As per the current regulatory norms, in 1997 FDI in (wholesale) cash and carry with 100 percent ownership was allowed under government approved route, the same had been brought under automatic route in 2006. The investment in single brand retail was initially allowed up to 51 percent in 2006 which in recent times has been relaxed to 100 percent.

The Indian retail industry is separated into two parts organized and unorganized sectors. Organised retailing implies to the trading activities of retailing undertaken by the licensed companies those who are registered for income tax, sales tax etc. whereas unorganised retailing implies the same old stereotypical formats like the local kirana shops, convenience stores etc. India’s retail sector have done tremendous growth in the past few years and marked as the fastest growing sector in the Indian Economy.

The Indian retail sector is highly dispersed with 97% of the retail business is conducted by the unorganized sector of the retail business, Though organized proportion is increasing year on year yet this is quite low when compared to the other emerging countries. The retail sector is the largest employment generator after the agricultural sector in India and it has deep roots in the rural India and contributes more than 10% of the India’s GDP.

RESEARCH METHODOLOGY:

There is ongoing debate over the FDI in retailing last few years. The study thus discusses about what is the situation of organized retail in India and challenges faced by organized retail. In the past it had been evident that FDI had not been allowed in free and healthy mode and there is no automatic route except cash and carry mode. The study is being done in lights of how the FDI in retail will help the Indian economy, strategic implication of FDI, and concern over FDI.

The study is basically to examine the implications of the FDI in retail particularly with respect to Indian situations, FDI can have a mixed bag of effects over Indian economy and seeing the present situation it is evident that there will be displacement of the labour in the unorganised sector in the initial phase and the by far and largely analysts say that the impact of FDI in retail will come in the medium to long term and no immediate effects will be seen by the move.

The benefits for allowing FDI in the retail sector is being discussed as it will immediately cater the problem of Inflation majorly food inflation which had been the major concern for the Indian government from the past few times, another major benefit will come to MSME’s as there is a proposition from DIPP to have a local sourcing of 30% from SME’s. The concern that majorly revolves around is the sudden displacement of the labour from the unorganised

sector, various socialist organization and parties are actually against to the move due to the same reason. The benefits outweigh the concerns regarding allowing FDI in retail and by far move can be fruitful for the government from economic point of view.

The methodology adopted has been descriptive and comparative methodology for this report. Secondary data has been used to supplement the report of study. Data is relied on the books, journals, newspapers and online database.

LITERATURE REVIEW:

In 2004, The High Court of Delhi¹defined the term ‘retail’ as a sale for final consumption in contrast to a sale for further sale or processing (i.e. wholesale) a sale to the ultimate consumer.

Organised 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.

Unorganised 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. The Indian retail sector is highly fragmented with 97 per cent of its business being run by the unorganized retailers. The organized retail however is at a very nascent stage. The sector is the largest source of employment after agriculture, and has deep penetration into rural India generating more than 10 per cent of India‘s GDP.²

Evolution of Indian Retail Sector

AT Kearney’s seventh annual Globe Retail Development Index (GRDI), in 2008 stated Indian Retail Industry to be the 5^th largest retail destination and second most attractive market in the world after Vietnam for Investment.

Evolution of the retail sector is evident as the share of the organised sector in 2007 was 7.5% of the total retail market. Organised retail market in India is very small but has tremendous scope; the total in 2005 was $225 billion, accounting to 11% of GDP, Out of this only $8 billion of total revenue was from the organized sector. According to AT Kearney, the organised retailing is expected to grow at a great pace and expected to go up to US $833 billion by the year 2013. It is further expected to reach US $.13 trillion by the year 2018 at a CAGR of 10%. Country is achieving high growth rate, the consumer spending has also increased and is expected to grow further in the future years. In last four years, the consumer spending in India climbed up to 75%. As a result, the Indian retail industry is expected to grow further in the future. By the year 2013, the organized sector is also expected to grow at a CAGR of 40%.

The key drivers for the growth in retail industry are young demographic profile, increasing consumer desires, growing middle class economies and improving demand from rural markets. Rising incomes and improvements in infrastructure are expanding consumer markets and leading to the convergence of consumer tastes. Liberalisation of the Indian economy, increase in spending and per capita income also helps in the growth of retail sector.

One report estimated that in 2011 Indian retail market has generated sales about $470 billion of which $27 billion comes from the organised retail. Some claim opening up of the industry to free market competition will enable rapid growth, but others believe that growth of the industry will take time and will possibly be taking a decade to grow to the level of 25%.³

In 2011, food accounted for 70% of Indian retail, but was under - represented by organised retail. AT Kearney estimated India’s organised retail had a 31% share in clothing and apparel, while the home supplies retail was growing between 20% to 30% per year.⁴

Impact of FDI on Indian retail sector

The impact of FDI in retail will result in no immediate impact but the benefits will definitely accrue over medium to long term. While FDI in multi brand retail has been opposed by the several citing the fear of job losses, swiping of traditional retail and rise in imports from cheaper sources like China, advocates of the same indicates the increased transfer of technology, enhanced supply chain efficiencies and boost in employment opportunities as the perceived benefits. The entry of the retain giants like Walmart will benefit the consumers by addressing the problem of inflation through price reductions and reduction in agricultural waste. However some suggests that the move will create an oligopolistic pressure on the farmers and consumers and at the same time will throw the small retailer out of the game.

Benefits of the FDI in Indian retail

Firstly it will help in stretching up the balance sheets of the cash deficient domestic retailers and bridging the gap between retailers’ capital growth and raise in the capitals.

Secondly local official authorities are benefitted from the supply chain and human capital investments. Bargaining powers of retailers and FMCG companies is also easy when the retailers attain size and scale.

Lowering inflationary pressure

It will also help in the reduction of inflationary pressures in the following ways: Farmers can sell their products directly to the retailer which will help in the reduction of the price paid to the middlemen. Better supply of products and food helps in the less wastage of food which was quite frequent earlier. This results in the betterment of products and wide variety of choices for the consumers.

Recent studies quantify the price impact of entry by low cost entrants. For example, using average citylevel prices of various consumer goods, price dynamics in 165 US cities before and after Wal-Mart entry suggest robust reduction in prices for several products while magnitudes vary by product and specification, but generally range from 1.5–3% in the short run to four times as much in the long run (Basker, 2005b)⁵with significant increases in consumer surplus especially for lower income households (Hausman and Ephraim, 2007).⁶

Improving Distribution and other allied Technologies:

It also improvised the productivity by direct sales and elimination of the middle men who used to dominate the outflow of the value chain and the pricing. This sector has also opened up the opportunities in various sectors like agro processing, marketing, logistics and front end retail business.

The Indian Prime Minister, Dr Manmohan Singh, called for a debate on the opening up of the sector on similar lines, pointing to the vast difference between farm gate and consumer prices.⁷

In this context, the DIPP’s discussion paper points out that the farmers get just a third of the total price paid by the final

consumer, as against two-thirds realized by farmers in nations with a higher share of organized retail. FDI in retail, therefore, could be an efficient way of addressing concerns of farmers and consumers (DIPP Report, 2010).⁸

Boost in employment opportunities and Growth of SME’s:

DIPP report also suggested that with the rider of sourcing the 30% manufacturing from local SME’s would also provide a cushion to boost the Growth of SME’s in India. Moreover the expansion in the retail would generate significant employment source especially among the rural and semi urban population. The discussion paper suggested that there is good possibility of encouraging 50% percent of the rural youth in the FDI retail outlets.

The data below can give you a glimpse how successfully the implementation had taken place in some countries:⁹

Country	FDI Limits	Benefits	Remarks
China	100%	First permitted in 1992 with foreign ownership restricted to 49%, progressively lifted and now no restrictions Over 600 hypermarkets opened between 1996 and 2011  The number of small outlets (equivalent to ‘kiranas) increased from 1.9 million to over 2.5 million  Employment in the retail and wholesale sectors increased from 28 million people to 54 million people from 1992 to 2001	Impressive growth in retail and wholesale trade
Thailand	100%	Referred to a country where FDI had an adverse effect on local retailers  Has a limited capital requirement for retail and wholesale outlets	Growth in agro processing industry
Russia	100%	Supermarket revolution took place in 2000s Heavy growth registered
Indonesia	100%	Modern retail took off in 1990s  No limit on number of outlets  Matahari is leading chain

Concern regarding FDI in retail

The impact of local incumbents on domestic and unorganised sectors has resulted in the unfair competition and has ultimately resulted in the exit of large scale industries. It has mostly affected the small family managed outlets.

This has also disintegrated the supply chain of global retailers which results in the control from both the ends. It ignored consumer’s welfare because of the prices dictated by the big retail companies on account of their position in the market. Non remunerative prices affect the farmers which they source it from various corporate companies.

Various political parties, trade unions and associations have criticised FDI in retail out rightly. It is argued on the grounds that Indian retail market is still needs to be evolve and needs time to consolidate their position in the market and relatively not prepared for the competition from these big retailers.

Indian retailers have argued that since lending rates are much higher in India, small retailers thus are at disadvantageous position with foreign retailers who have access to funds at lower interest rates.

CONCLUSION:

The move of opening up of FDI in retail can be a mixed bag of problems and solutions for domestic markets and players. While initially the small retailers will definitely get affected with the entrance of modern retail outlets, but the adverse impact is expected to be short termed and will weaken over time. Though the long waited move will not reap benefits in the short term, it will prove to give benefit in the long run.

The major boost will be for the economy and hence expected to increase the purchasing power capacity of the country this major change is the strongest reason in support of FDI, farmers will get benefit of the direct marketing window with these big retail giants and thus can be get better remunerated, but the farmers need to be backed up by the government with proper policy making for non-exploitation in the long run by the foreign retailers. Competition Commission of India needs to play a proactive role and hence needs to check the predatory pricing policy which can hamper the interest of other retailers in the market. Innovative government measure needs to be taken to mitigate adverse effects over small retailers like introducing some riders in every essential field of retail.

In this paper we have talked about various issues, primarily on the front it seems that advantages will outweigh the disadvantages associated with the unrestrained FDI in retail and the same can be deduced with the experimental success of the move in countries like Thailand and China where the issue of allowing FDI had also met up with the initial protest but later turned out to be the most promising decision in light of economic and political environment. As expected the India can capitalize on the move of allowing FDI will bring more competition in the retail market and the reformation of the rural sector can eventually bring in the socio-economic stability in the economy.

REFERENCES:

1. Association of Traders of Maharashtra v. Union of India, 2005 (79) DRJ 426

2. India‘s Retail Sector (Dec 21, 2010) http://www.cci.in/pdf/surveys_reports/indias_retail_sector.pdf"

3. Indian retail: The supermarket‘s last frontier", The Economist, 3 December 2011.

4. Retail Global Expansion: A Portfolio of Opportunities". AT Kearney. 2011.

5. Basker, Emek, 2005b. “Selling a Cheaper Mousetrap: Wal-Mart's Effect on Retail Prices,” Journal of Urban Economics, Vol. 58, No. 2, pp. 203-229.

6. Hausman, Jerry A. and Ephraim Leibtag, 2007. “Consumer Benefits from Increased Competition in Shopping Outlets: Measuring the effect of Wal-Mart.”Journal of Applied Econometrics, Vol. 22, No. 7, pp. 1157–1177.

7. Speech at conference of Chief Minister on Prices of Essential Commodities, 5thFebruary, 2010

8. Department of Industrial Policy and Promotion, 2010. “Foreign Direct Investment (FDI) in Multi Brand Retail Trading,” Discussion paper. Available at http://www.dipp.nic.in.

9. Press Information Bureau, ICRA, December 2011.

Received on 10.01.2014 Modified on 22.01.2014

Asian J. Management 5(2): April-June, 2014 page 117-120