Dr. Pabitra Kumar Jena
FDI plays an important role in India’s growth dynamics. India is the second fastest growing economy in the world. It is third largest economy in the world in terms of GDP and fourth largest economy in terms of Purchasing Power Parity. India presents a huge opportunity to the world at large as an economic hub. Standing on the threshold of a retail revolution and witnessing a fast changing retail landscape, India is all set to experience the phenomenon of global village. India is the “promised land” for global brands. She tops in the list of emerging markets for global retailers and India’s retail sector is expanding and modernizing rapidly in line with economic growth. The future is promising; the market is growing, government policies are becoming more favorable and emerging technologies are facilitating operations. Modern retail has entered India as seen in sprawling shopping centers, multi-storied malls and huge complexes offer shopping, entertainment and food all under one roof. India’s growing retail boom is a success story.
Retailing in India is gradually inching its way toward becoming the next boom industry. The whole concept of shopping has altered in terms of format and consumer buying behavior, ushering in a revolution in shopping in India. India had to open retail sector being a signatory to World Trade Organisation’s General Agreement on Trade in Services, which include wholesale and retailing services. There were many apprehensions towards opening of this sector. There are several examples of the benefits of FDI in India. FDI in the retail sector can expand markets by reducing transaction and transformation costs of business through adoption of advanced supply chain that benefits consumers, and suppliers (farmers). The Retail Sector of Indian economy is going through the phase of tremendous transformation. This also can result in net gains in employment at the aggregate level.
Market liberalization and increasingly assertive consumers are sowing the seeds for a retail transformation that is expected to bring more Indian and multinational players on the scene. The big Indian retail players looking to expand their operations in India. The international Global players currently entering India indirectly, via the licensee/franchisee route, since Foreign Direct Investment (FDI) is not allowed in the sector. Despite all these developments, the organized retail business still comprises a small proportion of the total size of the Rs 90,000 crore retail sector. Retail business is growing at 5-6 per cent per annum. However, it is now set to grow at 25-30 per cent per annum. In developed countries, organized retailing makes for over 70 per cent of the total business. India is tipped as the second largest retail market after China, and the total size of the Indian retail industry is expected to touch the $300 billion mark in the next five years from the current $200 billion. Total retail business in India will grow at 13% annually, from US $590 billion in 2011-12 to US $1 trillion by 2016-17. As of now, the Indian retail sector, largely due to her fragmented structure, suffers from limited access to capital, labour and suitable real estate options. In contrast, China, which allowed 49 per cent FDI in the retail sector since 1992, is benefited immensely with foreign players bringing capital and new technologies and growing export market for domestic products. At present, around 40 foreign retail players account for almost 20 per cent of the organized retailing in that country. One of the major steps taken by the Government recently to encourage the organized retailing in the country was the recent decision of the cabinet to allow 51% FDI in multi brand retail and 100% in single brand retail in Nov 2011. The government has ultimately taken the bold decision and notified the much-awaited policy allowing 100 % FDI in single brand retail from the existing 51%.
To elicit the opinions of stakeholders of the economy, with respect to allowing FDI in multi brand retail sector in India, the Department of Industrial Policy and Promotion floated a discussion paper. Some of the voices heard after that is such that the MNCs would bring in advanced technologies and methods that would bring in huge advantages for a techno-hungry country like India. It is opined that FDI in multi-brand retail Sector can be considered appreciable as it may bring the latest cutting-edge technologies to India that would benefit a host of the sectors of the economy such as, the retail traders, farming, cooperative, service sector in non corporate enterprises and end consumers. The retail sector of Indian economy is categorized into two segments such as organized retail sector and unorganized retail sector In Indian retail sector organized retail is a recent phenomenon. Organized retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate- backed hypermarkets and retail chains, and also the privately owned large retail businesses.
Organized retail is reflected in sprawling shopping centers, multiplex-malls and huge complexes which offer shopping, entertainment and food all under one roof. The last 3-4 years have witnessed the entry of a number of organized retailers. Opening stores in various modern formats in metros and other important cities. Organized retailing has begun to tap the enormous market but its share is small. A number of large business houses have entered the retail business with very ambitious expansion plan. It has also been that growth of organized retailing will yield efficiencies in supply chain, enabling better success to markets to producers (including farmers and small producers) and enabling higher prices, on the one hand and, lower prices to consumers, on the other. Traditional markets are making way for new formats such as departmental stores, supermarkets and specialty stores. Westernized malls can be seen fast appearing in metros and tier-II cities, introducing the Indian consumer to an implausible shopping experience. There is an unprecedented growth in organized retailing business in recent years and is expected to grow further at a much faster rate. Major players like large industrial houses and MNCs have entered this area and they have expansion and collaboration plans with big Indian partners, owing to the nature of Indian retail market. There is a major division on the opinion on the impact of the growth of organized retail in the country. But there is no doubt on the role that FDI can play in supplementing domestic resources and in ensuring employment generation in the development of an economy. Nevertheless still there is an elongated way to go before FDI in Indian Retail can be realized in its totality.
At present the organized retail sector is catching up very fast. The domestic organized retail industry is at a nascent stage. India got started with organized chain retailing just a few years ago. There are just very few categories, the most prominent being apparel, where organized retail chains have had a significant presence for more than 3-4 years. Indian retailers have done very well. Particularly after taking into account the various obstacles and hindrances like real estate costs, lack of trained manpower etc. Growth of organized sector of retailing will yield efficiencies in the supply chain, enabling better access to markets, to producers and to customers. The strength of organized retail lies in resource availability. It can translate into efficient supply chain management, leading to faster inventory turnaround, resulting in improved button lines. It is anticipated that the further belongs to organized sector in India. India’s organized sector is all set to explode. While the existing players such as future group, Bharti, Reliance Retail, Essar, Shopper’s stop and Aditya Birla group are endeavoring to consolidate their markets, others such as Mohindra & Mohindra, Parsavnath & DLF, Hero Honda & Indiabulls have announced plans to enter the retail sector.
(Writer is an Assistant Professor of Economics at School of Economics, Shri Mata Vaishno Devi University, Katra, Jammu and Kashmir. Feedback: pabitrakumarjena@gmail.com.
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