Impact of Fdi on Indian Consumer Goods Retail Industry

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| | |Impact of FDI on Indian Consumer Goods Retail Industry | | |

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Contents

Abstract2

Introduction4

Revised Single and Multi Brand Reatil Trading Policies6

Salient Features Single-brand Retail6
Salient Features Multi-brand Retail6
Overview of Indian Retail Sector8

Impact of FDI:10

Impact on Industry and incumebent players11
Impact on Farming Communities15
Impact on Mom and Pop stores16
Challenges of Retailing in India20

Demographics20
Political Uncertainty and Risk21
Infrastructure22
Fragmented logistics22
Human Resources23
Real estate and Rent23
Administrative & beaurocratic Challenges23
Complex Indirect Tax Structure23
Recommendations24

Conclusion27

References29

Appendices30

Abstract

The opening up of Indian economy for FDI retail could not have come at right time than this. Recently, the Indian economy came under heavy criticism for its rampant corruption, high inflation, high interest rates, and henceforth slower GDP growth projection (Crisil & Moody’s revised forecast to 5.5% for 2012-13) against potential of economy to grow at 9%. These macroeconomic factors have affected the sentiment factors of investment of industry powerhouses leading to vicious cycle of economic slowdown. The Government of India, in an effort to control fiscal deficit to target 5.2%, were reluctant to stretch the discretionary spending/investment to boost the investment sentiments of businesses (so called “ waking up the animal instinct of businesses” by Prime Minister Manmohan Singh). GOI was also heavily criticized for slow reform. A major blow came when S&P threatened to downgrade the sovereign rating of India. The opening India to FDI in multi brand retail had sent a strong signal to the world that India is serious about reforms.

Indian consumer goods retail industry is one of the evolving sectors with immense growth potential. According to the Investment Commission of India, the Indian retail sector is expected to grow from its current levels to $660 billion by 2015. However, having such a huge potential the growth of organized retailing in India has been much slower as compared to rest of the world. Undoubtedly, this dismal situation of the Indian retail sector, despite the on-going wave of liberalization and globalization has been caused because of the protectionist policies of the Government of India (GOI) in retail industry.

Despite anticipation of huge resistance, GOI has taken bold step to overcome the stalled growth of organized modern retail in India and allowed 51% FDI in multi brand retail. In this context, the project presented here attempts to analyze the potential dynamics and impact concerning the influx of foreign direct investment in the Indian retail trading industry and on economy as a whole. The project analyses the effects of these FDI on farmers, mom and pop stores, and existing departmental stores. The data for the project has been collected from secondary sources. The findings of the study point out that FDI in retail would undoubtedly enable India to integrate its economy with that of the global economy and take the country on the path of growth. Considering the cost and benefits of FDI in the buzzing Indian consumer goods retail sector, we come up with an opining that FDI should not just be freely allowed but should be significantly encouraged with government establishing a mechanism to ensure that the benefits of FDI spillovers to larger parts of the economy....
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