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FDI in MBRT: Definitely not another revolutionary leap

FDI in MBRT claimed to be revolutionary leap: The opening up of retail sector to 51% FDI in multi brand retail trade (MBRT) is the most substantive recent policy announcement and is claimed to be Another Revolutionary Leap. Besides improving the investment sentiment, the policy envisages large benefits to farmers, small manufactures, consumers and young job seekers. Optimism need to be tempered, FDI flows unlikely to happen in a hurry: The new policy allowing FDI in MBRT has several shortcomings. In our view, claimed benefits with respect to crop storage, preventing wastage, employment, consumer prices are overstated. Even for global retailers, given the potential contentious issues and operational limitations, beyond the near term sentiment boost the announcement would do little by way of stimulating actual flows. In our view, it is nave to assume that FDI in MBRT can resolve larger issues as it a weak substitute for domestic policies required to be taken

September 27, 2012 Dhananjay Sinha dhananjay.sinha@emkayglobal.com +91-22-6624 2435 Meghna Shah meghna.shah@emkayglobal.com +91-22-6612 1284

Food inflation can be brought down even without FDIs: The persistent high food inflation has occurred despite existence of organized retail and record agri production. Policy induced inflationary factors can be tackled immediately, even without FDIs. Domestic & global evidence suggest that supermarket prices for fruits & vegetables and other basic foods were higher than in traditional markets Mandatory 50% FDI allocation in back end infrastructure: This clause can be contended as all retail sectors do not require same backend and front-end allocation. For most FMCG and durable products, the backend infrastructure is fairly developed First right to procure by the government: This is to secure the functioning of PDS. If FDI is required to create storage facility and the government maintains adequate buffer stocks, then right to first procurement (by govt) will need to be reconsidered Mandatory 30% procurement from MSMEs is inconsistent: The mandatory sourcing is in contravention with the WTO rules regarding National Treatment which may disallow India-specific protection. In addition, given that states have the discretion to decide on FDI in MBRT, mandatory procurement will reinforce the above contradiction. Conversely, dilution of the mandatory indigenous clause can open gates for large imports at the cost of domestic industries Post harvest wastage is over stated: Recent survey suggests that the issue of post harvest wastage is exaggerated. Involvement of supermarket chains with producers in India is low. Hence, though allowing FDI in MBRT with 50% in back-end infrastructure is reasonable, it may still not stimulate large FDI in cold storages Crop storage-Change in public policy focus more relevant than FDIs: FDI in MBRT cannot be an alternative to the larger government responsibility in building crop storage infrastructure. If the government is serious about expanding crop storage facility, given the changing consumption pattern, its allocations need to shift towards creation of cold-storage capacity from its current preoccupation with warehousing Claim of FDI in MBRT creating millions of jobs is a misplaced: Claims that FDI in MBRT will create millions of jobs need to be assessed in the context of a) broader trends in employment across sectors during high inflow of FDI and b) relevant experiences across retailing. On both counts, unqualified claims of job creation from FDI in MBRT seem over-optimistic. While declining employment elasticity and slowing employment is concerning, gross FDI which only forms about 5-6% of total domestic investments, may not be a significant contributor to employment generation or an alternative to the need to stimulate domestic savings and investments. It will not be easy even for the global retailers: The 15 year track record of domestic organized retailers shows that large Indian corporate are still struggling to stabilize their models. And it is most likely that even the global players will find it difficult. Scarcity of large space inside city, high real estate costs and existence of domestic organized retailers within cities will limit the option for global retailer to set up large store format. The heterogeneity of Indian consumption pattern across various states, on which local retailers score better, will also pose challenges for MNC multi brand retailers

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FDI in retail: Definitely not another revolutionary leap

The opening up of retail sector to 51% FDI in multi brand retail trade (MBRT) is the most substantive recent policy announcement (Annexure 1). FDI in MBRT is claimed by the government as Another Revolutionary Leap after IT/computerization and the liberalization, privatization and globalization. It requires minimum investments of USD100mn, 50% of which is earmarked for investments in backend infrastructure and has a binding condition of 30% value of procurement from small industries. It is claimed to benefit in many ways: 1. 2. 3. Farmers: reduction in post-harvest losses, remunerative price for their produce. Small manufacturers: Better demand conditions, exports & global integration Small retailers: Not great threat to existence of small traders and the unorganized retail sector; Competitive response through improved business practices and technological upgradation. Employment: Will address rise in workforce by providing jobs to young work force. FDI in MBRT is claimed to create millions of jobs. Consumers: a) lowering of prices resulting from supply chain efficiencies and b) improvement in product quality Domestic economic interest: The policy also tries to address related concerns by securing benefits to small industries, limiting the dislocation impact by restricting it to large cities and un-hindered government procurements.

4. 5. 6.

Optimism need to be tempered, FDI flows unlikely to happen in a hurry

We believe that the new policy allowing FDI in MBRT still has lot of short comings and the claimed benefits with respect to crop storage capacity, preventing wastage, employment, consumer prices are overstated. Even for the global retailers, given the potential contentious issues and operational limitations of opening up large multi brand retail stores, beyond the near term sentiment boost the announcement would do little by way of actual flows, even in the medium term. In our view, it is nave to assume that FDI in MBRT can resolve the larger issues the policy seeks to address as it a very weak substitute for domestic policies and options that need to be taken.
Exhibit 1: Stylized externalities of FDI in retail FDI in Retail Pros Positive backward externalities: productivity spillovers due to direct transfer of technology to local suppliers and competitive pressure Cons Negative backward externalities: productivity slowdown due to pressure of imports leading to elimination of local providers and immiserising growth process due to captive relationship

Positive horizontal externalities: productivity spillovers through imitation and competitive pressure

Negative horizontal externalities: productivity slowdown due to competitive pressure leading to elimination of local providers

Positive Forward Externalities: lower prices, better services, higher wages and higher tax revenue

Negative Forward Externalities: monopolistic or oligopolistic rent and lower wages possibly

Source: Media

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September 27, 2012

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Below we summarize research findings and our assessment:

1. Food inflation can be brought down even without FDIs: The persistent high food inflation for past four years occurred despite existence of organized retail and record agri production. The claimed lower food inflation ensuing from FDI in MBRT needs to be grounded to the underlying causes, which in our view are a) government policies 1 encouraging high food prices since 2006 (aggressive procurement and pricing), b) increasing input and land costs, c) rising labor cost and d) rising financial strength in the intermediation channels, resulting from aggressive credit lending and government procurements, abetting hoarding activities. Policy induced inflationary factors can be tackled immediately, even without any FDIs, in our view. FDIs do not necessarily imply lower prices to consumers: As far as the role of FDI driven food supermarkets in containing food inflation is concerned, evidence from Latin American (Mexico, Nicaragua, Argentina), African (Kenya, Madagascar) and Asian countries (Thailand, Vietnam, India) shows that the supermarket prices for fruits and vegetables and other basic foods were higher than those in traditional markets. In fact, in China, where large global retailers like Walmart, Tesco and Carrefour have hundreds of stores, since 2004 food inflation has been an issue and in 2011 local governments offered subsidy to lessen its effect on consumers (Mei and Shao 2011, 2 Exhibit 4-5) . Organized retail has not resulted in lower inflation in India: The claims of lower food inflation need to be scrutinized against two contradicting trends: a. Prevalence of high CPI inflation for industrial workers in five major cities, specifically post the penetration of organized retailing speaks volumes on the claimed advantage to the consumers. Bangalore which marked the early spread of retail brand culture, witnessed the earliest rise in CPI inflation. CPI inflation in rural India also questions the hypothesis that FDI will lower inflation by reducing multiple intermediation channels. Despite much lower intermediation and transportation costs in rural areas, the rural laborers inflation has remained persistently high. It has remained higher than the industrial workers inflation seen in the last few years (Exhibit 2 & 3).

2.

3.

b.

Exhibit 2: High inflation in metros despite organized retail

18 16 14 12 10 8 6 4 2 0 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13

Exhibit 3: High rural inflation despite low intermediation cost

16 14 12 10 8 6 4 2 0 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13

CPI-IW General CPI-IW Bangalore

CPI-IW Mumbai CPI-IW Chennai

CPI-IW Ahmdbd CPI-IW Delhi

CPI-IW General

CPI- Rural laborers

CPI-IW 5 cities avg

Source: GoI, Emkay Research

Source: GoI, Emkay Research

In the past several explanations for high food inflation have been offered by the government a) cyclical bust of inflation (Prime Minister, Feb 2010) b) structural upsurge in demand for food grains and protein based diet (RBI Oct 2010), c) fears of declining production as a justification for aggressive hikes in procurement prices and d) high food inflation been glorified as reflection of rising prosperity
2

Sukhpal Singh (Dec 2011): FDI in Retail: Misplaced Expectations and Half-truths

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Exhibit 4: CPI inflation in Lat Am countries (% YoY)

20 15 10 5 0 Aug-00 Feb-01 Aug-01 Feb-02 Aug-02 Feb-03 Aug-03 Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12

Exhibit 5: Despite FDI in MBRT China saw high food inflation (% YoY)
25 20 15 10 5 0 -5 -10 Aug-00 Aug-02 Aug-04 Aug-06 Aug-08 Aug-10 Aug-12 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Apr-01 Apr-03 Apr-05 Apr-07 Apr-09 Apr-11

Brazil
Source: GoI, Emkay Research

Mexico

China

India

Source: GoI, Emkay Research

4.

Mandatory 50% FDI allocation in back end infrastructure: Since all retail sector does not require same backend and front-end allocation, the condition of 50% allocation in backend infrastructure may not work well. While the food retail would require higher investment in back-end infrastructure, other consumer retail might require higher investment in front-end infrastructure. In case of most FMCG and durable products, the back end infrastructure is fairly developed already and hence, would require little additional allocation. Breaking government monopoly in foodgrain procurement is necessary: Studies show that aggressive procurement by FCI and other agencies results in government monopoly. Hence, it has been inimical to private sector participation in creation of storage capacity, especially in warehousing. Hence, policy allowing FDI in MBRT should also include commitment of reduced government monopoly in procurement, thereby providing scope for private players. First right to procure by the government: This provision is been made to secure the functioning of PDS. In this context, if FDI is required to create storage facility and the government maintains adequate buffer stocks, then right to first procurement will be required to be exercised only in cases of emergency. Mandatory 30% procurement from MSMEs is inconsistent: It is not clear how sourcing can be restricted to only Indian MSMEs when the World Trade Organization (WTO) rules regarding National Treatment under Trade Related Investment 3 Measures (TRIMs) may not allow India-specific protection . In addition, given that states have the discretion to decide on FDI in MBRT, mandatory procurement becomes flawed as it will reinforce the contradiction with the WTO agreement, which is a central government subject. Conversely, dilution of the mandatory indigenous clause can open gates for large imports at the cost of domestic industries. Local sourcing may be source of contention: Concerns on quality can make mandatory sourcing a source of contention, especially in sectors such as pharmaceuticals where the SMEs may not be able to provide with the best possible sources. Moreover, since the unorganized sector is still mostly dependent on SMEs, the mandatory sourcing clause can impact the sector as well. Post harvest wastage is over stated: DIPP discussion paper quotes industry estimates, which indicate that 25-30% of fruits & vegetables and 5-7% of food grains are wasted. It is also claimed that allowing FDI in retailing will stimulate foreign investments in cost storages, thereby resulting in lower wastage and inflation. We believe the issue of wastage is exaggerated:
4

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6.

7.

8.

9.

National treatment-Imported and locally-produced goods should be treated equally, at least after entry of foreign goods. It should apply also to foreign and domestic services, and to foreign and local trademarks, copyrights and patents. This principle is also found in all the three main WTO agreements (Article 3 of GATT, Article 17 of GATS and Article 3 of TRIPS).
4

http://dipp.gov.in/English/Discuss_paper/DP_FDI_Multi-BrandRetailTrading_06July2010.pdf

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India Economy

Recent survey by Central Institute for Post Harvest Engineering & Technology, indicates much lower post harvest wastage at 5.8% and 18% of volume produced, with higher wastage for fruits. This is better than several emerging economies. Low wastage is evident in key crops like cauliflower (5%) and even lower for potato & onion. Highest 13-14% wastage is evident in case of tomato and mushroom. Important thing to note is that high inflation in recent years has been evident even in components that enjoy low wastage and high cold storage capacity (potato & onion). Experience show that involvement of supermarket chains with producers in India 2 is low and there is no delivery of supply chain efficiency . During the past decade, none of themdomestic retail players or wholesalehave made any significant back-end investments other than in setting up small collection centers in procurement regions and some distribution centers in cities/markets. Hence, though allowing FDI in MBRT with 50% in back-end infrastructure seems a reasonable condition, it may not necessarily stimulate FDI in cold storages. Disappointment in this area with 100% FDI may just continue. Besides there are several indigenous models, Amul, Mother Dairy & Safal for instance that can provide alternate option to address supply chain issues. If states have the discretion whether to allow FDI in MBRT or not it will work against the need for seamless supply chain for MNC retailers.

b.

c. d.

10. Crop storage-Change in public policy focus more relevant than FDIs: Overall, FDI in MBRT cannot be an alternative to the larger government responsibility in building crop storage infrastructure at the national level. a. Reallocation of resources towards cold storages by rationalizing subsidy on food & fertilizers, interest subventions and agriculture credit can enhance productive allocation towards rural development. Monopolization of government in food grains procurement reflects in a dominant 70% share of public sector in warehousing capacity. Lack of focus on perishable items reflects in little government participation in cold storage (0.4% share). This has resulted in lower participation of private players in warehousing (17%) and higher in cold storages (96%, Exhibit 6-7). Hence, if the government is serious about expanding crop storage facility and given the change in consumption pattern towards non-food grain items, government allocations need to shift towards creation of cold-storage capacity.
Exhibit 7: Status of cold storage capacity in India (Dec 2009) Commodities MT Sectors Potato Multi purpose Fruits & Vegetables Meat & fish Milk & milk products Others Total
Source: Gol, Emkay Research

b.

Exhibit 6: Status of Warehousing Capacity in India (2012) Organization /Sector Food Corporation of India (FCI) Central Warehousing Corporation (CWC) State Warehousing Corporations (SWCs) State Civil Supplies Cooperative Sector Private Sector Total
Source: Gol, Emkay Research

MT 32.1 10.1 21.3 11.3 15.1 19.0 108.8

MT 23.4 0.9 0.1

18.4 5.6 0.1 0.2 0.1 0.0 24.5

Private sector Cooperatives Public

24.5

11. Claim of FDI in MBRT creating millions of jobs is a misplaced: Government claims that FDI in MBRT will create millions of jobs need to be assessed in the context of a) broader trends in employment across sectors during high inflow of FDI and b) relevant experiences across retailing. On both counts, unqualified claims of job creation from FDI in retail seem over-optimistic. a. In India, 33-60% of the traditional fruit and vegetable retailers reported a 15-30% decline in footfalls, 10-30% decline in sales and 20-30% decline in incomes across the cities of Bangalore, Ahmadabad and Chandigarh, the largest impact being in Bangalore, which is one of the most supermarket penetrated cities in 5

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September 27, 2012

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India . Comparing with other economies, the spread of supermarkets led to a 14% reduction in the share of mom and pop stores in Thailand within four years 6 of FDI permission . b. Cumulative net FDI flows in India multiplied nearly 6 times in the second half of 2000s to USD146bn compared to the first half. Contrastingly however, NSS data indicate that employment in the industrial sector (ex construction) declined by 2.6% CAGR during FY05-10 compared to a rise of 4.7% CAGR during FY00-05 (Exhibit 8). Hence, despite the high FDI influx in the recent years into services & manufacturing sectors, the broader employment benefits were not evident. NSS data also indicate that employment growth during H1 2000s was more broad 7 based across agriculture, services, manufacturing and construction . During H2 2000s incremental employment came from construction sector, especially from rural areas in states like UP, Rajasthan and Tamil Nadu. While decline in employment in agri sector can be seen as a positive, the shift to temporary and casual jobs in construction sector reflect poor quality of job creation, which may 8 fail to sustain . Another noticeable fact is that employment elasticity verses real GDP across most sectors have declined significantly in the FY05-10 with aggregate elasticity declining to zero in FY05-10 vs. 0.5 during FY00-05. The only sector that has shown improvement in employment elasticity is construction at 1.6 vs 0.9 in H1 2000s. (Exhibit 9) Overall, there is little evidence to suggest FDI flows have enabled substantial employment externalities. Large FDI flows, specially post FY07, has accompanied moderation in fixed investments. Hence, while declining employment elasticity and slowing employment is concerning, FDI which only forms about 5-6% of total domestic investments, may not be a significant contributor to employment generation or an alternative to the need to stimulate domestic savings and investments.

c.

d.

e.

Exhibit 8: Employment in industry & services declined during period (FY05-10)of FDI upsurge in Mn Agriculture Services Industry-ex construction Construction Total Ex construction Total Agriculture Services Industry-ex construction Construction Total Ex construction Total FY00 237.7 94.2 47.4 17.5 379.2 396.8 59.9 23.7 11.9 4.4 95.6 100.0 FY05 258.9 112.8 59.7 26.0 431.4 457.5 % share 56.6 24.7 13.1 5.7 94.3 100.0 52.9 24.4 11.4 11.3 88.7 100.0 FY10 243.2 112.3 52.5 52.2 408.0 460.2 FY00 - FY05 21.3 18.8 12.4 8.5 52.2 60.7 CAGR (%) 1.7 3.7 4.7 8.2 2.6 2.9 -1.2 -0.1 -2.6 14.9 -1.1 0.1 FY05 - FY10 -15.7 -0.5 -7.2 26.1 -23.4 2.7

Note: Industry includes manufacturing, mining & quarrying, electricity, gas & water supply Source: NSS, Planning Commission7, Emkay Research

5 6

Singh, S and N Singla (2011): Fresh Food Retail Chains in India: Organization and Impacts (Allied)

Stichele, M V, Sanne van der Wal and J Oldenzeil (2006): Who Reaps the Fruit? Critical Issues in the Fresh Fruit and Vegetable Chain (Center for Research in Multinational Corporations) Report of the Working Group on employment, planning & policy for the 12th five year plan (2012-17) pg 26
8 7

Vidya Mahambare (Nov 2011), Widening regional disparity amid low job creation (CRISIL)

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Exhibit 9: Employment elasticity has declined across most sectors during H2 2000s
1.6 1.1 0.9 0.8 0.9 1.2

2.0 1.5 1.0

0.1

0.5

0.7

0.8

0.5

0.0
-0.1 -0.4

-0.5 -1.0

Mining

Manufacturing

-0.3

-0.3

Agriculture

Trade etc

-0.1

Construction

Transport etc

FY00-05
Note: Utilities implies Electricity, Gas & water supply Source: NSS, CSO, Emkay Research

FY05-10

FY00-10

Exhibit 10: Trends in FDI flows into India-Significant surge during FY05-12
45.0 40.0 35.0 30.0 US $ Bln 25.0 20.0 15.0 10.0 5.0 0.0 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

FDI to India
Source: RBI, Emkay Research

FDI by India

Net FDI

It will not be easy even for the global retailers: The 15 year track record of domestic organized retailers shows that large Indian corporate are still struggling to stabilize their revenue models. And it is most likely that even the global players like Wal-Mart, Tesco and Carrefour will find it difficult to kickstart their business. a) Scarcity of large space inside city space, high real estate costs and the existence of domestic organized retailers with cities will limit the option for global retailer to set up large store format, b) if they decide to follow small and medium store format, they will be like one among many multi-brand retail stores already existing, c) The heterogeneity of Indian consumption pattern across various states, which local retailers score better, will also pose challenges for MNC multi brand retailers.

Emkay Research

September 27, 2012

Other services

Utilities

Total

0.0 0.2

0.2

0.1

0.2

0.1

0.1

0.5

0.2 0.4

0.4

0.5

India Strategy
Exhibit 11: Recent trends in top ten sectors attracting FDI FY10-11 FY11-12 Q1 FY13 Rank Sector 1 2 3 4 5 6 7 8 9 10 Services (Financial & non-financial) Construction development: townships, housing, built-up Infrastructure Telecommunications (radio paging, cellular mobile, basic telephone services) Computer Software & Hardware Drugs & Pharmaceuticals Chemicals (other than fertilizers) Power Automotive Industry Metallurgical Industries Petroleum & Natural gas Total net FDI flows
Source: DIPP GoI, Emkay Research

India Economy

Cumulative 33.4 21.1 12.6 11.3 9.7 8.1 7.4 7.0 6.4 5.1 175

FY10-11 17.0 6.3 8.6 4.0 1.1 2.0 6.5 6.7 5.7 2.9

FY11-12 14.3 2.0 5.5 2.2 8.8 15.0 4.5 2.5 4.9 5.5

Cumulative % to total 19.1 12.1 7.2 6.5 5.5 4.6 4.3 4.0 3.6 2.9

$ US Bn $ US Bn 3.3 1.2 1.7 0.8 0.2 0.4 1.3 1.3 1.1 0.6 19.4 5.2 0.7 2.0 0.8 3.2 5.5 1.7 0.9 1.8 2.0 36.5

$ US Bn Apr00-Jun12 % to total % to total 1.08 0.35 0.01 0.08 0.47 0.06 0.15 0.21 0.33 0.01 4.43

Exhibit 12: Contribution of FDI in GDP and capital formation FY10-11 Gross FDI % of GDPmp % of Gross Fixed Capital Formation Net FDI % of GDPmp % of Gross Fixed Capital Formation
Source: DIPP GoI, CSO, Emkay Research

FY11-12 1.8 5.9 1.2 3.9

1.5 5.1 0.6 1.8

Exhibit 13: Trends in sectoral employment and real GDP growth Employment (% CAGR) CAGR (%) Agriculture Mining Manufacturing Utilities Construction Trade etc Transport etc Other services Total FY00-05 1.7 4.0 4.8 2.8 8.2 3.7 6.1 2.1 2.9 FY05-10 -1.2 0.8 -2.7 -1.9 14.9 -0.6 1.9 -0.9 0.1 FY00-10 0.2 2.4 1.0 0.4 11.5 1.5 4.0 0.6 1.5 Real GDP (% CAGR) FY00-05 1.6 4.6 6.0 4.3 9.3 7.9 7.6 4.9 5.7 FY05-10 3.2 4.2 9.7 7.1 9.2 9.3 12.2 8.2 8.7 FY00-10 2.4 4.4 7.8 5.7 9.3 8.6 9.9 6.5 7.2 Employment elasticity FY00-05 1.1 0.9 0.8 0.7 0.9 0.5 0.8 0.4 0.5 FY05-10 -0.4 0.2 -0.3 -0.3 1.6 -0.1 0.2 -0.1 0.0 FY00-10 0.1 0.5 0.1 0.1 1.2 0.2 0.4 0.1 0.2

Note:Trade etc include trade, hotels & restaurant; Transport etc include Transport, storage & communication, Banking (& insurance) and real estate; Other services include public administration & defense, education, health and other community, social & personal services
Source: NSS, CSO, Emkay Research

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September 27, 2012

India Strategy
Exhibit 14: Trends in employment in industry & services Employment across various sectors (mn) Sectors Agriculture Manufacturing Mining & quarrying Electricity, gas & water supply Construction Non manufacturing Trade Hotels & restaurants Transport, storage & communication Banking (& insurance) Real estate public administration & defense Education Health Other community, social & personal services Other services Services Total
Source: NSS, Planning Commission, Emkay Research

India Economy

Absolute increase in employment (mn) FY10 243.21 48.54 2.75 1.18 52.16 56.1 42.08 5.91 19.36 3.74 5.75 9.04 11.09 3.44 8.29 3.61 112.33 460.18 FY00 - FY05 21.25 11.72 0.47 0.17 8.48 9.11 6.74 1.48 3.86 0.84 1.98 -1.64 2.96 0.73 -1.24 2.9 18.77 60.7 FY05 - FY10 -15.71 -7.23 0.12 -0.12 26.14 26.14 -1.29 -0.19 0.89 0.65 1.1 0.2 -0.34 0.1 -0.46 -1.14 -0.48 2.72

FY00 237.67 44.05 2.17 1.13 17.54 20.84 36.63 4.62 14.61 2.25 2.67 10.48 8.47 2.62 9.99 1.86 94.2 396.76

FY05 258.93 55.77 2.64 1.3 26.02 29.96 43.36 6.1 18.47 3.1 4.65 8.84 11.43 3.34 8.75 4.76 112.81 457.46

Non-manufacturing includes mining & quarrying, electricity, gas & water supply & construction

Exhibit 15: Historical tends in employment elasticity Estimated Elasticities Sectors Agriculture Mining & Quarrying Manufacturing Electricity Construction Wholesale & Retail Trade Transport, Storage & Construction Finance, Real Estate, Insurance& Business Services Community, Social and Personal Services All Sectors
Source: Office of Economic Advisor, GoI

1977-78 to 1983 0.45 0.8 0.67 0.73 1.00 0.78 1.00 1.00 0.83 0.53

1983 to 1993-94 0.5 0.69 0.33 0.52 1.00 0.63 0.49 0.92 0.5 0.41

1993-94 to 1999-00 0 0 0.26 0 1.00 0.55 0.69 0.73 0.07 0.15

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Annexure 1: DIPP Press extracts (Sep 2012): 51% FDI in MBRT permitted, subject to:
1. 2. 3. Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products, may be unbranded. Minimum amount to be brought in, as FDI would be US $ 100 million At least 50% of total FDI shall be invested in 'backend infrastructure' within three years of the first tranche of FDI, where 'back-end infrastructure' will include capital expenditure on all activities, excluding that on front-end units; for instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, warehouse, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if any, will not be counted for purposes of back end infrastructure. At least 30% of the value of procurement of manufactured processed products purchased shall be sourced from Indian 'small industries' which have a total investment in plant & machinery not exceeding US $ 1mn. Further, if at any point in time, this valuation is exceeded, the industry shall not qualify as a 'small industry' for this purpose. This procurement requirement would have to be met, in the first instance, as an average of five years' total value of the manufactured processed products purchased, beginning 1st April of the year during which the first tranche of FDI is received. Thereafter, it would have to be met on an annual basis. Self-certification by the company, to ensure compliance of the conditions at serial nos. (2), (3) and (4) above, which could be crosschecked, as and when required. Retail sales outlets may be set up only in cities with a population of more than 1mn as per 2011 Census and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities; Government will have the first right to procurement of agricultural products. State Governments/Union Territories would be free to take their own decisions in regard to implementation of the policy. Therefore, retail sales outlets may be set up in those StateslUnion Territories which have agreed, or agree in future, to allow FDI in MBRT under this policy. The establishment of the retail sales outlets will be in compliance of applicable State/Union Territory laws/ regulations, such as the Shops and Establishments Act etc. Retail trading, in any form, by means of e-commerce, not be permissible for companies with FDI, engaged in the activity of MBRT.

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India Economy

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Emkay Research

September 27, 2012

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