http://paper.li/Bunibroto/1309952288/2011/10/24
Retailing can normally be defined as “the sale of goods or merchandise from a fixed location, such as a department store or kiosk, or by post, in small or individual lots for direct consumption by the purchaser
Retailing in India is slightly different than in developed markets, in that it is divided in to organized and unorganized retail. Organized retail could be described as when trading is taking place under a License or through people that are registered for sales tax or income tax. Unorganized retail is India's more traditional style of “low-cost retailing, for example, the local kirana shops, owner-manned general stores, paan/beedi shops, convenience stores, hand carts and pavement vendors.“The major difference between organized and unorganized retailing lies in its number (chain) of store operations. An unorganized outlet may be just stand alone or can have [a]
maximum of 2-3 outlets in a city, where as the organized outlets are "any retail chain
(more than two outlets) which is professionally managed (even if its family
run), has an accounting transparency… and organized Supply Chain Management with
centralized quality control and sourcing (certain parts can be locally made) can be
termed as an "organized retailing" in India
Reform
There were “half-hearted attempts made by the Rajiv Gandhi government in the mid-1980s to selectively open the economy to foreign trade and relax import restrictions, which did not have the intended consequence of stimulating investment.
In 1990-91 the current account deficit was 3.1% and inflation was 12%. Things began to get out of hand and the government went to foreign lenders pledging gold held at the Reserve Bank of India (India's central bank) for short term loans so as to help get through the financial crisis. In 1990, just as China India
years of over-zealous government control over economic activity, isolation and poorly
managed fiscal policy. Foreign finance had all but closed the door on India Economic reform was now on the agenda after the financial disaster of 1991; and these
reforms “brought in three elements that India
competition, entrepreneurship and the beginnings of world-class infrastructure.”
The post-reform performance of the economy had been good, and between 1994 and1997 Gross Domestic Product (GDP) grew in real terms by over 7%, which placed India among the best-performing countries in the world.However, a study of the economic reforms and liberalisation of the Indian economy by Kalirajan and Sankar (2003) acknowledges this but highlights that whilst this economic growth is encouraging, “there is no doubt that given the low per capita income the need for an
accelerated growth rate becomes urgent. The inflation rate was on average at a high of 10.7% per annum in the first five years of the reform period, but gradually came down to less than 5% in the last few years”. “Between 1991 and 2004, India's economy grew by an average of 6%.Farndon (2007) highlights the issue of job insecurity in India, and how few people are employed in a recognized position. To explain, he uses the example that in 2006, India had a workforce of 470 million, but only 35 million of these (approx. 7%) were in formal, income tax paying positions – and of this 35 million, the majority (21 million) are employed by the government. Essentially, “a country with a population of over a billion has hardly more income tax payers than the UK. All the rest – some 435 million people – work in what Indians
call the 'unorganized sector'”.
It is evident that 2009 is going to be a bad year in terms of Imports/Export Growth and GDP for India
FDI in retail
60+ years after independence India'sgovernment is now starting to take a closer look
at liberalising its foreign investment policies. In 2006 the Government has promoted limited FDI in single-brand retailing and has considered opening up further in a phased system with emphasis on joint ventures with domestic players, evident with the highly controversial Wal-Mart joint venture withBharti. Studying other countries such as China
The government has created a specific Board to deal with promotion of FDI in India
Minister.
When looking specifically at FDI in retail, India
particularly regarding the potential risk of displacing labour in the retail sector. Retail employs a huge number of people in the 'unorganised' sector, the majority of which does not have any skills. This has made retail a major political issue as there is pressure on the government to compensate the people who are displaced and provide alternative employment options.
In terms of the Retail sector, foreign investment is currently limited to 51% in single brand retail stores and 100% FDI in wholesale cash and carry. No multi-brand retailing is allowed. Subject to these equity conditions, a foreign investor can set up a registered company and operate under the same rules and regulations as an Indian company. This implies that foreign companies can now sell goods sold
globally under a single brand, such as in the case of Reebok, Nokia and Adidas. However, retailing of multiple brands, even if the goods are produced by the same manufacturer, is presently not allowed. Foreign investments are freely repatriable, and are regulated under the Foreign Exchange Management Act (1999) (FEMA), administered by the Reserve Bank of India's Exchange Control Department.
KPMG (2008) highlight just some of the key legislation that could have a potential impact on foreign investors setting up in India
· Payment of Bonus Act 1965
· Minimum Wages Act 1948
· Shops & Establishment Act
· Contract Labour (Regulation and Abolition) Act 1970
· Industrial Disputes Act 1947
· Workman's Compensation Act
· Profession Tax
· Maternity Benefit Act 1961
· Employees Provident Fund and Miscellaneous Provisions Act 1952
· The Employees State
· Goods & Services Tax (GST) (Proposed for July 2010
According to RRL (2009) , 27% of global GDP is attributed to retail, and in various developing markets organized retail contributes typically anywhere between 20% and 55% of GDP. Placing the Indian retail market at approximately $300 billion, with a growth rate of 13% per year, RRL point out that presently, although organized retailing is only approximately 5%, this is likely to grow to 10% by 2011. Therefore, RRL have begun an implementation plan to create a high spec state of the art retail infrastructure, to include a strategy for opening multi-format stores such as convenience, hypermarket, speciality and wholesale stores.
Sajjan Jindal said that “providing industry status is the first basic step needed for reforming the Indian retailing sector. ASSOCHAM believe that the advantages of
having an industry status are that it will allow a better “focus on retailing development, fiscal incentives, and availability of organized financing and establishment of insurance
norms.” They feel the development of the retail sector can take place at a faster pace if there is a comprehensive legislation enacted.
Arguments for FDI in Retailing
1. The opening up of FDI should be phased, over a 5-10 year time frame so as to allow time for domestic retailers to adjust.
2. FDI in multi-brand retailing should be kept restricted in the near future, as Indian retailers would not be able to face this competition immediately.
3. It is not currently desirable for FDI to be above 51%, even in single brand retailing. This will allow checking and control of foreign retailer's business operations, and will help to protect the interests of domestic retailers. However, the sector cap (equity limit) could be increased in due course as it has been in the telecom, banking and insurance markets.
4. Certain products that are sensitive should not be allowed, for example, arms/ammunition and military equipment. The excluded products should be expressly stated in policy.
5. There should be restricted zones imposed by the government for the purposes of city planning.E.g. Supermarkets/Hypermarkets should be kept away from the city centers to protect the unorganized and small retailers who operate in these areas.
The main findings of the ICRIER study revealed
that FDI in retailing led to:
1. Increased speed of development in modern
formats
2. Improved productivity and efficiency of the
retail sector
3. Enhanced sourcing
4. Improved quality of employment – no
negative impact on employment if the
economy is growing.
5. Encouraged investment in supply chain
6. Led to integration of suppliers, logistic
service and retailers – reduction in the
number of intermediaries
7. Linked local suppliers, farmers,
manufactures to global markets
8. Low cost global retailers likely to lower
prices
9. Consumers are assured of product quality,
better service & shopping experience.
Excerpts from FDI in retail sector “An all India
No comments:
Post a Comment