FDI In Retail

FDI in retail is an economic reform, which would allow global chains like Wal-Mart Stores Inc and Carrefour to own up to 51 percent of retail ventures. The policy would let foreign retailers own up to 51 percent of supermarkets and 100 percent of single-brand stores. The policy doesn't require parliamentary approval, but foreign retailers must get approval from state governments where stores will be located. The government, as a measure of protection, has said foreign retailers would have to source 30 percent of their goods from small industries. A Citi report says $15-20 billion in FDI could flow into the country over the next 10 years as a result of FDI in multi-brand retail. The report also says the move would help enhance the share of organised players in the overall retail sector, which currently account for about six per cent of India's $470-billion retail market Multi-brand retail in India is largely in the unorganised sector dominated by neighbourhood kirana stores and there is a concern among political parties and traders that these stores would be affected by the entry of global retailers. India's stellar economic growth is slowing, the rupee has skidded to record lows and inflation is stuck close to a double-digit clip. Faced with this predicament, Prime Minister Manmohan Singh seems to have weighed the benefits of opening a $450 billion market to foreign investment.

FDI Policy in India

Foreign Investment in India is governed by the FDI policy announced by the Government of India and the provision of the Foreign Exchange Management Act (FEMA) 1999. The Reserve Bank of India (RBI) in this regard had issued a notification, which contains the Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000. This notification has been amended from time to time. The Ministry of Commerce and Industry, Government of India is the nodal agency for motoring and reviewing the FDI policy on continued basis and changes in sectoral policy/ sectoral equity cap. The FDI policy is notified through Press Notes by the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion (DIPP). The foreign investors are free to invest in India, except few sectors/activities, where prior approval from the RBI or Foreign Investment Promotion Board (FIPB) would be required.

FDI Policy with Regard to Retailing in India

It will be prudent to look into Press Note 4 of 2006 issued by DIPP and consolidated FDI Policy issued in October 2010 which provide the sector specific guidelines for FDI with regard to the conduct of trading activities. a) FDI up to 100% for cash and carry wholesale trading and export trading allowed under

the automatic route. b) FDI up to 51 % with prior Government approval (i.e. FIPB) for retail trade of Single

Brand products, subject to Press Note 3 (2006 Series). c) FDI is not permitted in Multi Brand Retailing in India.

Walmart controversy
Till the turn of the century India was a market where unorganized retail was the norm most stores were mom and pop shops with department stores being few and far between. But that is changing. With a population of about a billion people and a burgeoning middle class, India holds out plenty of promise for the global and homegrown retailing giants. India's $250 billion retail business is the eighth largest in the world and has the potential to grow 7% by 2011 [McKinsey Report]. For a company like Wal-Mart, already dominating the world market, this is an un-passable opportunity. At the same time the country presents some unique challenges. It is a fact that so far Wal-Marts foray into the Indian market remains much of the shadow of its grandeur in rest of the world. Predictions of a keenly fought contest forIndias retail pie are on an all time high with the announcement of the first WalMart Store in Mumbai in collaboration with the Bharti Group, also referred to as the BhartiWalMart Store. According to Bharti-Walmart the launch will happen in phases over time. The Bharti Group is likely to invest $2.5b by 2015 in the retail sector while entering into a 50/50 joint venture with Wal-Mart for the cash and carry business in view of the FDI restrictions in the retail sector. Indias relatively new but fast developing retail sector with powerful local players like the Big Baazar and Reliance, will keenly test Wal-Marts business strategy in India. Being a powerful symbol of corporate monopoly and of consumerism Wal-Marts fortune in India isnt just an economic or business issue. It has become a widely debated politicized issue with bearings on the governments stand on foreign direct investment (FDI), monopoly in business, labor relations, and so on. This will also have serious implications on the future of the retail sector as a whole in the country. There are reports of opposition to State Governments in Kerala, West Bengal and Madhya Pradesh to retail surfacing in the public already. Last year, the country witnessed a spate of protests against the entry of big business houses in retail in general and in the food and grocery trade in particular. After closure orders against standalone stores served in Uttar Pradesh, opposition has surfaced with renewed

vigor. The powerful voices opposing Wal-Marts entry points to the fact that in all the countries where Wal-Mart has set up shop it has put other retailers out of business and has driven down wages. The companys clearly defined anti-union policy aims at preventing its work force from gaining collective bargaining power which could result in increased wages, covered health benefits and job security. There are several reports documenting the economic and eventual social and environmental setback that could occur when Wal-Mart comes to town. Local opposition isnt new to WalMart. With around 5000 retail outlets worldwide, operating in more then a dozen countries and with over US$286 billion in annual sales, Wal-Mart is the top retail chain and the number one fortune 500 company in the world. Indeed an enviable position to be in! In fact, the company accounts for 9 cents of every US retail dollar and sells around 20 per cent of the nations groceries and pharmaceuticals. Analysts say that WalMarts sheer size is the source of its unrestrained economic power allowing it to drive down costs in the retail and manufacturing sectors and to enact its own standards with regards to its work force. So much so that sometimes the company becomes a supra-legal entity.

Evaluation of FDI in India

This dissertation investigates managerial evaluation of FDI formation in a developing country. The assessment is likely to be influenced by a country's factor endowments, created assets and policy framework. The efficiencies of the processes relating to decision-making, IJV formation and FDI implementation in a particular country can also impact a firm's evaluation of the country. Further, all the above variables are assessed by a firm in the context of its motives and organisational characteristics. -After an initial growth period, driven by the country's economic reforms, FDI in India seems to have stagnated at relatively low levels. In addition, the conversion of FDI proposals (approved by Indian authorities) into direct investment in the country remains low. Empirical research on FDI outflows has typically focussed on large economies. A limited industrial base and market size differentiates Australia from these countries. -- This thesis contributes to the understanding of managerial assessment of a potential FDI destination in the context of Australian firms investing in India - a recent phenomenon that has not been previously explored. This research also differentiates itself from other studies in its investigation of FDI-related processes that are virtually overlooked in earlier empirical literature. Earlier empirical studies have explored some of the dimensions affecting a firm's assessment of an FDI location in isolation. Investigating these issues on the same set of sample firms renders the findings of this research more holistic. Through exploring the impact of a firm's organisational context on its assessment of a potential FDI location, this study also addresses the inadequate attention given to a firm's 'operational and strategicallybased variables' and to 'managerial' rather than 'market' processes in existing empirical literature on FDI (Dunning, 1988, p. 8; Buckley, 1996, p. 18). At a practical level, this research provides guidance to decision makers in India to improve its FDI appeal. It also identifies the key issues potential investors should consider in making FDI in the country. -- The theoretical base of this research is inter-disciplinary, incorporating explanations for FDI and IJV formation based on economics, behavioural science, organisational learning and strategic perspectives. Multiple perspectives are used in this exploratory study, primarily to extend our knowledge of FDI and IJV-related

processes and decisions. The findings are also compared with the expectations of the alternative theoretical frameworks. -- The data for this research was collected from 25 Australian firms that have invested in India already or have FDI proposals approved by Indian authorities during 1993-1998. A questionnaire was completed in personal meetings with CEOs or other senior executives of the firms in the sample. This data collection was supplemented by interviews with these officers from a sub-sample of 16 firms. -- This research finds that Australian firms are primarily driven by the aggressive motive of market growth in the liberalising economy. The overall FDI attractiveness of India's location-specific factors is perceived by firms to be in the significantly attractive class, albeit close to its lower bound. It is inhibited by unfavourable perceptions of the country relating to eleven location-specific factors which are important to a firm's FDI location decision. These factors are categorised into economic/financial (six), political/legal (three) and IJV-related (two). Firms, which have already invested in India, tend to rate the overall attractiveness of these country factors lower than other firms.

Conclusion my judgement
I commend the decision by the cabinet to allow global retailers into Indian market. The consumers will be the immediate beneficiaries and other people will also win ultimately. Walmart is not going to bring agriculture products from USA to sell in India because of the huge cost factor. So they will buy the produce in huge quantities from local and regional farmers. Walmart will compete with Reliance Fresh and will thus offer price advantage. So I do not see any thing wrong in allowing these Companies into Indian Market who will certainly raise the Bar and set new Bench Mark in Indian retail market. These Companies do not want Mining Lease, they do not want Farmers' Land to set up their Units, they are not displacing thousands of poor people from their Home and Hearth, and they are not going to generate mountains of Industrial Wastes. So it is madness to oppose FDI into Indian retail market. Incidentally all these Giants are already having their Procurement Cells buying Garments, Stainless Steel Kitchen hardware, and many other Items for their Outlets outside India. With Indian market opening up they will expand their Procurement cells and set up large Retail Outlets selling all Household items, food and vegetables under one roof, and and create good number of jobs for Indian youth. The point is if Countries like China and Thailand have no problem with these Giants, why should we assume that these Giants will affect the interest of our local manufacturers and Consumers ?? Wal-Mart is already having Cash and Carry Outlets in Punjab for bulk purchases and the local retailers and Bulk Consumers like Army, Air Force, Hospitals, Student Hostels, etc are reaping the Benefits. In our case, the Government has allowed the Giants to open Outlets only in 30 cities having population more than One million as per the Census-2011. Indeed Odisha has nothing to lose or gain from thes Global retail Giants , as we have no City with One million population. Cities like Kolkata, Vizag, Jamshedpur, Raipur in our neighborhood may have these Outlets subject to approval from the respective State Government.