FDI in Retail Sector: India

India is in the midst of a retail boom. The sector witnessed significant transformation in the past decade-from small unorganized family-owned retail formats to organized retailing. Indian business houses and manufacturers are setting up retail formats while real estate companies and venture capitalist are investing in retail infrastructure. Many international brands have entered the market. With the growth in organized retailing, unorganized retailers are fast changing their business models. However, retailing is one of the few sectors where foreign direct investment (FDI) in not allowed at present. Stakeholders, trading associations, politicians, etc. have given various arguments for an against FDI in retailing. However, such arguments are largely based on perception and there has not been serious academic research in this area. To fill this lacuna, this survey-based study analyses the current retail scenario in India, investigates the growth across different segments of retailing and evaluates the likely impact of allowing FDI and its impact are also discussed. Presently, foreign players are entering the market through different routes. The entry process and their perception about the Indian market are analysed. The study investigates the structural, regulatory, fiscal and other barriers affecting the performance of retail trade and suggests reforms for the removal of such barriers. It also provides valuable policy inputs in terms of the time-frame in and the process through which the Indian government can open up this sector to FDI so as to maximize the welfare and minimize the adjustment. It also lists the conditions that may be imposed on foreign retailers if FDI is allowed. The preliminary findings of this survey study were presented before the Government and various stakeholders at a seminar in New Delhi on November, 22, 2004. The findings evoked significant interest and debate. After taking into account the feedback from various government departments and stakeholders, the Department of Consumer Affairs and ICRIER have decided to publish the final report (in the present form) for wider dissemination and discussion which would enable the government to take important policy decisions with respect to FDI in retailing. This study would be of immense interest to retailers, manufacturers, trading associations, chambers, real estate developers, venture capitalists, foreign retailers and their representatives, consultants, industry associations, government ministries/ departments, academicians, and all those who have an interest in the growth of this sector.