) FOREIGN DIRECT INVESTMENT IN RETAIL

SECTOR-INDIA (2005) AND (II) IMPACT OF ORGANIZED RETAILING ON THE
UNORGANIZED SECTOR (2008)
The 2005 study recommended:
1. FDI be allowed in retail trade as it would speed up the growth of organized retail formats.

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2. Gradual opening of the retail sector over a period of 3-5 years to give domestic industry
enough time to adjust to the changes.
3. In the initial stage, FDI up to 49% could be allowed to enable domestic players to enter
into joint ventures have access to investment, technological know-how and best
management practices while retaining management control.
The 2008 study has observed that organized retail, which now constitutes a small four per
cent of the total retail sector, is likely to grow at a much faster pace of 45-50 per cent per annum
and quadruple its share in total retail trade to 16 per cent by 2011-12. However, this represents a
positive sum game in which both unorganized and organized retail not only coexist but also grow
substantially in size.
6.4. ECONOMIC SURVEY 2008-09
The Economic survey recommended FDI in multi-format retail, starting with food retailing,
mentioning that: “initially this could be subject to setting up a modern logistics system, perhaps
jointly with other organized retailers. A condition could also be put that it must have (for 5 years
say), wholesale outlets where small, unorganized retailers can also purchase items (to facilitate
transition)”.
6.5. COMMITTEE ON FOREIGN AND DOMESTIC INVESTMENT IN RETAIL

TH
SECTOR-90 REPORT OF DEPARTMENT RELATED PARLIAMENTARY
STANDING COMMITTEE ON COMMERCE
th
The Hon‟ble Department Related Parliamentary Standing Committee on Commerce, in its 90
Report, on „Foreign and Domestic Investment in Retail Sector‟, laid in the Lok Sabha and the
th
Rajya Sabha on 8 June, 2009, had made an in-depth study on the subject and identified a
number of issues related to FDI in the retail sector. These included:
1. Labor displacing effects of FDI driven modern retailing.
2. Job losses due to predatory pricing strategies of large retailers.
3. Disintegration of established supply chains by establishment of monopolies of global

retail chains, leading to their control of both ends of the supply chain.
4. Inability of retail to boost GDP by itself, it being only an intermediate value added
process.
5. Disruption of current balance of the economy by rendering millions of small retailers

jobless.
The Hon‟ble Standing Committee, in its report on „Foreign and Domestic Investment in
Retail Sector‟, had, accordingly, made a number of observations/ recommendations related to the
subject, which, inter alia, included:

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1. Non-adherence of provisions of single-brand trading, practicing of product bundling by

corporate retailers and backdoor entry of foreign companies into retailing through
wholesale cash and carry trading.
2. Unemployment due to slide-down of indigenous retailers as a result of FDI in retail,

sidelining of consumers‟ welfare due to predatory pricing by retail giants, leading to their
monopolistic position and dictating of retail prices and unduly affecting of farmers due to
non-remunerative prices, paid by procurement centers constituted by big corporate.
3. Blanket ban on large domestic corporate houses and foreign retailers from entering retail
trade in grocery, foods and vegetables and restrictions on opening of large malls by them
for selling other consumer products; reservation policy and extension of financial
assistance schemes for expansion and modernization of small and medium retailers;
stopping of issuance of licenses for „cash and carry‟.
4. Unemployment created by corporate retail, as unorganized retail provides employment to

40 million people, which accounts for 8% of the total employment.
5. Establishment of in-built policy to re-employ/re-locate people dislocated due to opening

of big malls in the vicinity of their shops.
6. 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.
7. Extension of institutional credit, at lower rates, by public sector banks, to help improve
efficiencies of small retailers; undertaking of proactive program for assisting small
retailers to upgrade themselves.
8. Establishment of a National Commission to study the problems of the retail sector;

Enactment of an Act to protect medium and small retailers.
9. Providing a level playing field for small retailers; Analysis of traffic and economic
impacts before a store is given permission to open.
10. Setting-up of a Retail Regulatory Authority to look into problems and to act as a whistle-
blower.
11. Adequate safeguards to prevent diversion of agricultural land for building malls etc.
12. Enactment of a National Shopping Mall Regulation Act to regulate the fiscal and social
aspects of the entire retail sector.
13. Formulation of a Model Central Law.

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7. NATIONAL MOVEMENT FOR RETAIL DEMOCRACY
With the livelihoods of small traders and hawkers in threat due to the corporate entry in retail the
resistance against the later is growing in almost every part of the country. Hawker unions, trader
groups, farmers unions, worker unions and many more are joining hands to resist the corporate
entry into retail. The anger of people has been manifested explicitly in the form of rampage in
Ranchi and Indore, while tension in other parts of the country is still simmering. Many of the
organizations have shown their dissent in various parts of the country in violent and nonviolent
manner, but the major breakthrough happened when leading trade associations, farmers
organizations, trade unions, hawkers unions, Civil society organizations and academicians came
together for a National Convention to Resist Corporate Hijack of Retail organized at Rajendra
nd
Bhawan Auditorium in Delhi, on 22 April. The major organizations that came together on the
issue and decided to start a campaign against the corporate entry into retail were Navdanya,
India-FDI watch, Confederation of All India Traders, National Hawkers Federation, Centre for
Indian Trade Unions, All India Kisan Sabha, Hind Majdoor Sabha, Harit Recyclers Association,
Action India, AITUC and Bhartiya Mazdoor Sangh, Pawan Putra Rehri Patri Khomcha Sangh to
name a few.
The convention aimed to discuss and finalize the various aspects of the campaign to build an
intense and broader resistance to corporate onslaught on retail in India through the formation of
joint action committee and concretizing demands and oppose entry of large corporations into
Indian Retail business. The joint resolution called on the PMO to move forth in a transparent
manner in electing a Special Task Force, in which affected representatives would be represented,
to fully examine the impact that corporate retail will have on traders, hawkers, farmers, workers
and small industries. The PMO had commissioned a Special Task Force in early March, the
status of which was unknown to the public.
The findings of a research conducted by Navdanya, to find the socio- economic and
environmental impact of corporate retail were shared in the convention. The findings proved that
the entry of the big corporations was detrimental to the business of the small retailers and
hawkers, and if no strong legislation is made in favor of the latter they will not be able to save
their livelihoods.
In the convention, prominent social activists, academicians and leaders of mass based
organization addressed the masses about the threats of corporate entry, which resulted in a series
of discussions and action at various forums in the country. Considering the enormity of the issue,
it got highlighted in major newspapers and journals. As a result different organizations that were
resisting this entry in different parts of the country slowly joined the group adding strength to it.
In the month of May, 2007 the movement gained a lot of strength and became quite forceful
st
in the capital city. On 21 May, 2007 another round of meeting was organized to discuss about
the formation of national coordination committee and the agenda for the future. In a consensual
decision the movement was given the name “National Movement for Retail Democracy”
(Vyapar aur Rojgar Bachao Andolan). Few major decisions regarding the movement were taken
in the meeting which included intensive awareness campaigns at grass root level and actions like
dharna, demonstrations to be organized in the months of June and July, 2007. All member

- 115 -
organizations were asked to launch awareness programs on the issue among their mass base. A
street play team was formed for the awareness campaign at grass root levels. Finally a major
th
action was planned on 9 August, 2007, the committee decided with full consensus that
th
„Corporations Quit retail‟ movement would be launched on 9 August, 2007, which would
include a public rally at Ghanta Ghar in Chandni Chowk, Delhi.
After proper deliberations among the member organization a charter of demands was
formalized with the following demands:
Enact strict law to ban all corporations in retail.
Cancel all Wholesale Cash-N-Carry permission granted to foreign corporations &

immediately stop the backdoor entry of MNCs.
Formulate a National Policy on Retail Trade and Small Manufacturing Industries.
Implement the National Policy on Urban Street Vendors.
Institute Independent Special Task Force comprising representatives of stakeholders to

study on the Socio-Economic-Environmental and Cultural Impact of Corporate Retail.
Enact a law against predatory pricing and anti-competitive actions.
Repeal the changes made in Marketing through the APMC Model Act.
In the month of June, 2007 National movement for Retail Democracy worked closely with
stakeholders‟ organizations particularly of traders, hawkers, farmers, workers and civil society to
resist the corporate hijack of retail trade. It was instrumental in intensifying the resistance to
corporate retail by facilitating coalitions of stakeholders‟ organizations, building Joint Action
Committees in Delhi, Mumbai and Bangalore.
th
On 8 July, 2007 there was another round of meeting to discuss about the action and
campaign in the coming months. It was decided that there would be a month long intensive
th th
campaign (from 9 July to 8 August, 2007) with central propaganda materials (documentary
film, poster, leaflet, booklet, cartoons) targeting markets and mass meetings to be organized in
markets to call for the 9th August action.
A documentary on “Khudra Swaraj” (Retail Democracy) showing the implications of

corporate entry in retail was released by Navdanya on this occasion. This documentary is being
shown to hawkers and traders union in various areas all over the country for the purpose of
creating awareness and mass mobilization. The support for the movement is growing
significantly among the hawkers and traders in various places across the nation. Traders and
hawkers from all over the nation came together on this issue to organize a 50 hrs protest at Jantar
th th
Mantar in Delhi (17 -19 July, 2007). They demanded exit of all the corporations from the retail
sector.

- 116 -
8. ISSUES TO BE RESOLVED BEFORE ALLOWING FDI IN RETAIL
1. Should FDI in multi brand retail be permitted? If so, should a cap on investment be
imposed? If so, what should this cap be?
2. To develop the retail trade in food grains, other essential commodities and multi-brand
retail in general; should FDI be leveraged for creating back-end infrastructure? To ensure
that foreign investment makes a genuine contribution to the development of infrastructure
and logistics, should it be stipulated that a percentage of the FDI coming in ( say 50% )
should be spent towards building up of back end infrastructure, logistics or agro
processing?.
3. It is necessary to encourage only genuine players in this sector and avoid a situation
where retail outlets are run through working capital support from financial institutions.
Should a minimum threshold limit for investment in backend infrastructure logistics be
fixed? If so, what should this financial threshold be?
4. To develop our rural sector, should conditionalities be put on the FDI funded chains
relating to employment? For example, should we stipulate that at least 50% of the jobs in
the retail outlets should be reserved for the rural youth?
5. Similarly, to develop our SME sector through local sourcing, should we stipulate that a
minimum percentage of manufactured products be sourced from the SME sector in India?
6. How best can small retailers be integrated into the upgraded value chain? Can they be
provided access to the logistics/ supply chain set up by the FDI funded retailers? Should
it be stipulated that a minimum percentage of the latter‟s sales should be made to retailers
through special wholesale windows?
7. As a part of a calibrated reform process, should foreign investment for such stores be
initially allowed only in cities with population of more than 10 lakhs (2001 census)? As
there may be difficulties faced with regard to availability of real-estate in such cities for
setting up such ventures, should an area of 10 kms around the municipal/urban
agglomeration limits of such cities be included within the definition of the city?
8. Will any of the conditionalities mentioned above be inconsistent with our commitments
under the agreement on TRIM at WTO? If not, to ensure national treatment, can such
conditionalities be extended to all retail chains in India above a certain size? Will such
extended conditionalities be consistent with Article 301 of the Constitution?
9. What additional steps should be taken to protect small retailers? Should an exclusive
legal and regulatory framework be established to protect their interests? Is a Shopping
Mall Regulation Act required? Does this require intervention at national level or should
this be left to the States?
10. The present public distribution system provides a valuable safety net to vulnerable
sections of society. To ensure that the integrity of the PDS system is not weakened and

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buffer stock is maintained at the desired level, should Government reserve the right of
first procurement for a part of the season or put in place a mechanism to collect a certain
amount of levy from private traders in case the level of buffer stock falls below a certain
level?
11. How should compliance be ensured with the above stipulations? Should a centralized
agency, to be nominated by the State Governments concerned, be empowered to grant
permissions to every outlet to be opened? The onus of proving compliance with these
conditions could rest with the concerned retail chain. The chains could submit an annual
statement to such State Government agency providing proof of compliance. Should this
agency be empowered to monitor compliance of the present cash and carry outlets too?
12. The penalty for non compliance could include cancellation of approvals as well as denial
of future permissions for such activities. What additional penalties could be levied?
Should civil penalties be imposed? Or criminal? Or both?
9. BIBLIOGRAPHY
90th Report of Department Related Parliamentary Standing Committee on Commerce.

Committee on Foreign and Domestic Investment in Retail Sector.
(2001). Census. Registrar of Census, Government of India.
Chengappa, P., Achoth, L., Mukherjee, A., Ramachandra Reddy, B., & Ravi, P. (2003,
November 5-6). Evolution of Food Retail Chains: The Indian Context. Retrieved from
http://www.ficci.com
Chidambaram, P. (2004, December 14). Review hints at FDI in retail. Times of India , pp. 1-15.
Director(DIPP). (2010). Foreign Direct Investment (FDI) in multi-brand retail trading.

Department of Industrial Policy and Promotion.
(2008-09). Economic Survey. Government of India.
(2010-11). Economic Survey. Governement of India.
FICCI, & I. P. (2005). FDI in Retail-A Policy Perspective.
FICCI, & NSS. (n.d.). FICCI (2004) and NSS 55th Round Employment Survey (1999-2000).
Ganguly, & Saby. (n.d.). Retailing Industry in India. Retrieved from

http://www.indiaonestop.com
Guruswamy, M., Sharma, K., Mohanty, J. P., & Korah, T. J. FDI in India‟s Retail Sector - More
Bad than Good? Centre for Policy Alternatives.

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ICICI Property Services, Tehcnopak. (2007-08). India Retail Real Estate: The Read Ahead. An
ICICI Property Services – Technopak White Paper.
ICRIER. (2005). Foreign Direct Investment In Retail Sector-India.
ICRIER. (2008). Impact Of Organized Retailing On The Unorganized Sector.
Iyengar, & Jayanthi. (2004, January 31). China, India Confront the Wal-Marts, Online Asia
Times. Retrieved from http://www.atimes.com
Joseph, M., Soundararajan, N., Gupta, M., & Sahu, S. (May 2nd 2008). Impact of Organized
Retailing on the Unorganized Sector. New Delhi: Indian Council for Research on International
Economic Relations (ICRIER).
Khatri, P., Bhayana, D. S., & Goel, N. (n.d.). Problems, Prospects & Strategies in Retailing
Sector of India.
MBN Rao. (2004). Strategy for Financing Service Sector.
Navdanya. (2008). Corporate Hijack of Retail: Retail Dictatorship vs. Retail Democracy. New
Delhi-110 016: Research Foundation for Science, Technology and Ecology.
Rao(Chairman Indian Bank), M. (2004, September 15). Strategy for Financing Service Sector.
Presentation to FICCI .
Rao, B. (2004, December 1). Industry, Ugly Duckling. The Economic Times .
Robbins, N. (2004, December 13). The World‟s First Multinational. The New Statesman .
Rosling(Chairman Jardine Matheson), A. International Experience on Policy Issues.
Sasi, A. (2004, August 18). Indian Retail Most Fragmented. The Hindu Business Line .
Singhal, & Arvind. (1999). Retrieved from Technopak Projections, Changing Retail Landscape:
http://www.ksa-technopak.com
Singhal, & Arvind. (n.d.). A Strong Pillar of Indian Economy. Retrieved from http://www.ksa-
technopak.com
Singhal, & Arvind. (n.d.). Indian Retail: The road ahead, Retail biz. Retrieved from
www.etretailbiz.com.
Tarun, & Vijay. (2004, December 6). Debate: Should FDI Be Allowed In Retail Branding? The
Financial Express .
Technopak_Analysis. CSO, BRIC Report.

- 119 -
Wal-Mart_Corporation. (2004). Annual Report. Retrieved from Wal-Mart Corporation:

http://www.walmart.com

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SAJMMR Volume 2, Issue 7 (July, 2012) ISSN 2249-877X

Pub lis hed by : So u th As i a n Aca de mic Re sea r ch J o urna l s

GLOBALIZATION IN RETAIL CULTURE

AMIT ROHILLA*; MANOJ BANSAL**

India is a democratic country where everyone is free to choose his/her livelihood

KEYWORDS: Retailing, FDI, Organized Retailing, Unorganized Retailing.

South Asian Academic Research

1. INTRODUCTION TO RETAILING AND INDIAN SCENARIO

Retailing in an important social institution because about 30 percent of what a customer

TABLE 1: COMPONENTS OF SERVICE SECTOR IN INDIA

Components Share % in GDP (2002- Growth during

Construction 5.3 7.3

Trade 14.0 4.5

Hotels & Restaurants 1.1 4.0

Railways 1.1 5.7

Other Transport 4.3 6.0

Storage 0.1 -7.8

Communications 3.5 22.0

Banking & Insurance 6.9 11.6

Real Estate, Business/Legal Services 6.1 5.9

Defense 5.9 5.3

Other Community & Social Services 7.8 6.2

South Asian Academic Research

Total 56.1 7.2

GRAPH 1: COMPONENTS OF SERVICE SECTOR IN INDIA SHARE % IN

South Asian Academic Research

South Asian Academic Research

TABLE 2: GROWTH OF RETAIL OUTLETS IN INDIA („000)

Outlets 1996 1997 1998 1999 2000 2001

Food Retailers 2769.0 2943.9 3123.4 3300.2 3480.0 3682.9

Non-Food Retailers 5773.6 6040.0 6332.2 6666.3 7055.5 7482.1

Total Retailers 8542.6 8983.6 9455.6 9966.5 10534.4 11165.0

GRAPH 2: GROWTH OF RETAIL OUTLETS IN INDIA („000)

Food Retailers Non-Food Retailers

2. EMPLOYMENT IN RETAIL SECTOR

3. RETAIL TRADE IN INDIA AND SOUTH EAST ASIA

TABLE 3: RETAIL TRADE IN INDIA & SOUTH EAST ASIA

Countries Organized Unorganized

Source: CRISIL (Sasi, 2004)

South Asian Academic Research

GRAPH 3: RETAIL TRADE IN INDIA & SOUTH EAST ASIA

TABLE 4: GROWTH IN ORGANIZED RETAILING

GDP (Billion $) Retail Market (Billion $)

2006 804 300

2010 1133 427

2015 1721 637

Source: Technopak Analysis, CSO, BRIC Report

South Asian Academic Research

GRAPH 4: GROWTH IN ORGANIZED RETAILING

GDP (Billion $) Retail Market (Billion $)

4. WHY RETAILING IS A FORCED EMPLOYMENT SECTOR IN INDIA

South Asian Academic Research

5. QUEUE OF BIG GIANTS WITH BAGS FULL OF FOREIGN EXCHANGE

Average size of a Wal-Mart is 85, 000

Average turnover per store was about $

In 2004 the return on assets was 9%

5.1. FDI IN RETAIL SECTOR!