Foreign Direct Investment

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RESEARCHING REALITY INTERNSHIP| 2012

FDI in Multi-brand Retailing: Lessons from China

Submitted by: Kaanan Gupta
CCS Working Paper No. 258 Non Summer Research Internship Programme 2012 Centre for Civil Society www.ccs.in

FDI in Multi-brand Retailing: Lessons from China 2012

Table of Contents
Introduction............................................................................................................................................. 3 Proposed FDI Policy for MBRT in India..................................................................................................... 5 FDI Policy for MBRT in China.................................................................................................................... 5 Four major dimensions of the policy on FDI in MBRT...............................................................................6 Impact on Small Farmers.............................................................................................................. 6 Photo 1. A Hebei farmer sells his produce in a Beijing neighbourhood.....................................7 Impact on Organized Domestic Retail Chains............................................................................. 7 Table 1: Top 10 Chinese Retail Chains 2010..............................................................................7 Impact on Traditional Retail........................................................................................................ 12 Figure 1. India and China’s Organized Retail Market Shares...................................................14 Impact on Supply Chain............................................................................................................... 14 Impact on Consumers.................................................................................................................. 15 Conclusion.............................................................................................................................................. 15 Recommendations................................................................................................................................ 17 References.............................................................................................................................................. 21

2 | Researching Reality Internship

Centre for Civil Society

FDI in Multi-brand Retailing: Lessons from China 2012

Introduction
Henry Ford, the technological genius once famous said, "Don’t find fault, find a remedy; anybody can complain”. This adage unprecedentedly reverberates ever so relevantly in today’s Indian retail sector scenario (Kandarpa S.G. n.d.)primarily owing to the recent opposition to foreign direct investment (FDI) in multi-brand retail trading (MBRT) that is fraught with apprehensions of its impact on stakeholders such as small suppliers or farmers, small retail traders and consumers - all politically important classes, who have vested interests in the status quo (Nedungadi 2011).This was evident from the proposal to raise FDI cap in the retail sector passed in the Parliament in the winter session of 2011 that became bone of contention. Government of India on 10 January 2012notified 100% FDI in single-brand retail trading (SBRT) raising the cap from 51% permitted in 2006while putting on hold FDI in MBRT compelled by several political parties (“PTI” 2012) who fear the possibility of monopoly of foreign entrants over both farmers and consumers, their predatory pricing strategies, manipulation of prices for the entrants’ own benefit and a fall in income, employment and the eventual destruction of the unorganised indigenous retail sector. On the other hand, by building on other articles and reports published by various institutions and researchers it has been found that the biggest fear in India in fact is not that the FDI per se will be disadvantageous for farmers or traditional retailers,...
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