Magazine 2013
International Peer-Reviewed Journal  
RH, VOL. 3 JULY 2013  
FDI In Multi-Brand Retail: Boon Or Curse?  
Kshama Kadam & S. G. Vibhute  
Retail is the final stage of any sale conclusion. By virtue of this fact, retail occupies an important  
place in the world economy. The Indian retail sector is one of the fastest growing sectors, with several  
players entering the market. In today’s era of liberalization, privatization and globalization the entire  
economy is opening up gradually. India has witnessed a frenetic pace of retail development over the  
past five years. The Indian retail sector has already allowed 51% FDI in single-brand retail and 100 % in  
wholesale or cash and carry trading. And now there is a proposal of the Department of Industrial Policy  
and Promotion (DIPP) to allow51% FDI in multi-brand retailing. So whether to accept this proposal or not  
is the question in front of Indian Government. The paper covers the current FDI norms and various  
challenges associated therewith. It does a critical evaluation of the Pros and Cons associated with FDI in  
Retail India. Basis findings, it has tried to bring out the possibility of co existence between the unorganized  
retailing in India on one hand and the Multi National Giants on the other. It concludes with certain  
suggestions through which the FDI can be allowed in India through a well monitored, regulated and  
calibrated approach to ensure maximum benefits with least impact on the existing Indian retail industry.  
Keywords - Frenetic, Cash, Carry Trading, DIPP, Multi-Brand Retail  
FDI in Retail” is catching front page headlines of leading news papers, almost every alternate day. The  
subject has not only gathered importance at level of national economics but also has a bearing on the country’s  
image at international levels in terms of policies conducive for overseas investors.  
Recently UPA Government has cleared the entry of multi-brand retail with certain riders in terms of  
minimum investment of 100 million USD and half of it into back-end infrastructure in rural India. 30% of value of  
goods to be purchased from small and mid-size suppliers, stores to be put up in cities with minimum 1 million  
population, and above all, subject to permission of individual state government. MNC seek an assurance in  
permits even if the ruling parties change in State governments. Opposition parties and some UPA allies have  
expressed their opposition.  
Today it is quite evident that there is no consensus within the ruling parties and the state governments  
with regards to allowing FDI in Retail.  
Until early 90s, India had a very restrictive approach towards inviting foreign capital by way of investments  
for bringing in desired developments. However, the Industrial Policy 1991 was the first progressive step in this  
direction where FDI was allowed selectively up to 51% in certain priority sectors. Since then a positive approach  
towards FDI has been gathering momentum and the same is viewed as a tool to address the BOP situation.  
1997 saw FDI being allowed up to 100% in sectors like mining, manufacturing and in cash and carry (wholesale)  
under the government approval route. FDI in India constituted a small per cent of Gross fixed capital formation  
in 1993, which went up to 4 per cent in 1997. Beginning 2000, several other specific sectors were opened for  
00% FDI, procedures simplified and FDI limits increased. 2006 saw 100% limit in cash and carry (wholesale)  
being brought under the automatic route. Today, 51% FDI is allowed in single brand retail through the Government  
approval route and 100% FDI is allowed in the cash and carry (wholesale) business under the Automatic route.  
This paper briefly discusses and critically evaluates the pros and cons associated with FDI in retail.  
It also intends to summarize some of the key factors associated with this aspect and touch upon the  
widely publicized controversies around this subject.  
Research Methodology  
The study is confined to implications of FDI in retail industry and is based on secondary data collected  
from various sources like retail editions, business journals, news articles and reports by various institutions and  
International Peer-Reviewed Journal  
RH, VOL. 3 JULY 2013  
Overview of the Retail Sector in global perspective  
Retail is one of the largest industries in the world exceeding USD 11 trillion, primarily dominated by  
developed economies with US, EU and Japan constituting 80% of world retail sales. 47 of the Global Fortune  
companies and 25 of Asia’s top 200 companies are retailers. Fortune # 1 “Wal-Mart” is a retailer  
Operating in thirteen markets world wide, Wal-Marts global market entry strategy has been expansion through  
Organic growth coupled by acquisition and joint ventures.  
It established international operations with Mexico in 1991.  
In 2009, it recorded turnover of USD 77 billion from its international operations, which was 22% of its  
total sales.  
Retailing in China  
Retail sales have grown @ 13.5% CAGR since FDI was allowed in 1992. FDI was initially restricted to 6  
major cities including Beijing and Shanghai and SEZs. Foreign ownership was initially restricted to 49% to be  
phased out over a period of 5 years as a part of the WTO entry condition. In the later phase, retail sales grew @  
9.6% CAGR  
Employment in retail industry has also shown improvement since 1992. % of employment has  
improved from less than 5% in 1992 to 7.5% in 2001  
Wal-Mart entered China in 1996. Bloomberg reported that as of October 2011, Wal-Mart’s China  
sales totaled $7.5 billion.  
Carrefour, second largest retailer in the world, reached a count of 157 outlets in China in 2009 and  
planned to open more outlets in coming years.  
Learning from retailing in China  
Post FDI inflow, retailing has grown at a CAGR of 15% and the industry has further expanded  
Employment opportunities created  
Modern formats introduced  
Local retail outlets co exist with multinational giants  
India’s Potential for Retail  
Indian economy continues to grow at 7 – 8% GDP and retail contributes 12% of GDP as against almost  
0% for the USA and 14% for Japan. Retail in India is second largest to provide employment (8% of its working  
population), only next to agriculture. Considering certain demographics and a comparative analysis between  
organized and un organized retail at global levels, we find that only 5% of India’s retail business is through  
organized retail as against 85% for U.S., 80% for Taiwan and 20% for China. However, Year 2007 registered  
robust growth rate of organized retail to acquire 8 per cent share of overall retail in India. Organized sector  
comprises of retailing undertaken by licensed retailers i.e. those registered with income tax, sales tax, etc.  
These include hyper markets and retail chains backed by corporate houses as well as privately owned large  
retail businesses. Un organized sector comprises of the regular Kirana and mom and pop stores, convenience  
stores, hand carts, pavement vendors etc.  
2005 to 2007, India topped A.T. Kearney’s Global Retail Development Index (GRDI) as the world’s most  
attractive destination for mass merchant and food retailing in an annual study of retail investment attractiveness  
among thirty emerging markets. But in 2008, Vietnam displaced India from the top position by emerging as the  
most attractive destination.  
A.T. Kearney Global Retail Development Index, 2008  
This Index shows year on year ranking of countries under study with regards to most  
attractive destination for retail investments)  
2008 Rank  
2007 Rank  
International Peer-Reviewed Journal  
Source: (2009)  
RH, VOL. 3 JULY 2013  
Improving per capita and population demography comprising of huge proportion of youngsters, favors a  
demand for branded goods, better infrastructure etc. (average age of 25 years, 60% of population below age  
of 30 and increasing awareness through worldwide connectivity) Spending power has significantly increased  
and there is a shift in focus from low price to convenience, value chain and superior shopping experience.  
Spending shift is seen from food products to non food products as travels, apparels, consumer durables etc.  
There is a dramatic shift in consumer class from lower to middle and upper class. Consumer class is estimated  
to grow from 50 million to 583 million by 2025. In a nutshell, the retail sector in India handles more than 200  
billion USD every year and same is estimated to grow to more than 600 billion USD by end of 2015 as per  
veteran economists. Of this, the organized sector would show a growth of 15 – 20 % every year.  
Outlook of foreign investors with regards to FDI in retail India  
Ambiguous regulations and relaxation in norms: No consensus within the ruling party and state  
governments creates anxiety within the investors to set up shop. While conglomerates like Wal-Mart, Tesco etc  
are keen to invest billions of USD to set up infrastructure in India, they seek relaxations in certain existing  
Limited applicability: Retail chains in consumer durables like LG & Samsung, food chains like Pizza  
Hut or services like Kangaroo kids have an established franchisee network in India. They are unlikely to immediately  
shift even if there is a relaxation in existing norms.  
Challenge in identifying good partners: Given the constraints in terms of capping the investments in  
infrastructure, identifying a reliable partner for a JV in India remains a challenge. While options remain to tie up  
with existing retail chains in the like of Shoppers Stop or Pantaloons, they may choose to tie up with Business  
houses like Bharti where Wal-Mart has entered into a JV.  
Complex procedures to seek clearances: Another challenge is the multiple clearances needed before  
setting shop. Single window solution is sought. Wal-Mart India President and Bharti Wal-Mart Managing Director  
Raj Jain once stated “If you look at some other emerging markets like China, the Philippines, Indonesia, Brazil,  
or Mexico, you will find these are ahead of India by anything between five and 20 years. India has a lot of  
catching up to do.”  
Despite above, when Wal-Mart opened its first outlet in 2009, it is estimated to have invested around Rs  
,500 crore in India and plans to scale up investments further. Germany-headquartered euro 31-billion Metro  
Cash & Carry, already has 11 stores in India, and is estimated to have invested around Rs.1,600 crore in the  
country since 2003, when it set up the first outlet. Though current revenue is learnt to be just one per cent of the  
global sales, or around Rs 2,200 crore, the company aims at reaching five per cent of its international revenue  
from India sales by 2015. It plans to open around 50 stores in India over next four to five years with investments  
over Rs 3,500 crore. Carrefour, the second largest retailer in the world with revenues around euro 112 billion set  
up shop in India towards end of 2010 and is keen to expand. Euro 25 billion Swedish furniture giant IKEA’s  
proposal is currently under consideration with India. The company wants to invest euro 1.5 billion (around Rs  
0,500 crore) here over a period of 15 to 20 years. While this investment appears meager compared to the size  
of Wal-Mart, more so since India’s spend on furnishing is much lower as compared to spend on food items,  
consumer durables and apparel, this is an indication of the positive sentiment of foreign investors towards India  
in current scenario  
Wal-Mart and Prudential Financial are known to lobby hard with their lawmakers to garner support for  
business expansion plans in India and have already spent millions of dollars to address issues on FDI in India,  
changing framework of Indian taxation etc.  
Current provisions of FDI policy with respect to Retail Industry in India  
FDI up to 100% for cash and carry (wholesale trading) allowed under automatic route  
FDI up to 51% with prior Government approvals (FIPB approvals) for retailing in “Single Brand Products”  
FDI in Multi Brand Retailing – not permitted  
Though not explicitly authorized, most players have been operating even prior to relaxation of FDI  
norms in 2006 either through Franchisee Agreements, well drafted strategic alliances, wholly owned subsidiaries,  
Cash and carry etc  
International Peer-Reviewed Journal  
RH, VOL. 3 JULY 2013  
Franchisee agreement has been the most common route adopted by several successful chains like  
Pizza Hut, Kangaroo Kids, Lacoste, Nike, Mango, Marks and Spencer etc. Under franchisee, FDI is allowed by  
RBI under FEMA.  
Others adopt JV where international partner provides equity and technology support to Indian investors. Indian  
partner provides all local knowledge required in such a venture. Mac Donalds and Reebok have adopted such  
a route.  
Foreign brands like Benetton, Adidas, and Reebok have their wholly owned subsidiaries or manufacturing  
units set up and as such are treated as Indian companies and allowed to retail.  
Companies also set up distribution offices in India and trade through local Indian retailers. E.g. Swarovski  
and Hugo Boss operate in India through this route.  
Some of the rules governing FDI in Single Brand Retail - Irony  
To protect small manufacturers from perceived aftermath of big retailers setting shop in India, current  
sourcing rules for single brand retailers stipulate that local suppliers cannot have more than USD 1 million  
invested in plant and machinery. While the intent was to protect the manufacturing sector of the country from  
otherwise imports, it has certain adverse implications:  
Capping creates challenge for retailers to identify reliable suppliers with good infrastructure facilities  
who can cater to their standards of output  
Provisions in policy documents state that Indian companies would be disqualified from supplying to  
foreign firms if their investments in infrastructure grew beyond USD 1 million cap. This indirectly means  
penalizing success.  
Only single brand products would be sold (retailing of different brands, though manufactured by same  
producer cannot be sold under same arrangement) eg. If Adidas obtains permission to retail its Adidas  
brand in India, it cannot retail products under the Reebok brand. A separate permission and outlet  
arrangement would be required to sell these.  
Single brand would only cover products branded at manufacturing stage. This means large departmental  
stores cannot enter India as typically they source these products locally and brand them subsequently  
Any addition to product categories to be sold under single brand would require fresh approvals from  
Concerns of the government for opening up FDI in Retail India  
a) Almost 95% of India’s retail industry is unorganized and characterized with lack of professionalism, low  
capital and infrastructure, family run set up, low focus on quality and shopping experience etc. Traditional mom  
and pop stores offer employment to family members during lean agricultural seasons or in case of unemployment  
with no other avenues available. The industry is inhibited with underemployment. MNC would bring unfair  
competition leading to complete wipe out of unorganized retail industry which comprises of more than 12  
million Kirana stores. With the manufacturing sector also progressing very slowly, the displaced population  
may be jobless.  
Organized retail is at very nascent stage and needs to get established and stabilize to face these  
giants. With their muscle power, the MNCs would displace existing distribution network and resort to monopolistic  
practices, forming cartels etc  
Absence of proper regulatory framework would lead to unfair trade practices and predatory pricing.  
These giants would continue to sell products at prices unsustainable for small retailers thereby wiping them out  
d) FDI may widen urban rural divide. Most retail outlets would be set up in and around urban areas where  
infrastructure facilities, population density and per capita income is higher. These outlets would attract cheap  
labor from rural areas thereby depriving agriculture of the needed workforce. Unplanned expansion in urban  
areas would stretch existing infrastructure (roads, parking spaces etc)  
There is a fear that global giants would use India as dumping ground for their sub standard and  
outdated products.  
International Peer-Reviewed Journal  
However, not all concerns raised above may actually materialize if FDI is allowed in a perfectly regulated  
and calibrated manner  
RH, VOL. 3 JULY 2013  
Opening up the telecom sector for FDI worked by bringing in a telecommunication revolution which  
embraces everyone today. Foreign investments in automobile industry ended the long wait for outdated scooters  
and cars and led to leading global companies vying to open shop in India.  
When Pizza Hut, Domino’s, McDonald’s, Burger King, KFC and other international brands were allowed,  
there were demonstration in many cities; they were painted as anti-people and anti-Indian enterprises. It was  
feared that domestic food chains like Haldirams, Bikanerwalas, Nirulas, Nathus etc will vanish. But all these  
Indian chains have only multiplied their outlets, diversified their production line, upgraded packing and  
presentation, and are doing roaring business.  
In playschool space while Kangaroo Kids made an entry, domestic playschools like Tree House also  
Current challenges in Indian Retailing  
Almost 95% of the industry is un organized with incompetent management and inadequate infrastructure  
Poor supply chain including government run PDS leads to pilferage of grains being eaten by mice etc.  
These losses amount to thousands of crores and are one of the major contributors to food inflation.  
Poor warehousing, cold storage and transport  
Supply chain dominated by intermediaries leading to minuscule realization by farmers  
Outdated/ lack of technology  
Benefits of allowing FDI in retailing in India  
Research conducted by the Indian Council for Research on International Economic Relations (ICRIER)  
has revealed that there is no evidence of overall decline in the employment of the Unorganized retailing sector  
as a result of the advent of FDI in organized retailing and that the rate of closure of small shops for the same  
reason is very minimal.  
One of the major challenges faced by Indian agriculture is inadequate infrastructure through which the  
farmers would gain direct access to vast markets. This would not only eliminate unnecessary intermediaries,  
but also enable farmers to sell their produce at much lower prices and still fetch a good sum. Lack of proper  
warehousing and cold storage facilities forces the farmers to sell their produce at meager prices. While 100%  
FDI is permitted to invest in setting up the backend infrastructure, the same is not much forthcoming owing to  
restrictions on FDI in front end retailing. If FDI is permitted in retailing, these multi national giants can be  
induced to bring in huge capital investments and technology to set up the back end infrastructure and  
warehousing facilities, which would take years for our government to build up. This would significantly reduce  
the wastage of food produce and tame inflation. The resultant rural prosperity would bring about a balanced  
economic progress  
Other industry to benefit is the SME. These manufacturing units do not have adequate infrastructure to  
access overseas markets. With the Retail giants setting up shop in India, they would not only start procuring  
material locally for domestic sale but could also buy for exporting back to their countries. This would open up  
huge export opportunities for the SME sector.  
Below is a snapshot of some of the obvious benefits  
Improved supply chain management resulting in reduced wastages and price reductions.  
Farmers benefit through direct marketing and contract farming.  
Improved farm production through modern techniques.  
Advanced Technology and Skilled Manpower development.  
Efficiency building in SME.  
Improved exports.  
Employment opportunities.  
Tax revenue for government.  
International Peer-Reviewed Journal  
Co-existence Possible  
RH, VOL. 3 JULY 2013  
There is every opportunity for the existing Kirana stores to co-exist with these MNC giants as there are  
certain inherent advantages which they will continue to enjoy  
Local presence (residence or workplace) and easy access: It is very important in the Indian context  
Limited storage space at home leading to frequent trips to nearby retailers  
Consumers prefer fresh grocery rather than storing in bulk and consume stale grocery  
Personal vehicle penetration level in India is less than 10 per 1000 population (KPMG 2006)  
Not many housewives drive down all the way to the malls to procure their monthly grocery requirements.  
These continue to be met through local Kirana stores  
Therefore people prefer to buy from nearby stores rather than spending on transport to buy from main markets  
Personal touch with customers and value added services: Home delivery, credit facility, returns and  
adjustments etc. Personal touch enables retailers to advice customers on purchase of products most suitable  
to them.  
Low operational overheads: Small retail outlets are generally self owned or run by protected tenants.  
Not much expenses incurred on display and advertising. Family members provide labour and services.  
To conclude, FDI in retail needs to be allowed in India in a calibrated manner.  
Existing demographic of Indian population and potential are enough inducers for foreign giants. The  
government need not offer further subsidies  
Opportunities should be created to strengthen the organized retailing in India to enable it to sustain  
competition from global giants  
FDI in front line retailing should be allowed subject to companies bringing in stipulated capital, technology  
and managerial expertise to set up the backend infrastructure  
Norms should be specified where these retail outlets must procure a fixed percentage of their  
requirements from domestic suppliers  
Norms must be specified where a certain percentage of their employee strength needs to comprise of  
rural youth  
Proper regulatory framework and guidelines must be put in place to ensure that these giants do not  
adopt monopolistic and unhealthy practices  
Single window clearances should be provided for setting up shop  
Restrict number of stores which can be opened in a city. This will ensure balance of expansion and  
infrastructure support and reduce the rural – urban gap  
In a nutshell, FDI in retailing is the need of the day and is here to come. India having emerged as a  
progressive global economy needs to look at FDI in a broader perspective. There are definite advantages of  
allowing FDI in retail if the same is introduced in a closely monitored and calibrated manner, so that FDI in Multi-  
Brand retail will definitely turn out to be a boon and not a curse. Rightly said by Victor Hugo – “An invasion of  
armies can be resisted, but not an idea whose time has come”  
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Bryan R . and Berg N., Walmart, Great Britain and United States: Kogan Page Limited,2012. Print.  
Pradhan S. Retailing Management, New Delhi: Tata McGraw-Hill, 2010. Print.  
Agarwal P., and Tyagi E., Foreign Direct Investment in Indian Retail Sector – An analysis, Nov 24 ,2011.  
Batra H., FDI in retailing sector in India-Pros and Cons, Nov 3 2010.  
Mookerji N., IKEA’s investment in India- a big deal?, New Delhi: Business Standard, July 19 2012.  
Singh I., FDI in Retail Sector, Oct 11 2010.,