INCON13-GEN-013

A STUDY OF THE FLIP SIDE OF FDI IN INDIAN RETAILING SECTOR

Prof. Mangesh Asawalikar Assistant Professor ASMs Institute of Professional Studies, Pimpri, Pune. Prof. Pranita Arbat Assistant Professor ASMs Institute of Professional Studies, Pimpri, Pune.

Abstract : The present study of FDI in the Indian Retailing sector is a deliberation that leads to an observation based on Empirical study that gives an understanding of the consequence of evil effects of the same especially in the Indian context as regards the retailing sector is concerned with the advent of the retail giants such as Walmart, Carefour, Tesco etc..As regards this a special reference is made to Externalities from FDI in the Mexican retailing sector by Cedric Durand. In his findings he has noted that the arrival of foreign firms accelerates the modernization but has a negative impact on local firms performance as well as local worker remuneration as a result of the growing competitive pressure in the sector. Secondly he had also showed the changes that occurred in supply chain governance and the tremendous increase of imports initiated by Walmart in Mexico and thereby having startling evil implications for local suppliers. As Mexico is in a stage of developing economy very much similar to India, the present study is vital and could be correlated to the Indian retail industry as well. In addition to this the much hype about the employment generation that the FDI would be making also requires a careful analysis and the study of the pros and cons of such an investment. Therefore my study is also directed towards the subject matter. Key words: Foreign direct investment- Retailing- India- Trade

1. I) Introduction:
In furtherance to the Mr. Cedrics findings it can be noted that a belief that mire Indian mind that the FDI leads to substantial positive effect through horizontal or vertical spill over does not go with the fact that the growing literature suggest that there is nothing automatic about such a positive mechanism. As from his study he has noted that the FDI accounts for approximately 60% of FDI in developing countries however most of the discussion focuses on FDI in manufacturing sector which has less significant as a part of his study. In the Indian context therefore it is vital to study the Indian retail industry in proper perspective. The retailing in India mainly accounts for an unorganized sector accounts for 14 to 15 percent of the GDP and estimated to be USD 450 billion and is expected to be one of the top five retail markets in the world by economic value. The population in India is
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exploding at an alarming rate hovering at 1.22 billion therefore the alarm has struck to understand this problem at this very hour to curtail for the problems regarding unemployment, food, water and shelter that will be augmented in the coming years. Thus the present Indian employment problem is studied based on the demographical population with respect to Employment. Therefore the present study is categorized in two parts. A. B. The Current Indian retail sector, the supply chain system in India, the Indian consumerism as regards their financial status, their tastes etc. The Indian Unemployment Scenario visa-vis the growing population.

II) The Current Indian retail Market India's retailing industry is essentially owner manned small shops. In 2010, larger format convenience stores and supermarkets accounted for about 4 percent of the industry, and these were present only in large urban centers. India's retail and logistics industry employs about 40 million Indians (3.3% of Indian population). Organized retailing, in India, refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include 1. 2. 3. 4. 5. 6. The publicly traded supermarkets, Corporate-backed hypermarkets and retail chains, The privately owned large retail businesses. Supermarket, grocery chains Convenience stores Fast food chains

Unorganized retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example 1. 2. 3. 4. 5. The local mom and pop store Owner manned general stores such as the kirana stores Paan/beedi shops Convenience stores Hand cart and pavement vendors, etc

Organized retailing was absent in most rural and small towns of India in 2010. Supermarkets and similar organized retail accounted for just 4% of the market. The Un-organization in the retail sector is studded with unprofessional and less systematic functioning of the industry as most Indian shopping takes place in open markets or millions of small, independent grocery and retail shops. Thus leading to 1. No clear price mechanism leading to arbitrary charge of the prices, inflationary price due to varying prices based on negotiations and no price labeling such as MRP, expiry date etc.
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2. Shoppers do not have easy access to the products they desire because of the lack of system of effective shelf system and storage space. 3. The Indian consumers are mostly victims of the second quality, cheap product, less unhygienic and other problems encountered with the reasons of unethical practices followed by the shopkeepers thus leading to improper flow of product information to the consumer. The following is the list of the comprehensive list of Food and Grocery retail in India. Sr.No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 27 28 Group Name Heritage Foods Big Bazaar Bharati Enterprises RPG Group Nilgiris+Actis Vishwapriya Reliance Industries Ltd. Supplyco (KSCSCO) Dairy Farm International AB Group AB Group RPG Group Sankalp (Retail value stores Ahmedabad) Hiranandani Group Trent India Ltd. Shoprite Hypermarket Co-operative Kerala M.K.Ahmedabad Bangalore Margin Free markets Godrej Wadhwan group Pyramid Holdings Zakira Shahid Group Apna Bazaar (Cooperative Retail Group) Adani Group Radhakrishna Group Varkeys Kerala Brand Name Fresh @ Food Bazaar FieldFresh Spencers Nilgiris Subhiksha Reliance Fresh Maveli stores Giant Fab Mall Trinetra Food World Sankalp Haiko Star India Bazaar Shoprite Triveni Stores M.K. Retail Margin Free markets Natures Basket Spinach Trumart Sabka Bazaar Apna Bazaar Adani Radhakrishna Foodland Varkey

III)

The Current Supply Chain system in India In this regards a special reference is made to Supply Chain Management : A Comparative study between Large Organized Food and Grocery Retailers in India by Dr. Joy Mukhopadhyay, Professor of Sales and Distribution Management, International School of Management Excellence Management and Entrepreneurial Academy, Bangalore (joymukh@gmail.com). In his findings on
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the supply Management system as a matter of value added services to customers, the traditional grocers have introduced a self service formats such as credit, home delivery etc. In furtherance to this he mentions that the retailing in India is unorganized with poor supply chain management perspective. An overwhelming proportion of the Rs 4,00,000 crore retail market is unorganized as compared to only Rs 20,000 crore of the segment is organized. Area wise also 5 million-plus outlets are smaller than 500 square feet area which is an indication that India per capita retailing space is about 2 square feet as compared to about 16 square feet in the USA thereby ranking the lowest in the world.

To take this one step higher, the break-up of typical supply chain costs in India is as indicated in the figure below. This clearly indicated how over 55% of costs come from transportation whether outbound or inbound. Other major costs include inventory carrying costs and warehousing costs. IV) The Consumer Psychology of India. The Indian Consumer is habitual to savings towards (Age group 15-55- Urban and rural) a. Future b. Electronics and durables.
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c. d. e. f. a. b. c. d. e. f.

Entertainment 1600% growth in usage of mobile almost 3 million subscribers a month. Creation of debt mainly for housing, and electronic appliances 60% of Salaries in Emi 2. Believes in Indian goods Price conscious and therefore demands good quality at cheap price. Eating habits ranges from Indian made to MC Donalds Women folk are main decision makers Ready to eat food and usage of appliances such as washing machines in great demand due to growing class of working women. InfoTech awareness has been growing

V) The Demographic population of India with respect to the Current Employment: The scary figure of the Indian population now at 1.22 billion growing at an alarming rate has to be seen as to what is the current demography of Indian population consist of as regards the current employment is concerned and an added benefit what FDI has to offer and what it will be taking away. And even going one step further looking at the population projections, India is projected to overtake China as the world's most populous nation by 2030. India's population growth has raised concerns that it would lead to widespread unemployment and political instability. Note that these projections make assumptions about future fertility and death rates which may not turn out to be correct in the event.

2020: 1,326,093,000 2030: 1,460,743,000 2040: 1,571,715,000 2050: 1,656,554,000

Industry-wise Employment in Organized and Unorganized Sectors in India as per 2001 Census (Rupees in Crores) Sector Agriculture Mining & Quarrying Manufacturing Electricity, gas and Water supply Total Employment 23.80 0.23 4.80 0.13 Organized Sector 0.14 0.10 0.66 0.10 Unorganized Sector 23.60 0.13 4.14 0.03

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Construction Trade Transport, Storage & Communication Financial Services Community, Social and Personal Services

1.76 3.73 1.47

0.11 0.05 0.32

1.65 3.68 1.15

0.51 3.32

0.17 1.15

0.34 2.17

Total Employment

39.70

2.80

36.90

2. Significance of the Study:The significance of the study can be seen that the foreign direct Investment has not necessarily helped the developing nations as seen from the study analysis made by various research scholars. In fact the concept such as the FDI has been the mouth piece of the developed nations that has given a fodder to breed on the profits of the developing nations in the name of globalization. The paper examines this issue that had correlated the various examples of the research scholars and this can be particularly applied in the Indian context. In addition to this much is talked about the employment generation and curtailment of the retail prices that the FDI would be making. Therefore a careful analysis is needed in this regards so as to observe the viability of the contention.

3. Objectives of the study:a. To make a Cost Benefit Analysis of the advent of the Foreign Retail Giants b. In this context what India will be gaining in this regards and what it will have to part.

4. Hypothesis:Foreign Direct Investment in the retail sector will be disrupting the Indian employment demographic structure and would lead to just a transformation from the unorganized to organized sector only and not necessarily generate new employment.

5. Research Methodology:The contribution to the discussion as regards the flip side of the FDI in the retail sector is based on Empirical study referring to the Secondary data available on different web-sites.

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6. Data Analysis, Interpretations and Findings:The Available data and the research already made on the above subject has given an understanding that Cedric Durand who had made the study analysis has revealed that the Foreign direct investment that has been accentuated by the International giants such as Walmart, Careffour have caused disasters for the local entrepreneurs and this could well materialize in the Indian context also. Therefore learning from the other peoples experience is the key to any decision making before a giant leap is made by allowing Foreign direct investment in India This goes without saying that there is no free luncheon and everything has a price to be paid for and this could be very well in the form of taking away the profits from Indian funds. This could be sited with an example such as Mr. X (a foreigner) invests 10000 dollars in India with a promise to provide all the modern facilities to the Indian citizens. But when Mr. X is investing such a sum the Cost benefit analysis can be had from the following On the benefit side 1. He gives employment to Indian people 2. A good quality product at reasonable price. 3. He eliminates the intermediaries by providing an effective and a highly sophisticated distribution system. 4. Therefore there is control on the rise of inflationary threat. On the loose side 1. He disrupts the self-employed class which are already into business 2. He is free to import as much as possible thereby making the Indian farmer lame duck for loss of production opportunity and thereby creating a lacuna in the balance of trade in the economy. 3. He dictates the Indian market and thereby can be a price maker in future. 4. He provides employment to have a sound educational background only at salaries which he can demand, thereby reducing the wage structure in vogue The above example can be very well be correlated to the Unorganized sector in India with the advent of Wal-Mart and other retail giants coming into India. Therefore one can easily smell a rat as these giants in the name of globalization can inject funds and siphon off huge sum of money from the India which could not be beneficial to India from a long term perspective. As seen from the studies the present demographic structure of employment where majority of the Indian society is in the unorganized sector will be jobless and a new class of educated class will emerge and will get satisfied in getting employed with the retail giants. Therefore the already self employed class will get replaced and no new employment generation will take place. Also there is a danger of taking a leap into the arena where people will develop a mindset of a satisfied job this in turn India will be creating a class of Educated Employed and destroying a class of Educated Self Employed who are Entrepreneurs, innovators and a real contributors to the nation.
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7. Limitations: It is a study based on only limited data and based on the research already made on the subject matter in other developing countries such as Mexico, Africa etc.. The time duration for the study is very less and the access to limited information. 8. Hypothesis Testing:According to the study and the inference drawn the hypothesis is tested affirmative as the foreign direct Investment is more beneficial to the developed nations rather than underdeveloped ones. 9. Suggestions:i. India must encourage Foreign Institutional Investors only so as to maintain its hold. This will help Indian industry maintain its business secrecy ii. The Intermediaries in the Indian market segment could be eliminated by resorting to E-Commerce, Direct marketing in tune with the International market iii. Proper training facilities should be provided to Indian farmers and homemade producers so as to resort to modernized techniques and also making more literate and bringing about international awareness iv. The Chain system can be developed by encouraging Indians for cold storage facilities in tune with the Indian system v. Corruption is a viscous circle and has a cascading effect on Indian businesses. This is the need of the hour in routing out from the Indian system vi. India must encourage more innovative ideas and self employed class so as to give more scope to research and innovative creation. vii. India must thrive to be self-dependent and use man-power resource to develop economically this can be attained by thriving on an effective long term strategy.

10. Conclusions:1. Above all India must learn from the history as history repeats by itself as needless to point out that the 150 years of the British Raj has a live example of traders coming to India in the name of cheap priced goods and then went on to rule India. 2. Therefore resorting to the above suggestions can bring about the mindset of Indians to CREATE and become LEADERS rather than FOLLOWERS. 3. Thus learning from the history and encouraging Indian business is the need of the hour to become self dependent and self reliant.

References: I. II. Cedric Durand; Cambridge Journal of Economics; Externalities from foreign direct investment in the Mexican retailing sector, (2007) 31(3). Mohan Guruswamy, Kamal Sharma, Maria Minis Jos, FDI in Retail III, Implications of Walmarts Backdoor Entry New Delhi; 2007.
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III.

IV.

V. VI. VII.

VIII.

Joy Mukhopadhyay, Supply Chain Management: A Comparative Study between Large Organized food and Grocery Retailers in India, Seminar on Logistics & Supply Chain Management, IASMS, Bangalore. Vera Belaya and Jon Henrich Hanf, Foreign direct investment as an agent of change in Russian agrifood, Department of Agricultural Markets, Marketing and World Agricultural Trade, Leibniz Institute of Agricultural Development and Eastern Europe (IAMO), Halle (Saale), Germany Internet:- whereisdoc.com, www//Google .com. Data Monitor, Market watch, Walmart, China in its hands, September 2005 Chari,Anusha, Madhav Raghavan,Foreign Direct Investment in India's Retail Bazaar: Opportunities and Challenges, World Economy, Jan. 2012, Vol. 35 Issue 1, p79-90, 12p, EM Round up, E M Round up, Article on Emerging market, India Foreign Investment growth Articles,-12 January 2007.

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