1. F.D.I. in Retail Sector
SESSION 10
LEGAL ENVIRONMENT OF BUSINESS
1

2. Agenda
Retailing : An overview
Indian retail
FDI in Indian retailing
Why FDI?
2

3. Retailing : An overview
3

4. Retailing: An overview
 Retailing
World’s largest private industry
US$ 6.6 trillion sales annually
 Indian retailing
Largest employer after agriculture - 8% of
population
Highest outlet density in world
Around 12 mn outlets
Still evolving as an industry
Long way to go
4

5. Retailing: An overview
 Wal-Mart
Topmost global Fortune 500 company(3
Consecutive Years)
Annual Sales of over US$ 250 bn
 Fortune 100
9 Retailers
Carrefour, Ahold, Home Depot, Kroger,
Metro, Kmart-Sears, Target, Albertsons’
5

6. Evolution of Indian retail
Historic/Rural Traditional/Perva Government Modern Formats/
International
Reach sive Reach Supported
Exclusive Brand Outlets
Hyper/Super Markets
Department Stores
Shopping Malls
PDS Outlets
Khadi Stores
Cooperatives
Convenience Stores
Mom and
Pop/Kiranas
Weekly Markets
Village Fairs
Melas
Source of Neighborhood Availability/ Low Shopping
Entertainment Stores/Convenienc Costs / Experience/Efficien
e Distribution cy
6

7. Evolution of Indian retail
 Informal retailing Sector
 Typically small retailers.
 Evasion of taxes
 Difficulty in enforcing tax collection
mechanisms
 No monitoring of labour laws
 Formal Retailing Sector
 Typically large retailers
 Greater enforcement of taxation mechanisms
 High level of labour usage monitoring
7

8. 8 8

9. Size : $ 400 billion
Growth Rate : 13%
GDP contribution : 12%
Major sector : Food and Grocery
Employment : 2nd largest industry
(35.06 million)
Types: Organized ( 5%)
Unorganized ( 95%)
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10.  Corporates are increasingly coming into this sector
 Demand of branded goods on a large scale
 Demand of new and varied products
 High quality product is preferred
 Varied window display
 E-tailers increase the presence
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11. US
Taiwan
Malays ia
Thailand
O rg anis ed
Indones ia
C hina Unorg anis e
d
India
0 20 40 60 80 100
US Taiwan Malaysia Thailand Indonesia China India
Unorganised 15% 19% 45% 60% 70% 80% 95%
Organised 85% 81% 55% 40% 30% 20% 5%
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12. CATEGORIES OF INDIAN RETAIL
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13. Categories of Indian retail
 Corporate Houses
 Tatas: Tata Trent
 RPG group: Food World, Health & Glow, etc
 ITC: Wills Life Style
 Rahejas(Shoppers Stop), Hiranandani (Haiko), DLF(DT
cinemas), etc.
 Dedicated brand outlets
 Nike, Reebok, Zodiac, etc
 Multi-brand outlets
 Vijay Sales, Viveks, Ritu Wear, Sehgal Bro, etc.
 Manufacturers/ Exporters
 Bata, Weekender, Lilliput 13

14. Classifying Indian retail
 Modern Format retailers
 Supermarkets (Foodworld)
 Hypermarkets (Big Bazaar)
 Department Stores (S Stop)
 Specialty Chains (Ikea)
 Company Owned Company Operated
 Traditional Format Retailers
 Kiranas: Traditional Mom and Pop Stores
 Kiosks
 Street Markets
 Exclusive /Multiple Brand Outlets
14

15. Large Indian retailers
 Hypermarket
 Big Bazaar , Giants , Shoprite, Star
 Department store
 Lifestyle, Pantaloon, Piramyd, Shoppers
Stop, Trent
 Entertainment
 Fame Adlabs, Fun Republic, INOX, PVR
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16. Organised retail formats in India
FORMAT AVERAGE SIZE
Convenience Stores 800 sq. feet
Discount Stores 1000 sq. feet
Category Killers 8000 sq. feet
Specialty Stores Single-category
Shop-in-Shop Within Large malls
Supermarket Large in Size, Typical in layout
Department Stores 10,000 – 60,000 sq. feet
Cash and Carry 75,000 Sq. feet
Hypermarkets 50,000 – 1,00,000 sq. feet
16

17. Major Indian Retailers - Categories
Format Description Retailers
Hypermarkets Offering basket of product Spencers, Big bazaar
Cash and Carry Bulk-buying requirement Bharti - Walmart
Departmental Large layout, Wide merchandise mix Lifestyle , Globus
stores
Supermarkets Household product as well as food as Apna Bazaar , Food
integral part of the service Bazaar
Shop-in-shop Shops located in shopping malls Navras ( Big Bazaar)
Specialty stores Focus on individual product type Brand Factory
Category killers Particular segment The LOFT
Discount stores Branded product at discounted px. Levi’s Outlet
Convenience Small Retail stores In and Out
stores 17

18. Segmentation
Retail Segment Percentage Major Retailers
holding in
sector
Food and Grocery 63% Reliance Fresh, Café Brio, Food
Bazaar
Clothing, Textile 9% Westside, Shoppers Stop, Globus
and Fashion
Jewellery 5% Tanishq
Catering services 5% IRCTC
Consumer durable 4% Viveks, Vijay Sales, Croma
Pharmaceuticals 4% Piramal Group
Entertainment 3% Bowling Co.
Furnishing, 3% Hometown, Tangent Concept
utensils
18
Mobile handsets 2% The Mobile Store,

19. 19

20. 20

21. F.D.I.
21

22. The commitment of money or
capital to purchase financial
instruments or assets in order to
gain profitable returns.
22

23. Foreign
Investment
Investment done by citizens and through
government of one country (home
country) invest in industries of
another country (host country).
Foreign
Foreign Direct
Institutional
Investments Investors
23

24. WHAT IS FDI?
Movement of capital
across national frontiers in
a manner that grants the
investor control over the
acquired asset.
24

25. WHAT IS FDI?
 As per Dictionary of Economics
FDI means investment in a
foreign country through the
acquisition of a local company
or the establishment there of
an operation on a new
(Greenfield) site.
 Simply put, FDI refers to capital
inflows from abroad that is
invested in or to enhance the
production capacity of the
economy.
25

26. Automatic Route Government
No permission required Approval /License required.
26

27. What was the Criteria for FDI?
 1991-92 : Dr. Manmohan Singh, Finance Minister
referred to certain criteria for allowing Foreign
Direct Investment. These were :
1. Establishment of basic industries requiring huge
capital and advanced sophisticated technology
2. Infrastructure projects like electricity generation,
road, building, etc.
3. Projects which would generate employment
27

28. FDI Policy Initiatives
 1991- FDI allowed selectively up to 51% in priority
sectors.
 1997-FDI allowed up to 100% in sectors like
mining, manufacturing, Cash and carry/wholesale
(under Govt. approval route).
 It was brought under the automatic route in
2006.
28

29. FDI Policy Initiatives
 2000-06 FDI allowed up to 100% in specified
sectors.
 FDI limits increased.
 Procedures further simplified
 The top 3 Indian Regions attracting the highest
FDI.
 Mumbai, Delhi and Karnataka.
 Account for nearly 62% of the total FDI.
29

30. FDI Policy Initiatives
 April 2006 - May 2010 : 94 proposals were
received
 57 proposals approved= inflow of USD196 mn
under single brand retailing
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31.  As per Press Note 4 of 2006 issued by DIPP and
consolidated FDI Policy issued in October 2010 which
provide the sector specific guidelines for FDI with regard to
the conduct of trading activities.
A) FDI up to 100% for cash and carry wholesale trading and
export trading allowed under the automatic route.
B) FDI up to 51 % with prior Government approval (i.e.
FIPB) for retail trade of ‘Single Brand’ products, subject
to Press Note 3 (2006 Series)
C) FDI is NOT permitted in Multi Brand Retailing in India.
31

32. 32

33.  Complications in issuance of licenses like a
hypermarket in Mumbai must apply for 29
unique licenses & then when it has to come up
with second store it has to apply for same 29
licenses all over again
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34. 34

35. FDI in Indian retailing
Current FDI is not permitted in retail trade
sector, except in:
 Private labels
 Hi-Tech items/items requiring specialized
after sales service
 Medical and diagnostic items
 Items sourced from the Indian small sector
(manufactured with foreign technology)
For 2 year test marketing (simultaneous
commencement of investment in production
facility required)
35

36. Entry Options for Foreign Players prior to
FDI Policy
Although prior to Jan 24, 2006, FDI was not
authorised in retailing, most general players had
been operating in the country. Some of entrance
routes used by them are:
1. Franchise Agreements
2. Cash And Carry Wholesale Trading
3. Strategic Licensing Agreements
4. Manufacturing & Wholly Owned Subsidiaries
5. Distribution
36

37. 1. Franchise Agreements
 Foreign company gives name and technology to
local partner. Gets royalty in return.
Easiest track to enter Indian market
In franchising and commission agents’
services, FDI is allowed with the approval RBI
under FEMA
E.g. Nike, Pizza Hut, Tommy Hilfiger, Marks
and Spencer, Mango 37

38. 2. Cash & Carry Wholesale Trading
 100% FDI is allowed in wholesale trading which involves
building of a large distribution infrastructure to assist
local manufacturers. E.g. Metro Cash & Carry
Entities established prior to 1997
 Allowed to continue with their existing foreign
equity components.
 No FDI restrictions in the retail sector pre-1997
 Foodworld
 51:49 JV between RPG and Dairy Farm I’nal (it’s
leading food retailer in India now)
Mc Donalds
38

39. 3. Strategic Licensing Agreements
foreign brands give exclusive licences and
distribution rights to Indian companies
Indian companies sell it through their own
stores, or enter into shop-in-shop
arrangements or distribute the brands to
franchisees
E.g. Mango with Piramyd, SPAR with
Radhakrishna Foodlands Pvt. Ltd. 39

40. 4. Manufacturing & Wholly Owned Subsidiaries
 Bata, Nike, Reebok, Adidas, etc. have wholly-
owned subsidiaries in manufacturing which are
treated as Indian companies and are, therefore,
allowed to do retail
They sell products to Indian consumers by
franchising, internal distributors, existent Indian
retailers, own outlets, etc.
E.g. Nike entered through an exclusive licensing
agreement with Sierra Enterprises but now has a
wholly owned subsidiary, Nike India Private
Limited
40

41. 5.Distribution
 International company sets up local distribution
office
 Supply products to Indian retailers to sell
 Also set up franchised outlets for brand
 E.g. Swarovski, Hugo Boss
41

42. On the last count……
In July 2010, Department of Industrial Policy and
Promotion (DIPP), Ministry of Commerce circulated a
discussion paper on allowing FDI in multi-brand retail. The
paper doesn’t suggest any upper limit on FDI in multi-
brand retail. If implemented, it would open the doors for
global retail giants (Wal-Mart, Carrefour and Tesco) to
enter and establish their footprints on the retail
landscape of India.
42

43. Let the liberalisation be in
steps rather than being a leap.
43

44. PRESENT CONDITION OF TRADERS
Fringe Benefit Tax
VAT
INEFFICIENT
LICENCES & PERMITS
INDUSTRIAL DISPUTE ACT LABOUR
SHOP & ESTABLISHMENT ACT PREVENTION OF BLOCK MARKETING ACT
COSUMER PROTECTION ACT ANTI-HOARDING & PROFEELING ACT
WEIGHT & MEASUREMENT ACT MONEY LENDING ACT
PACKAGING ACT PROVIDENT FUND ACT
PREVENTION OF FOOD ADULTRATION ACT MINIMUM WAGES ACT
ESI ACT
GRATUITY ACT
BONUS ACT
ENTRY TAX
SERVICE TAX
FDI in Retail Trade
Anti Socal Elements
OCTROI
WATER TAX
CENTRAL
EXCISE
Political Interference
PURCHASE TAX
SALES TAX INCOME TAX
POOR MARKET
CONDITION POWER PROBLEM
Cash Transaction Tax
Inspector Raj STAMP DUTY &
Quarterly ‘C’ Form
WEALTH TAX
HIGH BANK
CHARGES PROFESSIONAL TAX
New Naka Complex
ESSENTIAL COMMODITIES ACT 44

45. Aviation Information
Telecom Technology
Infrastructure
Retail Traders
Banking
Insurance
Pharma
Mining
Steel
Professional
Education
45

46. M.N.C. REGIME
CONTRACT FARMING
COLLECTION OF
TO OWN FACTORY
AGRICALTURE PRODUCTS
TO CUSTOMER
TO OWN DEPT. STORE 46