Academic journal article ASBM Journal of Management

Current Scenario of FDI in Indian Retail

Academic journal article ASBM Journal of Management

Current Scenario of FDI in Indian Retail

Article excerpt


The term foreign direct investment (FDI) is now a part of India's economic future. The country has tremendous potential for absorbing greater flow of FDI and over the years FDI inflow in the country is growing substantially. According to the UNCTAD survey India is in the 5th position among the most favourable investment locations. In certain sectors 100% FDI has been allowed. However, in the initial decade of liberalization, FDI was mainly centred around the urban manufacturing sectors because of the favourable infrastructure, labour availability, flexible taxation mechanism etc. But FDl in the retail sector was not so encouraged, or even at all allowed, during the early stage of liberalization. Recently extensive debate has cropped up against and for the entry of FDI in the Indian food retail sector. The main fear of the opponents of FDI in retail sector is that it will disrupt the livelihood of the people engaged in this trade. However, there are many positive arguments in favour of FDI in Indian retail service. Against this background the present paper makes an attempt to study the current picture of FDI in Indian retail sector highlighting its impacts on the Indian Economy.


Nature of Retail Sector

Retailing is a big business in most developed countries but the market opportunities in the developed countries are getting saturated. Presently the developing countries like China, India etc. have huge potential in this respect. Retailing in India is stiil in its nascent stage though from Fig.1 and Table-2, it is clear that over the years there is an increasing trend in its sale structure.

Indian retail is also quite fragmented with over 12 million outlets operating in the country and only 4% of them, larger than 500 square feet in size (Single, 2005) and it suffers from limited access to capital, labour and suitable real estate options. One of the main reasons behind its fragmented nature in the country is the fact that retailing is probably the primary form of disguised employment in the country. Majority of the retail trade in India includes the person selling fruits and vegetables on a cart or the stationary shopkeeper selling grocery articles.

Big retailers in India

Retail sector in India is gradually facing significant transformation from small unorganized family owned retail formats to organized retailing, the drivers being the changing consumer profile and demographics, increase in the number of international brands available in the market, improvement in the infrastructure etc. With the market liberalization and increasing number of assertive consumer, the big Indian retail players (TabIe-3) namely Shopper's stop. Pantaloon, Lifestyle, Subhiksha, Food World, Vivek's, Nilgiris, Ebony, Crossworlds, Globus, Brrista, Quiky's, Café Coffee Day, Wills Lifestyle, Raymond, Titan, Bata and Westside are looking to expend their operations .

The well established business houses such as Wadia, Godrej, Tata, Hero, Maihotra, Reliance Industries Ltd etc. are also planning to enter the organized retail market in India. Some already have. Reliance has entered the retail market and has identified cities to set up Malls in a big way. Taking the advantage of the retail boom, India's largest export oriented manufacturer of silk unit, Himatsingka Seide opened a subsidiary branch to start the retail trading. Welspun, the leading manufacturing industry of terry towels has entered the domestic retail market with home textile brand. Many international brands namely McDonald's, Pizza Hut, Dominos, Levis, Lee, Nike, Sony, Sharp, Kodak etc. have already entered the market indirectly via licensee/ franchises. India's top retailers are largely lifestyle, clothing and apparel stores which is again followed by grocery stores.

Global Entry

A recent UNCTAD survey on "FDI Prospect - 2005-06," ranks India as the third most attractive global destination and the second most attractive location for investments. …

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