THUẬN LỢI VÀ BẤT LỢI ĐỐI VỚI FDI TRONG LĨNH VỰC BÁN LẺ

ADVANAGE AND DISADVANAGE OF FDI IN RETAIL
SECTOR
Dr. Mini Amit Arrawatia1, Ms. Rashmi Sharma2
Research Guide, 2Research Scholar, Jayoti Vidyapeeth Women’s University, Jaipur (India)

1

ABSTRACT
Retailing is the interface between the producer and the individual consumer buying for personal consumption.
As such, retailing is the last link that connects the individual consumer with manufacturing and distribution
chain. This paper tries to establish the need of the retail community to invite FDI in multi brand retailing. FDI
inflows in Indian retailing, there are few issues to be addressed its pros and cons to be discussed, for the
regularization of the different retailers working in different areas, etc. In spite of so many reasons behind
allowing and not allowing FDI from entering our Indian borders, there are few examples of other developing
countries who initially protested against the entry of foreign investment in retail sector and then, later on
proved out to be the most effective decision in country‘s development and standing in the world. The
Government recently announced FDI in retail; namely 51% in Multi Brand Retail and 100% in Single Brand;
but fortunately or unfortunately had to roll back the same due to political opposition both within and outside the
coalition. Foreign investment has always been constantly growing in the retail Sector. This is primarily due to
the reason that foreign investors have always viewed the Indian Market as a potentially profitable market in
addition to housing the second largest population in the world. The opening of the retail sector offers
tremendous opportunities to the foreign Investors and gives them access to effectively more than a billion
customers.This paper will put light on the advantages, disadvantages and challenges faced by FDI in retail in
single and multi-brand.
It typically takes the form of starting a subsidiary, acquiring a stake in venture in an existing firm or starting a
joint venture in a foreign country.Green-field investment, establishing an entirely new enterprise in the foreign
market.FDI as an investment involving a long -term relationship and reflecting a lasting interest and control by
a resident entity in one economy(parent investor) in an enterprise resident in an economy other than that of the
foreign direct investor.

I. FDI IN RETAIL SECTOR

The retail industry is that sector of economy which consists of stores, commercial complexes, individual,
agencies, companies and organizations. Etc. involved in the business of selling variety of finished products to
the end-user consumers directly and indirectly. The goods in the retail industry are the finished products of all
sectors of commerce and economy of a country.
The retail sector in india is vast, and has huge potential for growth and development, as the majority of its
constituents are unorganizrd. The retail sector of india handles about $ 250 billion every year, and is expected
by economists to reach to $660 billion by the year 2015.The government led by Dr.Manmohan Singh announced

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new reform in Indian retail sector.The FDI in single brand retail which was earlier 51% has been increased to
100%.The FDI up to 51% is allowed in multi-brand retail stores.
The retailers will have to source at least 30% of their goods from small and medium sized Indian suppliers.All
retail stores can open up their operations in population having over 1million. Out of approximately 7935 towns
and cities in India, 55 suffice such criteria.Multi- brand retailers have to bring at least US$100million of
investment. Out of which 50% will be used for infrastructure.The opening of retail competition should be within
the parameters of state laws and regulations.

II. ANALYSIS AND INTERPRETATION
2.1 SWOT Analysis of Retail Sector:
2.1.1 Strengths
Major contribution to GDP: the retail sector in India is hovering around 33-35% of GDP as compared to around
20% in USA.
ï‚· High Growth Rate: the retail sector in India enjoys an extremely high growth rate of approximately 46%.
ï‚· High Potential: since the organised portion of retail sector is only 2-3%, thereby creating lot of potential for
future players.
ï‚· High Employment Generator: the retail sector employs 7% of work force in India, which is rite now limited
to unorganised sector only. Once the reforms get implemented this percentage is likely to increase substantially.
2.1.2 Weaknesses (limitation):

Lack of Competitors: AT Kearney's study on global retailing trends found that India is least competitive as well
as least saturated markets of the world.
ï‚· Highly Unorganised: The unorganised portion of retail sector is only 97% as compared to US, which is only
20%.
ï‚· Low Productivity: Mckinsey study claims retail productivity in India is very low as compared to its
international peers.
ï‚· Shortage of Talented Professionals: the retail trade business in
India is not considered as reputed profession and is mostly carried out by the family members (self-employment
and captive business). Such people are not academically and professionally qualified.
2.1.3 Opportunities (benefits):
There will be more organization in the sector: Organized retail will need more workers. According to findings of
KPMG , in China, the employment in both retail and wholesale trade increased from 4% in 1992 to about 7% in
2001, post reforms and innovative competition in retail sector in that country.
ï‚· Healthy Competition will be boosted and there will be a check on the prices (inflation): Retail giants such as
Walmart, Carrefour, Tesco, Target and other global retail companies already have operations in other countries
for over 30 years. Until now, they have not at all become monopolies rather they have managed to keep a check
on the food inflation through their healthy competitive practices.
ï‚· Create transparency in the system: the intermediaries operating as per mandi norms do not have transparency
in their pricing. According to some of the reports, an average Indian farmer realises only one-third of the price,
which the final consumer pays.

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ï‚· Intermediaries and mandi system will be evicted, hence directly benefiting the farmers and producers: the
prices of commodities will automatically be checked.
ï‚· Quality Control and Control over Leakage and Wastage: due to organisation of the sector, 40% of the
production does not reach the\ ultimate consumer. Cost conscious and highly competitive retailers will try to
avoid these wastages and losses and it will be their endeavour to make quality products available at lowest
prices, hence making food available to weakest and poorest segment of Indian society.

ï‚· Heavy flow of capital will help in building up the infrastructure for the growing population: India is already
operating in budgetary deficit. Neither the government of India nor domestic investors are capable of satisfying
the growing needs (school, hospitals, transport etc.) of the ever growing Indian population. Hence foreign
capital

inflow

will

enable

us

to

create

a

heavy

capital

base.

2.1.4 Threats:
Current Independent Stores will be compelled to close:
This will lead to massive job loss as most of the operations in big stores like Walmart are highly automated
requiring less work force.
ï‚· Big players can knock-out competition: they can afford to lower prices in initial stages, become monopoly

and then raise prise later.
ï‚· India does not need foreign retailers: as they can satisfy the whole domestic demand.
ï‚· Remember East India Company it entered India as trader and then took over politically.

2.2 Advantages and Disadvantages of FDI in Retail Sector
2.2.1 Advantages
Government has encouraged by the economic policy 1991, has adopted retail reforms mainly as 100% FDI in
the retail sector in India. It may benefit by bringing investment in complete backend infrastructure and helps
rural and agricultural sectors with a better go to market scenario. They also safeguard the health of the Indian
retail sector against competition from the player of global economy.
India is ranked as the third most attractive nation for retail investment among 30 emerging markets with
domestic companies like the Future Group, Tata’s Westside, Reliance Fresh, Raheja Group and Bharti Retail
competing for market share. Market liberalization sowing the seeds for a retail transformation that will bring
more MNCs players and big Indian retail players which are looking to expand their operations which include
Pantaloon, Reliance, Lifestyle, Food world, Raymond, Titan, Bata etc. Global player’s access India market
through the licensee/franchisee route includes McDonald’s, Pizza Hut, Dominos, Levis Lee, Nike, Adidas etc.
2.2.2 Boost Economic Life
This is one of the major sectors, which is enormously benefited from foreign direct investment. A remarkable
inflow of FDI in various industrial units in India has boosted the economic life of country. 2. Increase level of
2.2.3 Competition
FDI increase level of competition in market. They have to improve quality of products and service in order to
stay in market. They enter into Indian market through Joint venture and collaboration.

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2.2.4 Maximum Opportunity
FDI norms will open up strategic investment opportunity for global retailers, who have been waiting to invest in
India. This may have a significant impact on the current arrangement of foreign players. Employees are wellversed with globally valued skills. FDI also ensured a number of employment opportunities to people by
establishing industrial units in India.

2.2.5 Advance Technology
Improved technology in the area of processing, grading, handling and packaging of goods and further
developments in areas like electronic weighing, billing, barcode scanning etc. Further, transportation facilities
can get a improved in the form of increased number of refrigerated vans and pre cooling chambers which can
help bring down wastage of food.

2.3 Disadvantages
FDI feels that liberalization would endanger retail sector and mainly affect the small retailers, farmers and
consumer and give rise to monopolies adversely affect the pricing and availability of goods. The entry of large
global retailers such as Wal-Mart wipes out local shops and millions of jobs. The global retailers would collude
and exercise monopolistic power to raise prices and monopolistic (big buying) power to reduce the prices
received by the suppliers. Hence, both the consumers and the suppliers would lose, while the profit margins of
such retail chains would go up. It would lead to lopsided growth in cities, causing discontent and social tension
elsewhere.
Despite country wide speculation on the plight of various Stakeholders, trading associations, politicians, etc.
have given various arguments for and against FDI in retailing. However, such arguments are largely based on
perception and there has not been serious academic research in this area. Further, India’s local enterprises will
potentially receive an up gradation with the import of advanced technological and logistics management
expertise from the foreign entities.
In our view, 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 and,
as such, it is imperative for the government to promote this sector for the overall economic development and
social welfare.

III. CONCLUSION
It can be said that the advantages of allowing unrestrained FDI in the retail sector evidently outweigh the
disadvantages attached to it and the same can be deduced from the examples of successful experiments in
countries like Thailand and China where too the issue of allowing FDI in the retail sector was first met with
incessant protests, but later turned out to be one of the most promising political and economic decisions of their

governments and led not only to the commendable rise in the level of employment but also led to the enormous
development of their country's GDP.

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And also, nobody can force a consumer to visit a mega shopping complex or a small retailer/sabji mandi.
Consumers will shop in accordance with their utmost convenience, where ever they get the lowest price, max
variety, and a good consumer experience.

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