Page 1 of 6
Journal for Studies in Management and Planning
Available at http://internationaljournalofresearch.org/index.php/JSMaP
e-ISSN: 2395-0463
Volume 01 Issue 06
July 2015
Available online: http://internationaljournalofresearch.org/ P a g e | 11
Foreign Direct Investment in Retail: Opportunity and
Challenges in India
Mr.Vinod Kumar
Lecturer in Commerce Govt. College Julana, (Jind)
Abstract
FDI is one of the most
distinguished factor for financial aid and
growth for developing countries. The
research paper examines the opportunity
and challenges of FDI on India. FDI is
considered to be a significant component
of development strategy of any country
and more so for developing countries.
India is a developing country and its
market is on the path of growth increasing
size and rise in the purchasing power of
Indian customers and this has gained the
attention of several foreign retailers to the
Indian market. Opening up the retail
market for FDI has its own advantages
and disadvantages. This paper focuses on
a brief description of the status of Indian
retail industry as of now along with
challenges and opportunities which might
be faced in case it is decided to open up
the entire retail sector for FDI.
Keywords: Opportunity and challenges,
FDI, India, Retail.
Introduction
FDI is direct investment by a
company in production located in another
country either by buying a company in the
country or by expanding operations of an
existing business in the country. No doubt
FDI plays a crucial role in enhancing the
economic growth and development of the
country. FDI on a more generic note
means long term investment in a country
by an entity which is not the resident of the
host country. Opening up the retail sector
for FDI in India is a very sensitive issue.
In India there is a big potential for growth
and development of retail sector in India as
most of it is unorganized. Considering the
size aspect also, as per the investor’s
commission of India’s report, it is
expected that retail sector will grow to the
level of 660$ by 2015. There is a massive
size of retail sector in India and because of
this many international companies want to
enter India. FDI is one of the most
preferred routes of investment. There are
many important drivers for the growth of
retail sector in India these drivers are the
rapid growth in income, increase young
population, increase urbanization and
increasing attitude of individuals to spend
now and save earlier. But the issue of
opening up retail sector for FDI is very
sensitive. Presently then is no permission
Page 2 of 6
Journal for Studies in Management and Planning
Available at http://internationaljournalofresearch.org/index.php/JSMaP
e-ISSN: 2395-0463
Volume 01 Issue 06
July 2015
Available online: http://internationaljournalofresearch.org/ P a g e | 12
for FDI in multi brand retail in India.
Proposed figures of 26% or 49% may have
major and immediate consequences.
Impact of FDI in retail is expected to be
mixed. If India opening up retail sector for
FDI, it will offer tremendous opportunities
for growth and development and after it
there will be more choice of goods and it
will lead appropriate pricing by increasing
the level of competition.
Objective of the study
The objective of the study is as follows:
1. To understand the current scenario
of retail sector in India
2. To analyze the impact of opening
up of sector in retail.
3. To describe opportunities and
threats in FDI in retail sector in
India.
Methodology
Nature of the study is descriptive
and exploratory. Study is entirely based on
the secondary data. Data sources include
various books, newspaper, internet,
research papers published in leading
journals.
Current retail sector of India
Retailing is direct interface
between producer of goods and that of
individual consumer who is buying the
goods for the final consumption. However,
the direct interface between producer of
goods and institutional buyers like
government.
India is the 5th largest market in the
world. The country ranks fourth among the
surveyed 30 countries in terms of global
retail development. The current market
size of Indian retail industry is about
US$520 bn. Retail growth of 14% to 15%
per year is expected through 2015. By
2018, the Indian retail sector is likely to
grow at a CAGR of 13% to reach a size of
US$950 bn. Retailing has played a major
role the world over in increasing
productivity across a wide range of
consumer goods and services. In the
developed countries, the organized retail
industry accounts for almost 80% of the
total retail trade. In contrast, in India
organized retail trade accounts for merely
8-10% of the total retail trade. This
highlights a lot of scope for further
penetration of organized retail in India.
The sector can be broadly divided
into two segments: value retailing, which
is typically a low margin-high volume
business (primarily food and groceries)
and lifestyle retailing, a high margin-low
volume business (apparel, footwear etc.).
The sector is further divided into various
Page 3 of 6
Journal for Studies in Management and Planning
Available at http://internationaljournalofresearch.org/index.php/JSMaP
e-ISSN: 2395-0463
Volume 01 Issue 06
July 2015
Available online: http://internationaljournalofresearch.org/ P a g e | 13
categories, depending on the types of
products offered. Food dominates market
consumption with 60% share followed by
fashion. The relatively low contribution of
other categories indicates opportunity for
organized retail growth in these segments,
especially with India being of the world’s
youngest market.
Transition from traditional retail to
organized retail is taking place due to
changing consumer expectations, growing
middle class, higher disposable income,
preference for luxury goods, and change in
the demographic mix, etc. The
convenience of shopping with multiplicity
of choice under one roof (shop-in-shop),
and the organized retail growth in India
over the long run.
Financial year 2014
During FY2014, the economic
backdrop was a key factor impacting the
performance of retail companies across
various sub sectors, including that of
organized retail. Consumer sentiment and
business confidence continued to be
subbed during the year with economic
growth decelerating further. This is
attributable mainly to weakening industrial
growth in the context of thigh monetary
policy followed by the RBI through most
of the year, political and policy stability
related concerns and uncertainty in the
global economy.
Inflation also was an important
concern area. Persistent high inflation and
inflation expectations meant that the RBI
was compelled to maintain and economic
sentiment. In the recent quarterconsumers
sentiments has been varied-with apparel
retailers reporting an improving trend but
most other retail formats still witnessing
muted off take.
Key perceived opportunities
A survey was conducted by CII in
2011-2012, for studying the impact of FDI
on SMEs (small and medium enterprises).
Number of SMEs surveyed was 250. As
per survey result, Majority of SMEs was
for 100% of Foreign Direct Investment in
single brand retail sector. About 66.7% see
the FDI in retail as an opportunity whereas
21% perceived it to be a threat.12.5%
opinioned that there would not be any
impact of FDI to their SME sector. One
school of thought suggest that opening up
of retail for FDI will offer significant
benefit both to Indian economy as well as
Indian retailers.
As per kalhan, Indian retailers will
benefit from the international experience
and best practices introduced by foreign
retailers. Organized retailing might benefit
