The opening of retail trade to foreign direct investment (FDI) promises to usher in revolutionary changes in the Indian consumer market in the coming days.
Recently, in a significant step towards liberalizing India’s retail trade, the government had decided to partially open up the retail sector by announcing 51 percent of FDI in single brand retail, a move that should pave the way for big names like Nike, Versace, Addidas, Marks & Spencer to set up their own stores in India.
This means that foreign companies wishing to enter the Indian market will now be able to invest up to 51 per cent in setting up production facilities, distribution networks and retail stores with the remainder coming from Indian investors. But at the moment, multi-brand retail giants like Wal-Mart are not allowed in. The government has yet to announce guidelines that will clarify the picture.
However, experts remain divided on the problems and prospects for this measure. Some say it will reduce job opportunities, completely disrupt the retail distribution structure, and deal a fatal blow to the corner store structure.
Optimists, on the other hand, see a wide range of opportunities, from better harvesting, processing and better distribution of agricultural products to creating more opportunities for the rural and urban unemployed.
Until now, global retailers had to sell their products through franchises or wholesaling. This move will help them establish their own base in India and attract foreign capital along with better quality products and services for consumers.
The Indian retail market currently estimated at $ 250 billion is currently dominated by millions of family-owned stores that supply 97 percent of the total market.
According to a recent study, the Indian retail industry is expected to grow around 36 percent in 2008 and with the increase in foreign investment, the industry is expected to do a business of Rs 1.60 trillion by the year 2008.
With the new regulations in force, the debate is what will happen to these stores. Will the entry of global retailers kill off these local stores or will it have no impact? If we take the example of China, FDI in retail has little to no impact on local retailers and they still dominate the retail sector.
Second, the decision may not trigger the flow of FDI as single brand retailers who wanted to be in India like Nike and Reebok are already here through a franchise and may have a hard time finding willing local partners. to invest in the business.
The Indian retail sector is the second largest employer after agriculture in the country and the entry of foreign companies will not only increase the number of job opportunities but also exports.
With foreign companies establishing their own stores in India, the consumer will have access to some of the world’s leading brands. The entry of foreign brands would also improve the quality and variety of products, increase competition, and expand manufacturing.
Organized retail has the promise of lowering the prices of foreign products sold through these large stores. This also means that some of these retail chains will eventually have to start manufacturing locally or outsource to national manufacturers to be in competition.
This is more true if one takes into account the fact that super markets and corner ones are very likely to coexist in the Indian market and this would make the latter more competitive and qualified in terms of operations.
Furthermore, several Indian corporations such as Tatas, ITC, RPG Group and Rahejas have already established their distribution chains. Others, like Viveks in Chennai, have established multi-brand stores. Mukesh Ambani’s Reliance is also reported to be planning a major foray into the retail business.
All of this promises to make the Indian retail market a real place in the days to come, while at the same time offering immense business opportunities to domestic entrepreneurs. In fact, this is likely to transform all contours of the Indian market, making it part of the overall global market.
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