FDI in Retailing: Long Overdue
Article by - B V Kiran,
Faculty Associate,
ICMR Case Studies and Management Resources.
The government should allow FDI in the retail sector
taking a cue from China.
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The Indian retail market, which was largely
unorganized till the 1980s, has undergone an immense transformation in the
post-liberalization era. Due to the wide range of products available, the
increasing purchasing power of consumers, superior supply chain management
leading to economies of scale and a world-class customer service, the
Indian retail market has been witnessing tremendous growth. Alongside,
there has been an increasing pressure from international agencies on the
government, to allow Foreign Direct Investment (FDI) in the retail sector.
Many industrial giants like Tatas (Westside), Eureka Forbes, RPG (Food
World, Giant, Music World, Health & Glow), Pantaloons, Big Bazaar,
Shoppers' Stop, and Lifestyle have entered the Indian retail market.
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These
big corporate houses have managed to attract a large number of customers
over a period of time and have significantly improved this sector.
Moreover, these companies invested huge resources, in terms of capital,
personnel and technology, which allowed them to garner a significant
market share in this industry. The increase in the double income households (as a result of
multinational companies entering the country and creating potential employment
opportunities), has given a tremendous boost to the spending power of consumers,
thereby opening a plethora of opportunities for retailers. Unlike earlier,
consumers now are spending a major chunk of their income on buying goods and
services. A growing number of families with both the spouses working gave
impetus to instant and ready-made products (ITC's ready-to-eat foods) and
services, which help save time. Retailers are now offering an entire range of
convenience products, which a typical household requires. |
There are several reasons that have led to the retail sector being more
organized. Increased urbanization, growth in the demand for newer and varied
products by consumers, and branded goods penetrating the market on a large scale
are some of the reasons. Segments in retailing like consumer durables,
furniture, healthcare, garments, food and services, personal care products,
apparel, music, and books are increasingly getting organized.
Globally, there has been a significant change in the retail sector over the past
two decades. More than 70% of retailing in developed countries is organized. The
organized retail sector in China is 10 times that of India's. India is next only
to China in market size and is the fourth largest economy in the world after the
US, China and Japan. (The US accounts for 21.1% of the world's GDP, China 12.6%,
Japan 7% and India 5.7%.) The World Trade Organization (WTO) and international
agencies have been pushing the Indian government to allow FDI in the retail
sector. The WTO has also been planning to withdraw tariff and trade privileges
provided to India under the new General Agreement on Tariffs and Trade if FDI is
not allowed.
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