CHANGI NG STRUCTURE OF

FOOD RETAI L I NDUSTRY I N

I NDI A : A COMPARATI VE
ANALYSI S

BY: Charu Arora
Dr. Swami Prakash Srivastava
Dayalbagh Educational Institiute


1.1 An Overview of Indian Retail Industry

Indian retail industry is one of the sunrise sectors with
huge growth potential and accounts for 14 to 15 percent
of its GDP.
The Indian retail market is estimated to be US$
450 billion and one of the top five retail markets in the
world by economic value.
India is one of the fastest growing retail markets in the
world, with 1.2 billion people. The India Retail
Industry is gradually inching its way towards
becoming the next boom industry.

Value in Billion
Year Organized Unorganized Total
2004 280 9020 9300
2005 375 9925 10300
2006 550 11450 1200
2007 783 12517 13300
2008 1120 13680 14800
2009 1600 14800 16400
2010 2300 15800 18100
CAGR 2004-2010 (%) 11.74




Current Scenario of Indian Retail
Industry
The Indian Retail industry has grown at a CAGR of
14.6% for the period Five year plan (2007-12).
The said growth can be attributed to the growing Indian
economy, increase in Private Final Consumption
Expenditure (PFCE) and the change in consumption
pattern of the Indian populace.
Of all the retailing segments, the contribution of food
& grocery' has remained the highest at 58% of the total
retail sales during FY12 (p) with the
clothing & footwear' segment remaining the second-
largest contributor occupying 10.5% of the total retail
pie during the same period.
During FY07- 12 (p), the organized retailing in India has
grown at a CAGR of 26.4%;
Of the organized retail sales during FY12, the
contribution of Clothing & Footwear' segment remained
the highest at 37% with
the Food & Grocery' segment being the second-highest
contributor accounting for 24.2% of the total
unorganized retail sales.
Notably, the penetration of Food & Grocery' segment
remained low at 2.8% owing to greater sale of fresh
produce and groceries from the organized retail outlets.
During the latter half of FY12, the retailers however
witnessed slowdown in consumer spending as reflected
through their Same Store Sales performance.
However, in spite of the recent developments in
retailing and its immense contribution to the
economy, Retailing continues to be the least evolved
industries and the growth of organized retailing in
India has been much slower as compared to rest of the
world.

Undoubtedly, this dismal situation of the retail sector,
despite the on-going wave of incessant liberalization
and globalization stems from the absence of a FDI,
encouraging policy in the Indian retail sector.


FORIGN DIRECT INVESTMENT IN
INDIAN RETAIL SECTOR

According to International Monetary Fund, FDI is
defined as

Investment that is made to acquire a lasting
interest in an enterprise operating in an economy
other than that of the investor. The investors
purpose being to have effective voice in the
management of the enterprises.



We need greater competition and
therefore, need to take a firm view on
opening up of the retail trade.

Manmohan Singh, Prime Minister of India
The Eminent economist and prime minister of India Dr.
Manmohan Singh have played an important role in
liberalizing Indian economics.
First as opening the Indian market for world by allowing
FDI
secondly to extend the FDI in multi brand retail sector.
Liberalization of trade policies during the last one and
half decade has led India to become an investment
friendly country.
Though India is the tenth most industrialized country
in the world, it is well known that it is mainly agro-
based with around 70% population engaged in the
farm sector.
However, in the initial stage of liberalization, FDI was
centered on the urban manufacturing sectors because
of its civic infrastructure, labour availability, flexible
taxation mechanism etc.

The retailing sector in India has undergone a
significant transformation. This forced to bring about
changes in Foreign Direct Investment policy. After
battling stiff political opposition, the government
allowed 51 per cent FDI in multi-brand retail in
September 2012, but left it to the states to permit
global retailers to open stores. The government also
gave its go ahead for 100 per cent FDI in single-brand
retail from 51 per cent earlier.

2.1 FDI in Single-Brand Retail
Selling goods under one or single brand name. As
Nike Company opens outlets in Bangalore, Delhi,
Mumbai and Agra selling nothing but Nike shoes,
Nike wrist-watches and Nike t-shirts etc...FDI in
Single-brand retailing implies that foreign companies
would be allowed to sell goods sold internationally
under a single brand, viz., Reebok, Nokia, and
Adidas.

The cumulative foreign direct investment (FDI)
inflows in single-brand retail trading, during April
2000 to June 2011, stood at 69.26 million USD.

In single-brand retail, FDI up to 100 per cent is allowed,
subject to Foreign Investment Promotion Board (FIPB)
approval and subject to the conditions mentioned in
Press Note 3 that:

Only single brand products would be sold
Products should be sold under the same brand
internationally,
Single-brand product retail would only cover
products which are branded during manufacturing
Any addition to product categories to be sold
under single-brand would require fresh approval
from the government.



2.2 FDI in Multi-Brand Retail

Multi brand retailing refers to the marketing of two
or more similar and competing products, by the same
firm under different and unrelated brands.

As Big Bazaar opens mall on above cities, such as
Reebok, Nike, Adidas, and Tommy Hilfiger.

Opening up FDI in multi-brand retail FDI in Multi
Brand retail implies that a retail store with a foreign
investment can sell multiple brands under one roof,

2.3 Strategic Issues Concerning FDI
In The Indian Retail Industry
The last two decades, have seen India open up its
economy in a slow but steady fashion to private as well as
foreign investment. The foreign investment is governed
through the FDI policy which regulates industries open to
foreign investment.

As part of the economic liberalization process set in place
by the Industrial Policy of 1991, the Indian government
has opened the retail sector to FDI slowly through a series
of steps:


YEAR INITIATIVES TAKEN BY GOVERNMENT
1991 Indian economy opened FDI up to 51% allowed under
the automatic route in select priority sector
1995 World Trade Organizations General Agreement on
Trade in Services, Which includes
Both wholesale and retailing services came into effect.
1997 FDI in cash and carry (wholesale) with 100% rights
allowed under the government approval Route.
YEAR INITIATIVES TAKEN BY GOVERNMENT
2006 FDI up to 51% allowed with prior Government approval in
'Single Brand Retail'
2012 The government allowed 51 per cent FDI in multi-brand
retail, but left it to the states to Permit global retailers to
open stores. The government also gave its go ahead for
100 per cent FDI in single-brand retail from 51 per cent
earlier.
2.4 Sources of FDI in India

India has broadened the sources of FDI in the period
of reforms.

There were more than 130 countries investing in India
in 2011 as compared to 15 countries in 1991.

Thus, the number of countries investing in India has
been increased after reforms.

COUNTRIES

FDI (in %)

Mauritius

41.56 %
Singapore


9.84%
U.S.A 7.17%

Japan

4.15%

Germany

2.30%
France

1.87%

UAE

1.44%

Source: Complied & computed from the various issues of Economic Survey,
RBI Bulletin, Ministry of Commerce
IMPACT OF FDI IN INDIAN RETAIL SECTOR

3.1 Advantages of FDI
Overall growth of the country



growth
and
expansion
of the
market and

change in
consumer
spending
pattern and
also
increase in
their
spending

lead to
higher
GDP in the
country
Creation of more and better employment
opportunities:
This helps the Indian human resource to find better
quality jobs and
to improve their standard of living and life styles on par
with that of the citizens of developed nations.
Benefits for the Farmers
Lack of adequate storage facilities causes heavy losses to
farmers, in terms of wastage in quality and quantity of
produce in general, and of fruits and vegetables in
particular.


Nearly 35-40 % of fruits and vegetables and 10 % of
food grain go waste. Also, farmers can benefit with the
farm-to fork ventures with retailers which helps



to cut down intermediaries ;
give better prices to farmers, and
provide stability and economics of scale which will
benefit, in the ultimate analysis, both the farmers and
consumers.


Improved Technology And Logistics
Improved technology in the sphere of processing,
grading, handling and packaging of goods and further
technical developments in areas like electronic weighing,
billing, barcode scanning etc. could be a direct
consequence of foreign companies opening retail shops
in India
Impact on Real-Estate Development
any retailer will require substantial spaces for setting up
business.
Real estate in India has gone through a revamp due to the
demand of high-end retail malls and peoples changing
perception towards an enjoyable shopping experience.
Thus real estate can get a further facelift in India and
receive more investment with the opening up of FDI in
multi-brand retail.

Benefits to consumers
Consumers in India mostly suffer from unhygienic
experiences, erratic price and irregular availability in
daily food and FMCG products.

Many established foreign retail giants that are known for
low pricing, creation of pleasant shopping environment,
maintenance of hygienity, better customer care, effective
inventory management and storage facilities shall
efficiently contribute for eradicating the said problems
and make the shopping very productive and a happy
experience to the customers in India.


Improvement in Retail capability building
way for inflow of knowledge from international experts
which can give boost to the overall growth of the
industry.
Controlling inflation
large organized retailers could directly purchase
their merchandise from the producers at most
competitive prices.
The absence of middle men will help the
organized retailers to set competitive but yet
profitable prices for their market offer.
3.2 Disadvantages of FDI

Domination of organized retailers
Leads to increase in real estate cost
Promotion of unhealthy competition among the
organized retail players
Creation of monopoly in the long-term
initially spend huge sum of money to chase the domestic
companies out of business.
not affordable to any domestic company to face the
competition
The foreign giants will offer the products in the beginning
at subsidized rates in order to capture a large market share.
This will only result in the exploitation of the interest of
final consumers.



Negative influence on the economy





This means almost all resources and transactions in
India are owned or financed by Foreign Nations
especially Indian Economy is completely weakened to
Foreign Currency influence that kills Indian Rupee.

When Rupee value is killed globally that kills natives
which is visible as, Rising Commodity Prices, Rising
Fuel Prices and Rising Debts.



foreign debt {US$ 79 Billion} + trade deficit {US $
100 billion} + current account deficit + FDI {US$
40 billion} + FII {US$ 100 billion} = approx 350
US$ billion and more.

CONCLUSION

on one hand FDI in Indian Retail Sector will encourage
international brands to set up shop in India.
On the other hand, this will also lead to competition among
Indian players.
The growing dominance of multinational companies in the
country's $200 billion retail business, had warned that any
move to increase FDI in the retail sector would ruin the
business of small and medium traders scattered over the
country.
Organized retailers in India are opposing the entry of MNCs in
retail trading because of their predatory pricing strategy that
wipes out competition,
when the Government decides to allow foreign players to
enter the retail space, it should first restrict them to lifestyle
products segment before permitting them to spread their
wings into other areas like grocery marketing that has a direct
impact on `kirana stores'.
The government has an opportunity to utilize the
liberalization for achieving certain of its own targets:
improve its infrastructure;
access sophisticated technologies;
generate employment for those keen to work in this
sector
FDI would lead to a more comprehensive integration of
India into the worldwide market

If done in the right manner, it can
prove to be a boon and not a curse.
PUBLICATIONS
A Comparative Analysis of Organized and Unorganized Food Retail
in India, at 2
nd
National Conference on Retailing in India:
Opportunities and Challenges, organized by Baba Farid College of
Management and Technology, Bathinda, Punjab, on March 15 16,
2012, pp. 34 37, ISBN: 978-93-82062-07-3

Emerging Trends and Challenges of Indian Retail Industry, at
International Conference on Managing Inclusive Growth: The
Bottom Up Approach for harmonious Development, organized by
Indus Business Academy, Greater Noida on March 15 16, 2013,
pp. 208 216, ISBN: 978-93-80397-38-2

Problems And Prospects of Foreign Direct Investment in Single and
Multi Brand Retail in India, at 3
rd
National Conference on Trends
and Issues In Product And Brand Management, organized by Baba
Farid College of Management and Technology, Bathinda, Punjab, on
March 20 21, 2013, pp. 10 13, ISBN: 978-93-5104-993-7

Information And Communication Technology in
Retailing with Special Reference to Agra City, at
International Conference on Role of Technology in
Enhancing the Quality of Higher Education (ICRT
12), Organizedby Kanya Maha Vidyalaya, Jalandhar,
on Oct, 26 27, 2012.
One Day Workshop on Financial Education on
Feb 19, 2013 by Dpt. Of Economics, DEI and
Securities and Exchange Board of India (SEBI).