ASA University of

Bangladesh
Course title: International business
Course code: BUS- 224

Topic: FDI Policy in Indian Retail market.

Submitted to:
ArifulHaqChoudhury
Course teacher
Faculty of Business
Submitted by:

Name
Shazzadul
Islam
ElijaAkhter
MarufanNaher
MD:
ShihabUddin.
Mohsena
Jahan.

ID

Section

111-12-0008

12A

111-12-0006
111-12-0012
111-12-0033

12A
12A
12A

111-12-0024

12A

Date of Submission:
1. Foreign Direct Investment (FDI)
FDI simply refers to the act of investing capital in a business enterprise that operates overseas
and in a foreign country. The party making the investment could be an individual, a business
corporation, or maybe even a group of companies and the enterprise that receives the investment
will definitely benefit from this. The minimum voting rights, or shares of an enterprise, that a
foreign investor is supposed to control is 10%.

2.The Advantages of Foreign Direct Investment

The party making the investment is usually known as the parent enterprise and the party invested
in can be referred to as the foreign affiliate. Together, these enterprises form what is known as a
Transnational Corporation (TNC), and here are some of the advantages of such an arrangement.
1. Many countries still have several import tariffs in place, so reaching these countries through
international trade is difficult.
2.Governments of certain countries invite FDI because they get additional expertise, technology
and products.
3. Foreign investment reduces the disparity that exists between costs and revenues, especially
when they are calculated in different currencies.
4.Different international markets have different tastes, different preferences and different
requirements.
5.FDI helps enterprises enter such markets and gain a foothold there.
6.From the foreign affiliate's point of view, FDI is beneficial because they get advanced
resources and additional capital at their disposal.

3. The Disadvantages of Foreign Direct Investment.

While all these advantages are well and good, the fact is that there are certain cons that come
along with them as well.
1.Foreign investments are always risky because the political situation in some countries can
change in an instant.
2.In certain cases, political changes could lead to a situation of 'Expropriation'.
3.Many times, the cultural differences between different countries prove insurmountable. This
point is directly related to globalization as well.
4.Investing in foreign countries is infinitely more expensive than exporting goods.
5.From the point of view of foreign affiliates, FDI is ill-advised because they lose their national
identity.
Definition of Retail
In 2004, The High Court of Delhi defined the term retail as a sale for final consumption in
contrast to a sale for further sale or processing (i.e. wholesale). A sale to the ultimate consumer.
Thus,retailing can be said to be the interface between the producer and the individual consumer

buying for personal consumption. A retailer is involved in the act of selling goods to the
individual consumer at a margin of profit.
Division of Retail Industry Organised and Unorganised Retailing
The retail industry is mainly divided into: - 1) Organised and 2) Unorganised Retailing
Organized retailing refers to trading activities undertaken by licensed retailers, that is, those who
are registered for sales tax, income tax, etc.
Unorganized retailing, on the other hand, refers to the traditional formats of low-cost retailing,
for example, the local kirana shops, owner manned general stores, paan/beedi shops,
convenience stores, hand cart and pavement vendors, etc.
4.FDI Policy in India
FDI as defined in Dictionary of Economics (Graham Bannock et.al) is investment in a foreign
country through the acquisition of a local company or the establishment there of an operation on
a new (Greenfield) site. To put in simple words, FDI refers to capital inflows from abroad that is
invested in or to enhance the production capacity of the economy.
4.1FDI Policy with Regard to Retailing in India:It will be prudent to look into Press Note 4 of
2006 issued by DIPP and consolidated FDI Policy issued in October 2010which 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.
4.2Entry Options For Foreign Players prior to FDI Policy
Although prior to Jan 24, 2006, FDI was not authorised in retailing, most general players ha\d
been operating in the country. Some of entrance routes used by them have been discussed in sum
as below :a. Franchise Agreements:It is an easiest track to come in the Indian market. In franchising and
commission agents services, FDI (unless otherwise prohibited) is allowed with the approval of
the Reserve Bank of India (RBI) under the Foreign Exchange Management Act.
b. Cash And Carry Wholesale Trading:100% FDI is allowed in wholesale trading which
involves building of a large distribution infrastructure to assist local manufacturers. The
wholesaler deals only with smaller retailers and not Consumers.

c.Strategic Licensing Agreements: Some foreign brands give exclusive licences and
distribution rights to Indian companies. Through these rights, Indian companies can either sell it
through their own stores, or enter into shop-in-shop arrangements or distribute the brands to
franchisees.
d. Manufacturing and Wholly Owned Subsidiaries: The foreign brands such as Nike, Reebok,
Adidas, etc. that have wholly-owned subsidiaries in manufacturing are treated as Indian
companies and are, therefore, allowed to do retail. These companies have been authorised to sell
products to Indian consumers by franchising, internal distributors, existent Indian retailers, own
outlets, etc.

Going concern on FDI

The ministry of commerce and industry took its campaign to promote FDI (Foreign Direct
Investment) in retail to the literate population of India, with full page advertisements
innewspapers. The advertisement claims that such direct investment will bring huge benefits not
only to the farmers but to the society at large and that it will generate over 10 million new jobs
and soon. Naturally, it does not give any time frame to achieve this end. The ministry calls this as
another revolutionary leap for the Indian economy. Reading such and makes it nice, but
whether it will truly benefit the people in the long run remains to be seen. At least in US, it did
not do so, according to the media. The first and foremost fear is that farmers will be exploited by
the predatory pricing policy of the large retailers, a job that is probably and already being done
by a host of middlemen. So, instead of many such middlemen, there will one source where the
farmer will face a single-window clearance, and that of the FDI retailer!Having said that, will
this process reduce the ultimate cost that the actual consumer has to pay for the farm products?
Yes, in more ways than one, as the present Indian retails and supermarkets reveal.Let's take a
look at any Indian major city, like Bangalore, for instance. There are several big business houses
in retail, such as Reliance, Tatas, Goenkas, and supermarkets like Spar, Big Bazaar, etc to name a
few. In this category, we could include government sponsored HOPCOMs too.There is intense
competition amongst all these organizations. The pricing is sharp and the range of products
covered is going up by the day. And who are the buyers? They are the growing middle-class rich
consumer society, where the chances are that both husband and wife earn a living and have a
reasonably comfortable lifestyle. In all probability, they shop once in a week to make the
purchases and do it methodically; no spur of the moment purchase, but needs are listed and
shopping is done at leisure on chosen days.The only thing that is left to buy is the odd item that
may fall short which the family member at home or the cook may resort to purchase from the
nearest Kirana shop or buy from the cart vendor, whose prices are at least 50% higher than the
retailers mentioned above. This is based on the actual experience of the writers family.FDI in
retail is not a simple exercise to be covered in a single article but an in-depth study will take
quite sometime and its impact cannot be visualized easily. If Reliance and Big Bazaar have come
to stay, so will the FDI in retail, in due course.FDI in retail will be subject to a lot of discussions
and scrutiny. To generalize and compare how other countries have fared and still let kirana
(small shops in road corners) survive or bring about better returns to farmer is a futile exercise.
The conditions in India are different. We need to clearly spell out some basic pre-conditions that
have to be complied within a specified time-frame, failing which, the licensee will have to pack
up and go home.

a) At least 30% of the indigenous farm produce will have to be retailed.

b) Each FDI-R licensee be given the choice of seven to 10 locations where it can commence its
actual retail operations.
c) These operating centres will have to be supported by actual infrastructural development of
warehouses, cold storage and transportation logistics in identified sources of supply at the
produce points.
d) The next set of new cities will be after successful performance, a minimum of 18-24 months
later, with the same conditions relating to infrastructure development or by expansion of existing
ones.
e) The activities of the FDI-R licensee will be subject to a close check and follow-up by a
regulator who will maintain a watchdog committee for keeping a track of purchase pricing to
retail selling; of the actual commitments in terms of fulfilling employment growth and how these
actually are benefiting the country in terms of taxes earned.
f) These FDI-R licensees should not become the single largest selling point for marketing
products of other countries when identical or similar products of indigenous makes are readily
available.

6.Managerial Implications
To take care of the concerns of the Government before allowing 100% FDI in Single Brand
Retail and Multi- Brand Retail, the following recommendations are being proposed:

Preparation of a legal and regulatory framework and enforcement mechanism.

{Government should establish rules and regulation and enforcement mechanism to ensure
that large retailers are not able to dislocate small retailers by unfair means.}
Extension of institutional credit, at lower rates, by public sector banks, to help improve
efficiencies of small retailers; undertaking of proactive programme for assisting small
retailers to upgrade themselves.{Public sector bank should provide institutional credit at
lower rates to small retailer so that small retailer can upgrade themselves.}

To establish National Shopping Mall Regulation Act to regulate the fiscal and social
aspects of the entire retail sector.

To make a collaboration investing countrys Government. (For reduce costs, risk and save
time.)

To identify the countries culture. (For develop their business.)

7. Conclusion
The Industrial policy 1991 had crafted a trajectory of change whereby every sectors of Indian
economy at one point of time or the other would be embraced by liberalization, privatization and

globalization.FDI in multi-brand retailing and lifting the current cap of 51% on single brand
retail is in that sense a steady progression of that trajectory. But the government has by far
cushioned the adverse impact of the change that has ensued in the wake of the implementation of
Industrial Policy 1991 through safety nets and social safeguards. But the change that the
movement of retailing sector into the FDI regime would bring about will require more involved
and informed support from the government.