PROJECT REPORT

ON
FOREIGN DIRECT INVESTMENT IN RETAIL SECTOR

Submitted To: Submitted By:

Mrs. Shuchi Goel Anjali
Department of Commerce B.com(hons.)final year
Roll No:-5544
University Roll No.:-
Reg. No.:-

VAISH MAHILA MAHAVIDYALYA, ROHTAK

Session:-2017-2018
 Acknowledgement
I hereby express deep gratitude to all those who helped me directly or
indirectly in completing this project report.
It is my duty and privilege to express my regards to Mrs. Shuchi Goel
of Vaish Mahila Mahavidyalya, Rohtak. Her able guidance and
valuable suggestions let me through the difficult period of the prepration
of this report.
I acknowledge the help and cooperation received from classmates.

Anjali
B.com(hons.)final year
Roll No.5544
 Certificate
This is to certify that Anjali of B.com (Hons.)final year of
Vaish Mahila Mahavidyalya, Rohtak has successfully
completed her project report under my supervision. She has
sincerely and honestly completed this report.
This project report has been examined and approved by me.

Mrs. Shuchi Goel

Department of Commerce

FOREIGN DIRECT INVESTMENT

Introduction

According to International Monetary Fund, FDI is defined as investment that is made to ac

quire a lasting interest in an enterprise operating in an economy other than that of the investor.
The investors purpose being to have effective voice in the management of the enterprise. FDI
refers to capital inflows from abroad that is invested in or to enhance the production capacity of
the economy. The FDI Policy is governed by the Government of India and with the provision of
Foreign Exchange Management Act (FEMA) 1999.It usually involves participation in
management ,jointventure , transfer of technology and expertise. FDI can be used as one measure
of growing economic globalization.

ROUTES OF INVESTMENT

REGULATORY FRAMEWORK OF FDI

The regulation is framed by Government FDI in sectors, not covered under automatic route
requires prior approval of the government which is considered by Foreign Investment Promotion
Board (FIPB), Department of Economic Affairs, and Ministry of Finance.

FDI MONITORING AND REVIEWING AGENCIES

1. Ministry of Commerce and Industry, Government of India.

2. Reserve Bank of India

3. Foreign Exchange Promotion Board.

4. Department of Industrial Policy and Promotion

FDI INFLOWS IN INDIA

Chart showing Foreign Direct Investment inflows in India.

PARTICIPATION OF VARIOUS SECTORS IN FDI IN INDIA

Ranks Sectors % of total inflows

1 Services 18

2 Automobiles 8

3 Telecommunication 7

4 Power 6

5 Housing & Real Estate 6

6 Others 55

Total FDI Inflows 100

Table showing the participation various sectors in FDI

OBJECTIVES OF THE FDI POLICY

1.To analyze the options available in global retail segment

2. To analyze the need for FDI in single brand retail and multi brand in India..

3. To analyze the challenges to be faced by FDIs while investing in retail India.

4. To study the effect of other sectors in retail.

RESEARCH METHODOLOGY

The data is being collected through various secondary sources such as:

News Papers
Resources from internet

FOREIGN INVESTORS

Suzuki (Japan)

Nissan (Japan)
Piaggio (Italy)

Volkswagen (Germany)

Renault (France)

Hyundai (South Korea)

General Motors (USA)

BMW (Germany)

Ford (USA)

Toyota (Japan)

Mercedes (Germany)

Daimler (Germany)

FIAT (Italy)

Honda (Japan)
FDI IN RETAIL

INTRODUCTION
Reform process in India was initiated with the aim of accelerating the pace of economic growth
and eradication of poverty. The process of economic liberalization in India can be traced back to
the late 1970s. However, the reform process began in earnest only in July 1991. It was only
in1991 that the Government signaled a systemic shift to a more open economy with
greaterreliance upon market forces, a larger role for the private sector including foreign
investment, and
a restructuring of the role of Government. The reforms of the last decade and a half have gone a
long way in freeing the domestic economy from the control regime. An important feature
ofIndia's reform programme is that it has emphasized gradualism and evolutionary transition
rather
than rapid restructuring or "shock therapy". This approach was adopted since the reforms were
introduced in June 1991 in the wake a balance of payments crisis that was certainly
severe.However, it was not a prolonged crisis with a long period of non-performance. The
reforms haveunlocked India's enormous growth potential and unleashed powerful entrepreneurial
forces.
Since 1991, successive governments, across political parties, have successfully carried forward
the country's economic reform agenda.

Retailing in India is one of the pillars of its economy and accounts for 14 to 15% of its GDP. The
Indian retail market is estimated to be US$ 450 billion and one of the top five retail markets in
the world by economic value. India is one of the fastest growing retail markets in the world, with
1.2 billion people. In 2010, larger format convenience stores and supermarkets accounted
forabout 4% of the industry, and these were present only in large urban centers. India's retail
andlogistics industry employs about 40 million Indians (3.3% of Indian population). Until
2011,Indian central government denied foreign direct investment (FDI) in multi-brand
retail,forbidding foreign groups from any ownership in supermarkets, convenience stores or any
retail
outlets. Even single-brand retail was limited to 51% ownership and a bureaucratic process.
InNovember 2011, India's central government announced retail reforms for both multi-brand
stores
and single-brand stores. These market reforms paved the way for retail innovation
andcompetition with multi-brand retailers such as Wal-Mart, Carrefour and Tesco, as well
singlebrand majors such as IKEA, Nike, and Apple. The announcement sparked intense activism,
both
in opposition and in support of the reforms.

RETAIL SECTOR IN INDIA

The Retail sector in India can be divided into two parts. One is organized and other
isunorganized sector. Organized sector retailers are licensed retailers, those who have registered
for sales tax, income tax etc. They are generally privately owned large businesses like Tanishq,
Croma etc. on the other hand unorganized retail stores are like Kirana store, departmental store
etc. which neither registered with any tax authorities nor with any other govt. department. The
data related to such stores is not available with the government.
ADVANTAGES OF FDI IN RETAIL

1. Emerging Opportunities
2. Benefits for the farmers
3. Improved technology and logistics
4. Impact on real estate development
DISADVANTAGES OF FDI IN RETAIL

1.Killing local shops and million of jobs.

2. Reduction of monopolistic power

ENTRY OPTIONS TO FOREIGN PLAYERS IN RETAIL INDUSTRY.

1. Franchise Agreement: The players such as McDonald ,Pizzahut, Nike, Mark and Spencers are
givenapproval under RBI and FEMA.
2. Wholesale Cash and Carry Trade A 100% FDI is allowed in wholesale trading in involving
building of a large infrastructure to assist manufacturers.
3. Strategic Licensing Agreement Foreign brands such as Department of Industrial Policy and
Promotion has given exclusive, licences and distribution rights to Indian Companies by which
companies can sell foreign brand in their stores.
NECESSITY OF FDI IN INDIAN RETAIL

It is universally acknowledged that, FDI inflow offers many benefits to an economy. UNCTAD
(1999) reported that, Transactional Corporations (TNCs) can complement local development
efforts by:
i. Increasing financial resources for development
ii. Boost export competitiveness
iii. Generate employment and strengthening the skill base
iv. Protecting the environment to fulfill commitment towards social responsibility
v. Enhancing technological capabilities through transfer, diffusion and generation.

IMPACT OF FDI IN INDIAN RETAIL SECTOR

FDI in the retail market will impact the industry in a number ways. Some of them are as follows:

With the entrance of foreign retailers such as Wal-Mart, IKEA, Tesco, Abercrombie and
Fitch, Amazon, and others into the Indian market, a streamlining of the existing retail
partnerships is expected.
The share of foreign players in the industry is estimated to increase to 10 - 12 percent this
year (2015).
The value of the Indian retail market stood at USD 435 billion in 2010, with the 7 percent
share of modern retail. The retail market is expected to grow.
 Due to the terms and conditions of FDI investments, like the minimum limit of USD 100
million and 50 percent to be ploughed into backend infrastructure, the Indian supply
chain is likely to benefit. Sophisticated foreign technology will considerably boost the
domestic supply chain through efficient storage and transportation facilities, resulting in
minimizing wastage.
With the entry of new players into the retail industry, the demand for agricultural
products is set to rise. This is anticipated to increase the productivity output of Indian
agriculture and bring better farming practices into the agriculture sector
The entry of fresh foreign retailers into the Indian retail industry is expected to increase
The unorganized retail sector also projected to grow, but at a slower pace. The quality
and diversity of products in the retail sector is also expected to improve.
Indian consumers will have better accessibility to a wide range of foreign brands
The rise in competition will force Indian retailers to work on enhancing the quality of
their products.
POLICY OF INDIAN GOVERNMENT FOR FDI IN RETAIL
The Indian Government has opened up the retail sector for foreign players given that it is
bursting with opportunities to explore. Though there is 100 percent FDI permitted in the cold
chain sector but FDI opening in single and multi brand retailing is expected to yield much better
results. Moreover, there is less consolidation in retail sector, weaker competition and an ever
growing middle class with a large appetite for consumer goods and services. The current FDI in
retail policy of Indian Government is being discussed below:
51 percent FDI permitted in the multi brand retailing. The unbranded products are
allowed for agricultural produce like fruits, vegetables, flowers, grain, pulses, fish and
meat.
Minimum investment to be brought in, as FDI, by the foreign investor would be US $100
million.
FDI is not likely under the automatic route implying that FIPB approval is needed on
case by case basis.
50 percent investment should be done at improving the back-end infrastructure. Back-end
infrastructure will include investment made towards processing, manufacturing,
distribution, design improvement, quality control, packaging, logistics, storage,
warehouse, agriculture market produce infrastructure etc.
30 percent of the raw materials should be procured from small and medium enterprises
(SMEs).
Permission to set up stores only in cities with a minimum population of 1 million which
is 53 cities in India according to 2011 census.
Government has the first right to procure materials from the farmers.
While the proposals for FDI will be sanctioned by the Centre, approvals from each State
Government will be required.
Retail trading, in any form, by means of e-commerce, would not be permitted, for
companies with FDI, engaged in the activity of multi brand retailing.
ENTRY OPTIONS FOR FOREIGN PLAYERS PRIOR TO FDI POLICY

Although prior to Jan 24, 2006, FDI was not authorized in retailing, most general players had
been operating in the country. Some of entrance routes used by them have been discussed in sum
as below:
1. 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. This is a most
usual mode for entrance of quick food bondage opposite a world. Apart from quick food bondage
identical to Pizza Hut, players such as Lacoste, Mango, Nike as good as Marks as good as
Spencer, have entered Indian marketplace by this route.
2. Cash and Carry Wholesale Trading: 100 percent 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. Metro AG of Germany was the
first significant global player to enter India through this route.
3. Strategic Licensing Agreements: Some foreign brands give exclusive licenses 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.
Mango, the Spanish apparel brand has entered India through this route with an agreement with
Piramyd, Mumbai, SPAR entered into a similar agreement with RadhakrishnaFoodlands Pvt.
Ltd.
4. 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 authorized to sell
products to Indian consumers by franchising, internal distributors, existent Indian retailers, own
outlets, etc. For instance, Nike entered through an exclusive licensing agreement with Sierra
Enterprises but now has a wholly owned subsidiary, Nike India Private Limited.
Challenges in Retail Business in India

There are several challenges that Indian retail sector has to face. The Opportunities and
Challenges of Foreign Direct Investment in Indian Retail Sector 19 Impact Factor(JCC):

Real Estate Issues: Due to high cost of real estate in most cities, it is difficult to find
suitable properties in central locations for retail. Most of the retail outlets in India have
outlets that are less than 500 square feet in area. This is very small by International
Standards.

Lack of Capital Availability: Capital availability for business is another challenge faced by
this sector. Due to the absence of 'industry status' organized retail in India faces difficulties in
procurement of organized finance and fiscal incentives.

Inefficient Supply Chain Management: Indian retailing is still dominated by the

unorganized sector and there is still a lack of efficient supply chain management. India must
concentrate on improving the supply chain management, which in turn would bring down
inventory cost, which can then be passed on to the consumer in the form of low pricing.

Human Resource Problems: There is a shortage of skilled manpower in the organized retail
sector of India. The Indian retailers have difficulty in finding trained persons and also have to
pay more in order to retain them. This again brings down the Indian retailers profit levels.

Frauds in Retail: It is one of the primary challenges the companies would have to face.
Frauds, including vendor frauds, thefts, shoplifting and inaccuracy in supervision and
administration are the challenges that are difficult to handle. This is so even after the use of
security techniques, such as CCTVs and POS systems.

Challenges with Infrastructure and Logistics: The lack of proper infrastructure and
distribution channels in the country results in inefficient processes. Infrastructure does not
have a strong base in India. Transportation, including railway systems, has to be more
efficient. Highways have to meet global standards. Airport capacities and power supply have
to be enhanced. Warehouse facilities and timely distribution are other areas of challenge
Following are the three different forms through which organized retail trade in India is carried
out.

Table 1

Mono/Exclusive/Single Multi brand Retail Shops Convergence retail Outlets

Brand Retail Shops
Exclusive showrooms either In these kinds of stores almost These Kinds of outlets have
owned or franchised out by all brands of a single product almost all products which a
the manufacturer. A complete are available. consumer may need.
range of all the products Customer has a very wide
manufactured by the said choice
manufactured under one brand
name
Focus is on brand name Focus is on nature of product Focus is on diverse consumer
needs
Nike show room etc. Shoppers stop, Croma Big bazaar etc.
Table 2
Global Retail Development Index

2016 Country Market Country Market Time GRDI Change in

Rank attractiveness Risk Saturation Pressure Score Rank
(25%) (25%) (25%) Compared
to 2015
1 Brazil 100 85.4 48.2 61.6 73.8 0
2 Chile 86.6 100.0 17.4 57.1 65.3 0
3 China 53.4 72.6 29.3 100.0 63.8 +3
4 Uruguay 84.1 56.1 60.0 52.3 63.1 -1
5 India 31.0 66.7 57.6 87.9 60.8 -1
6 Greorgia 27.0 68.7 92.6 54.0 60.6 NA
7 UAE 86.1 93.9 9.4 52.9 60.6 +1
8 Oman 69.3 98.3 17.4 50.4 58.9 NA
9 Mongolia 6.4 54.4 98.2 75.1 58.5 NA
10 Peru 43.8 55.5 62.9 67.2 57.4 -3
As per retail development index, india remained high potential market with accelerated growth
of 15 to 20 % expected over next 5 years. Growth is supported by strong macro
economicconditions, including a 6to 7% rise in GDp, higher disposable income and
rapidurbanization.Yet, while the overall retail market contributes to 14 % of Indias GDP,
organized
retail penetration remained low, at 5 to 6 %, indicating room for growth. In January, 2016FDi
limit for single brand went upto 100% with a condition that sourcing must be 30% local.
Thechanging FDI climate provides many large multibrands with the opportunity to enter and
exoand
inInsdian market. Groceries remained Indias largest source of retail sale. Hypermarkets
andsupermarkets continues to be dominant. Private equity firms are more interested in retail sale.
As
many as 29 transactions were conducted in first half of 2015 in the retail consumer productspace.
Table 3
Retail Talent Index

2016 Rank Country Talent Labour Labour Scores

Availability Regulation Costs
(40%) (20%) (40%)
1 Malaysia 62.8 77.9 85.7 75.0
2 China 56.5 71.3 79.0 68.5
3 Chile 66.7 56.7 68.5 65.4
4 Indonesia 51.0 55.9 84.5 65.4
5 Azerbaijan 42.1 95.9 72.5 65.0
6 India 48.5 64.2 75.6 62.5

Retail Talent Index has been calculated based on countries performance in three areas:
Talentavailability, Labour regulations and cost of labour. A countries vale is indexed on 0-100
point
scale to allow for relative comparisons across the areas.Scores are based on quality of
educational system and management schools, secondary andtertiary education enrollment, labour
force participation and brain drain. Scores are based on hiring and firing practices and flexibility
of wage determination.Scores are based on retail salaries for an average sales associate and pay
and prodivicitymetrices , a high score indicates lower cost labour country. New markets are as
effective as their workforces. Harnessing a local talent is crucial for thesuccess of a firm. As per
talent Index India ranks 6th among the countries. India has a largeyoung, well educated and
attractive labor market. India also provides an attractive pool of talentfor international retailers.
The retail sector provides employability to 85 workforces which isbound to increase in times to
come. Retail not big preferred career choice among Indian youth,would pose a challenge for
countrys retail sector, as skilled middle management people wouldno longer be available in the
market. So role of providing training in retail to Indian youth is tobe taken over by these retail
giants. According to the index given in table 3 availability of talentin India isfairly good (>40%).
Labor regulations in India are on higher side as the labor policiesare not flexible enough. On
labor cost front, cheap labor is available in India.

Table 4
Country Share in Global Organized Retail Sale

Country Share of organized trade (per cent)2016

India 4
China 17
Poland 20
Indonesia 30
Russia 33
Brazil 35
Thailand 40
Malaysia 55
USA 85

It is clear from the table 4 that Indias share in organized world trade is only 4%, which is just a
meager share. Keeping in view the financial reforms which have taken place in 2012, it can be
forecasted that Indian market has lot of potential to grow. Because of this worlds major retail
stores in multi-brand category are eyeing on Indian market.
Table 5
Share of Private corporate in Worlds Organized Retail Sale
Rank Company Estimated share of private
labels in 2016(per cent)
1 Aldi 95
2 Schwarz Group(Lidl) 63
3 Target 46
4 Tesco 45
5 Casino 40
6 Wal-Mart 37
7 ITM(Intermarche) 35
8 Carrefour 32
9 Seven & I 27
10 Rewe 25

Private labels today account for 17 per cent of global retail sales, with the highest share of 23
percent in Europe and the lowest share of 4 per cent in Asia. M+M Planet Retail data shows
thatprivate label penetration varies from 25 per cent to 95 per cent among some of the
largestretailers in the world. Growing acceptance among consumers, increasing price
competition, the
need for differentiation among retailers and the ability to offer higher margins are the key factors
contributing to the growth of private labels. Private labels provide the retailer an ability to offer
vcfasignificant price advantage to consumers, their prices being 16 to 32 per cent lower
thanmanufacturers' brands.
Impact Analysis

Impact of FDI on retail sector in India is analyzed using Michel Porters model. Porter's
fiveforces analysis is a framework for industry analysis and business strategy development. It
draws
upon industrial organization (IO) economics to derive five forces that determine the competitive
intensity and therefore attractiveness of a market. Attractiveness in this context refers to
theoverall industry profitability. Three of Porter's five forces refer to competition from
externalsources. The remainders are internal threats. Porter's five forces include - three forces
from'horizontal' competition: threat of substitute products, the threat of established rivals, and
thethreat of new entrants; and two forces from 'vertical' competition: the bargaining power
ofsuppliers and the bargaining power of customers.

IMPACT ON SUPPLIERS: When supermarkets modernize their procurement systems, they

require more from suppliers with respect to volume, consistency, quality, costs, and commercial
practices. Indian suppliers catering to the need of majority of retailers in unorganized retailsector
may not be able to cope up with the new requirements by multinational retail giants in the
beginning. Supermarket chains prefer, if they are able, to source from medium and
largeprocessing enterprises, which are usually better positioned than small enterprises to
meetsupermarketsrequirements. In order to be competitive these retailers would try to
eliminatemediators in supply chain, which results in direct procurement from suppliers of raw
material. In
the beginning the supplier may not come to the expectation of the retailer in terms of quality and
commercial practices. But it is also not possible for these retail giants to source everything from
out of the country. So they have to train their prospective suppliers about the practices required
by them. Ultimately when the supplier is supplying directly to the retailers, their returns would
be better than the returns they are getting in existing supply chain, where a number
ofintermediaries eat into the returns of the supplier. When a supplier is fixed and trained by
theretailer, the switching cost of supplier for a retailer would be very high. If the cost incurred
bythe retailer on supplier constitutes a major portion of the total cost then there would always
athreat of vertical integration by the retailer and in the times to come the supplier may be
working
as a worker or the company. But in spite of these threats suppliers would be in a better position.
During the course of time suppliers would also grow big along with the retailers. When suppliers
enter supermarket channels, they tend to earn from 20 to 50% more in net terms. Among tomato
farmers in Indonesia, for example, net profit (including the value of own labor as imputed cost)
is 3339% higher among supermarket channel participants than among participants in traditional
markets. Farm labor also gains. But supplying supermarket chains requires farmers to make more
up-front investments and meet greater demands for quality, consistency, and volume compared
with marketing to traditional markets.
In a pan-Indian survey conducted over the weekend of 3 December 2015, overwhelmingmajority
of consumers and farmers in and around ten major cities across the country support the
retail reforms. Over 90 per cent of consumers said FDI in retail will bring down prices and offer
a wider choice of goods. Nearly 78 per cent of farmers said they will get better prices for
theirproduce from multi-format stores. Over 75 per cent of the traders claimed their
marketingresources will continue to be needed to push sales through multiple channels, but they
may have to accept lower margins for greater volume.

Impact on Traditional Stores:Small and marginal traders constitute the biggest segment
inservice employment in the country, and they will be wiped out with the entry of foreign
retailers.However, consumers in the large, urban and metropolitan cities are going to be
benefited. Theanswer could be a co-existence. The major advantage for the smaller players is
thesize,complexity and diversity of our Indian Markets. If we look at the organized retail players,
mostof them have opened shop in the Metros, Tier 1 and Tier 2 towns. Very rarely do we
findorganized players in the rural areas and we have more than 70% of the population living in
therural areas. So megapolitan market would be served by the big retail stores and rural
marketwould be served by Kirana stores. The successful deployment of 100%FDI in China is a
case inpoint. Partial FDI in retail was introduced in 1992 in China. Subsequently, in December
2004,the Chinese retail market was fully opened up to utilize the enormous manpower and
widecustomer base available that has led to a rapid growth of the sector. Today, its retail sector is
thesecond largest (in value) in the world with global retailers such as Wal-Mart, 7-Eleven
andCarrefour comprising 10% of the total merchandise. FDI in multi-brand retail is therefore
anecessary step that needs to be taken to propel further growth in the sector. This would not
onlyprove to be fruitful for the economy as a whole but will also integrate the Indian retail
sectorwith the global retail market.

Impact on Barriers to Entry: It is not only incumbent rivals that pose a threat to firms in
anindustry; the possibility that new firms may enter the industry also affects competition. In
theory,
any firm should be able to enter and exit a market, and if free entry and exit exists, then profits
always should be nominal. In reality, however, industries possess characteristics that protect the
high profit levels of firms in the market and inhibit additional rivals from entering the
market.Firms also may be reluctant to enter markets that are extremely uncertain, especially if
entering
involves expensive start-up costs. The existence of economies of scale creates a barrier to entry.

The greater the difference between industry Minimum Efficient Scale (MES) and entry unitcosts,
the greater the barrier to entry. Opening of retail sector for FDI would definitely increase
the entry barrier for a firm intending to enter in this sector.
Impact on consumer: FDI in retail would create such a environment in which consumer in a
true sense would be the king. The products and services provided by the retailers would move
around the need satisfaction of the customers. Customers would be getting best quality at
cheapest rate.Because a number of retailers would be struggling to target the same customer. In
most countriessupermarkets offer lower prices first in the processed and semiprocessed food
segments.Impact on business Rivalries: Firms strive for a competitive advantage over their
rivals. Theintensity of rivalry among firms varies across industries, and strategic analysts are
interested inthese differences. When a rival acts in a way that elicits a counter-response by other
firms,rivalry intensifies. The intensity of rivalry commonly is referred to as being cutthroat,
intense, moderate or weak, based on the firms' aggressiveness in attempting to gain an
advantage. Inretail segment rivalry would be intense. It would result in welfare of the customers
as companiesstrive their best to elate their customers so that they can capture the majority market
share. Tomaximize the market share the firms would be resorting to product differentiation
improvingfeatures, implementing innovations in the manufacturing process and in the product
itself, Changing prices and Exploiting relationships with suppliers.

FDI policy related to Single Brand product Retail Trading

FDI in Single Brand product retail trading is allowed 100% viz. automatic up to 49%
andGovernment route beyond 49%. The circular shows that Foreign Investment in Single
Brandretail trading aimed at attracting investments in production and marketing, improving
theavailability of such goods for the consumer, encouraging increased sourcing of goods from
India,and enhancing competitiveness of Indian enterprises through access to global
designs,technologies and management practices, as Per DIPP consolidated FDI policy circular of
2015.
FDI in single brand product retail trading is subject to certain conditions such as:
1.Products to be sold should be of single brand only.
2.Products sold should be of same brand internationally.
3.Single Brand covers only products which are branded during manufacturing.
4.In case of proposals involving FDI beyond 51%, sourcing of 30% of the value ofgoods
purchased will be done from India, preferably MSMEs, village and cottageindustries, artisans
and craftsmen, in all sectors.
5.Applications would be processed firstly by DIPP and then by the FIPB forGovernment
approval.

FDI policy related to Multi Brand Retail Trading

FDI in Multi Brand Retail Trading is allowed upto 51% through Government route, as per DIPP
policy .
FDI in Multi brand retail trading is subject to certain conditions such as:
1.Fresh agriculture produce (fruits, vegetables, flowers, grains, pulses, freshpoultry, fishery and
meat products) may be unbranded.
2.The foreign investor must bring a minimum amount of US $ 100 million forinvestment.
3.At least 50% of the investment bought should be invested in back-endinfrastructure within
three years. Expenditure on land cost and rentals will not beincluded in infrastructure
development.
4.At least 30% of the products purchased must be sourced from Indian micro, smalland medium
industries(total investment in plant and machinery not exceeding US $ 2.0million)
5.Government possess the first right of procurement on agriculture produce.
6. Retail outlets are allowed to be set up in cities with a population of more than 10lakh as per
2011 census survey, or any other cities as per the decisions of the respectiveState Governments.
7.The policy for FDI is an enabling policy, the State Governments are set free forimplementation
of the policy.
8.Applications are to be processed firstly by DIPP followed by the FIPB forGovernment
approval.
BENEFITS OF FDI FOR THE COUNTRY
Growth of infrastructure.
Inflow of foreign funds.
Moving ahead in supply chain.
Increased employment opportunities.
Franchising opportunities.
Proved better customer value.

NEGATIVE IMPACT OF FDI IN RETAIL

Small traders cannot compete with foreign players and will be vanished.
Foreign stores will keep prices low at an initial stage and gradually rise
as they pick up sales.
Prices may rather shoot up and inflation cannot be controlled.
 PRESENT SCENARIO IN FDI

The ability to attract large scale Foreign Direct Investment (FDI) into India has been a key driver
for policy making by the Government. Prime Minister Modi seems to be going along the right
track, with India receiving FDI inflows worth USD 60.1 billion in 2016-17, which was an all-
time high. Hence, the FDI policy of India has always been closely watched and carefully
amended over the years.

On August 28th, 2017, the Department of Industrial Policy and Promotion (DIPP) had issued the
updated and revised Foreign Direct Investment Policy, 2017 2018 (FDI Policy 2017). The FDI
Policy 2017 incorporated various notifications issued by the Government of India over the past
year.

Please find below a brief analysis of the key amendments brought by the FDI Policy 2017 to the
erstwhile FDI Policy of 2016 and their potential impact on FDI in India:

New Streamlined Procedure for Government Approval

Abolition of the Foreign Investment Promotion Board (FIPB): The most significant
amendment to the FDI regime has been the institutional change brought by notification dated
June 5th, 2017 issued by the Department of Economic Affairs confirming the abolition of the
FIPB (the erstwhile government body authorised to approve proposals for FDI requiring
government approval); and the introduction of the Foreign Investment Facilitation Portal
(FIFP), an administrative body to facilitate FDI applicants.
Introduction of Competent Authorities: The FDI Policy 2017 defines and lists sector-
specific administrative ministry / department as Competent Authorities empowered to grant
government approval for FDI. Competent Authorities listed in the FDI Policy 2017 include
the DIPP in respect of applications for FDI in the Single Brand, Multi Brand and Food
 Product retail trading and the Department of Economic Affairs of India for FDI in the
financial services sector.
Introduction of Standard Operating Procedure (SOP) to process FDI proposals: The DIPP
had also issued the SOP which sets out a detailed procedure and timeline for applications as
well as the list of competent authorities for processing government approvals for FDI in
India.

Under the SOP, investors are required to make an application on the website of the FIFP,
supported by the specified documents which inter alia include relevant charter documents, board
resolutions, etc. The application shall then be forwarded to the concerned Competent Authority
and the Reserve Bank of India (for comments from a foreign exchange law perspective) within 2
(two) days. Proposals requiring security clearance (in sectors such as defence and
telecommunication) shall also be forwarded to the Ministry of Home Affairs. The Competent
Authority shall process the complete proposal and convey the approval / rejection of such
proposal to the applicant in the format prescribed under the SOP.

Key provisions likely to benefit applicants with proposals for FDI: Consultation with the
DIPP has been made strictly need based, leading to a more streamlined procedure and
expeditious timeline (maximum time of 10 weeks) for approval. Moreover, the FDI Policy
2017 also states that the Competent Authority may only reject a proposal, or stipulate
conditions in addition to those listed in the FDI Policy 2017 / applicable sectoral laws with
the concurrence of the DIPP.

Conversion of Limited Liability Partnerships (LLPs)

An LLP, operating in sectors/activities where 100% FDI is allowed under the automatic route
(without FDI-linked performance conditions), is permitted to convert into a company. Similarly,
conversion of a company into an LLP is also now permitted under the automatic route.

Issue of Convertible Notes by Start-ups

The FDI Policy 2017 has introduced the issuance of (a) Convertible Notes (instruments
representing debt repayable at the option of the holder, or convertible into equity shares
within 5 years from issue) by Start-ups to persons resident outside India; and (b) equity or
equity linked / debt instruments by Start-ups to Foreign Venture Capital Investors.
Issuance of Convertible Notes is, however, subject to the following conditions: (a) Under
automatic route, a Non-Resident may purchase Convertible Notes for approximately USD
39,500 or more in a single tranche and the consideration shall be received by inward
remittance through normal banking channels or as otherwise permitted under the extant
foreign exchange regulations applicable; (b) Start-ups engaged in sectors requiring
government approval for FDI may issue Convertible Notes only with government approval;
(c) Non-Residents may acquire or transfer Convertible Notes from or to persons resident
India or Non-Residents only in accordance with applicable pricing guidelines under the
Indian foreign exchange regulations; and (d) Start-ups issuing Convertible Notes must
comply with reporting requirements prescribed by the Reserve Bank of India.
Revisions to existing provisions of the FDI Policy of 2016-2017

The FDI Policy 2017 also incorporates all Press Notes issued by the DIPP during the course of
the year. Set out below are the sector-specific significant amendments brought about in the last
year:

Manufacturing: To further liberalise the manufacturing sector (which allowed 100% FDI
under the automatic route), 100% FDI under government approval route was allowed for
retail trading, including through e-commerce, in respect of food products manufactured
and/or produced in India.
Civil Aviation: The threshold for FDI in existing projects under the automatic route was
increased from 74% to 100%.
Single Brand Retailing: Sourcing norms applicable for FDI were relaxed and will not be
applicable up to 3 (three) years from commencement of the business i.e. opening of the first
store for entities undertaking single brand retail trading of products having state-of-art and
cutting-edge technology and where local sourcing is not possible.
Other Financial Services: The previously applicable capitalisation norms for non-banking
financial services companies were struck off, and all financial sector activities by entities
already regulated by financial sector regulators fall under the 100% automatic route of
investment, with applicability of sectoral laws.

Some Thoughts

The changes in the FDI Policy 2017 display the efforts of the Indian Government to remove of
multiple layers of bureaucracy, and to process proposals for FDI under the government approval
route in a more streamlined, positive and expeditious manner. The Government has eased 87 FDI
rules across 21 sectors in the last 3 years, opening up traditionally conservative sectors like rail
infrastructure and defence. Even Indias agriculture sector has received FDI worth INR 515.49
crore in 2016-17.

The FDI Policy 2017 for the first time makes specific reference to fund raising through
convertible instruments by Start-ups, which should encourage fund raising by Indian Start-ups
from FVCIs and Non-Residents. The definition of Start-ups as provided in the Policy is also
proposed to be incorporated in the Patents Rules, 2017. The three year relaxation of the local
sourcing norms in single brand retail should make it easier for the likes of iconic investors Apple
and Tesla to open shop in India. But further details may be needed before the likes of such
investors may commit to India.

It is expected that the Government will continue to bring about liberalisation of the FDI regime
in India in the months to come. All in all, we intend to maintain our trajectory towards remaining
the worlds most attractive destinations for foreign investment.
SUGGESTIONS

A National Commission should be set up in order to set up the conditions on foreign

retailprocurement of farm produce . It should also state the minimum space required for
storage.
There should be a gradual entry of foreign players is necessary so as to protect the
interest of localretails in the country. The foreign players should be slowly allowed in
metros.
Stringent policies should formulated and fine tuned.
Foreign players should be allowed in a structured manner.
The government should formulate a single window system to reduce complexities for
foreign investors.

CONCLUSION

The foreign investment in retail which was once a prohibited sector, now became the FDI in
retail has now gained momentum in both single brand retail and multi brand retail. The very
prohibited sector has got so much of momentum The single brand retail has allowed 100% FDI.
The foreign direct investment and politically sensitivemulti brand retail have been facing a lot of
trouble. , yet policies are to be changed and should allowed in a phasedmanner.This will make
the retail industry to be tapped and the growth will be well developed in encouraging theGDP
growth of the country. The small retail stores should also function in a smooth manner even if
the foreignplayers dominate the segment. To Conclude, The growth of retail industry will be
tapped which will allow foreignplayers to play a major role in upbringing this industry as an
emerging sector.