Download - Project Report on FDI in Retail
-
7/28/2019 Project Report on FDI in Retail
1/52
Role of Foreign Direct Investment (FDI) in a growing
economy
-:CONTENTS:-Sr.No. SUBJECT PAGE No.
1 Introduction of the Study 7
2 Need & Purpose For FDI 9
3 TYPES OF FDI FLOW TO INDIA 9
4 Objective of the Study 10
5 Scope of the Project 10
6 Growth of Foreign direct Investment 11
7 Sectors Benefited With FDI 12
8 Regulatory Mechanism for FDI 16
9 Year wise FDI Inflow 19
10 Diversified FDI Inflows 20
11 Governments Participation In FDI 21
12 LAWS OF FDI 20
13 Permissible Limits for FDI in different Sectors 24
14 FDI in Retail Sector 47
15 RESULTS OF THE STUDY 54
16 FDI Impact on Domestic Enterprises 54
17 LIMITATION OF FOREIGN DIRECT INVESTMENT 56
18 Conclusion 56
-
7/28/2019 Project Report on FDI in Retail
2/52
19 Bibliography 57
Introduction of the Study
Foreign Direct Investment (FDI) is capital provided by a foreign direct investor, eitherdirectly or through other related enterprises, where the foreign investor is directly involvedin the management of the enterprise. Development of a new business or acquisition of atleast 10% interest in a domestic company or a tangible assets, (purchase of bond & stock).Foreign direct investment is the transfer by a multinational firm of capital, managerial,and technical assets from its home country to a host country.
FDI has three components: equity capital, reinvested earnings and intra-company loans.FDI flows are recorded on a net basis (capital account credits less debits between directinvestors and their foreign affiliates) in a particular year. Outflows of FDI in the reportingeconomy comprise capital provided (either directly or through other related enterprises) bya company resident in the economy (foreign direct investor) to an enterprise resident inanother country (FDI enterprise). Inflows of FDI in the reporting economy comprise capitalprovided (either directly or through other related enterprises) by a foreign direct investor toan enterprise resident in the economy (called FDI enterprise).
Foreign direct investment (FDI) includes significant investments by foreign companies,such as construction of production facilities or ownership stakes taken in U.S. companies.FDI not only creates new jobs, it can also lead to an infusion of innovative technologies,management strategies, and workforce practices. The ultimate flow of foreign involvement
is direct ownership of foreign- based assembly or manufacturing facilities. The foreigncompany can buy part or full interest in a local company or build its own facilities. If theforeign market appears large enough, foreign promotion facilities offer distinct advantages.First, the firm secures cost economies in the form of cheaper labor or raw material, foreigngovernment incentives, and freight savings. Second, the firm strengthens its image in thehost country because it creates jobs. Third, the firm develops the recent relationship withthe government, customers, local suppliers, and distributors, enabling it to adapt itsproduct better to the local environment. Forth, the firm retains full retain over itsinvestment and therefore can develop manufacturing and marketing policies that serve itslong-term international objectives. Fifth, the firm assures itself access to the market in casethe host country starts insisting that locally purchased goods have domestic content.
-
7/28/2019 Project Report on FDI in Retail
3/52
Need & Purpose For FDI :
India need FDI for reasons such as:--
SUSTAINING HIGH LEVEL OF INVESTMENT FOR DEVLOPMENT
FULFILL THE TECHNOLOGICAL GAP
EXPLOITATION OF NATURAL RESOURCES
DEVLOPMENT OF ECONOMIC INFRASTRUCTURE.
SUSTAINING HIGH LEVEL OF INVESTMENT:-as India is a developing country, it need certainamount of saving to invest for its development. This gap between investment and saving is filled by
foreign capital.
TECHNOLOGICAL GAP:- India has lower level of technology as compare to developed nations which is
very necessary for industrial and other development so it need technology transfer which comes with fdi
when it assumes the form of private foreign investment.
EXPLOITATION OF NATURAL RESOURCES:- India is full with natural resource but it has no
required technical skill and expertise to exploit it so India need foreign capital to undertake the
exploitation of its mineral wealth.
DEVLOPMENT OF ECONOMIC INFRASTRUCTURE:- Domestic capital of developing countries like
India is too low to build up its economic infrastructure so it need some foreign capital to develop its
economic infrastructure
TYPES OF FDI FLOW TO INDIA
NRI deposits:- The Forms of Foreign Capital Flowing into India include, NRI deposits, which
are made in profitable foreign currency accounts.
-
7/28/2019 Project Report on FDI in Retail
4/52
Portfolio flow of capital:- portfolio flow of capital that are made by institutional foreign
investors that make investments in India's debt and stock markets.
Investment made in commercial banks:- The Forms of Foreign Capital Flowing into India also
include, investments that are being made by the foreign investors in the commercial banks of
India
Private foreign investment:- under private foreign investment investors either sets up a branch
or a subsdiary in the host country.
The major sectors that have been benefited from Foreign Direct Investment are asfollows:
Financial sector (banking and non-banking).
Insurance
Telecommunication
Hospitality and tourism
Pharmaceuticals
Software and Information Technology.
Objective of the Study:
To know Which sector is good for investment .
To know the reason for investment in India.
To know which country s safe to invest .
To know how can India Grow by Investment .
To Examine the trends and patterns in the FDI across different sectors and from different
countries in India
To know in which sector we can get more foreign currency in terms of investment in
India
To know how much to invest in a developed country or in a developing.
To know which country in investing in which country
Influence of FII on movement of Indian stock exchange
-
7/28/2019 Project Report on FDI in Retail
5/52
To understand the FII & FDI policy in India.
Scope of the Project :
The Scope of the Project is to find out where in India is Foreign Direct Investmentis taking place
Growth of Foreign direct Investment
Governments Participation in FDI - INDIAN SCENARIO
In order to attact Foreign direct Investment (FDI) from the worlds majorinvestors and in order to present a favorable scenario for investors theIndian government has announced a number of reforms and hasimplemented several industrial policies. The foreign direct investment isallowed in India through collaborations that are of financial nature, jointventure collaborations, through preferential allotments, investment through
EURO issues.Apart from this it has opened of FDI route by setting up of100% EOUs /EHTPs/ STPs etc and entering into Foreign technologyagreement.
As a result of the various policy initiatives taken, India has been rapidlychanging from a restrictive regime to a liberal one, and FDI is encouragedin almost all the economic activities under the automatic route, hugeamounts of foreign direct investment is coming into India through non-resident Indians, international companies, and various other foreigninvestors. The growth of FDI in India boosted the economic growth of the
country major advantages of FDI in India have been in terms of:
Increased capital flow. Improved technology. Management expertise. Access to international markets
-
7/28/2019 Project Report on FDI in Retail
6/52
Sectors Benefited With FDI
-
7/28/2019 Project Report on FDI in Retail
7/52
Sector-wise FDI Inflows ( From April 2000 to January 2010)
SECTOR
AMOUNT OF FDI
INFLOWS PERCENT OF TOTAL
FDI INFLOWS (In terms
of Rs)
In Rs Million
In US$
Million
Services Sector 787420.81 18118.40 22.39
Computer Software &hardware
391109.74 8876.43 11.12
Telecommunications 275441.38 6215.55 7.83
Construction Activities 213595.12 5029.01 6.07
Automobile 146799.41 3310.23 4.17
Housing & Real estate 217936.02 5118.85 6.20
Power 137089.37 3129.66 3.90Chemicals (Other thanFertilizers)
87008.07 1964.06 2.47
Ports 63290.50 1551.88 1.80
Metallurgicalindustries
109563.20 2612.85 3.11
Electrical Equipments 57379.63 1324.92 1.63
Cement & GypsumProducts
70781.19 1621.03 2.01
Petroleum & NaturalGas
94417.17 2244.17 2.68
Trading 62416.85 1480.94 1.77
Consultancy Services 48647.43 1112.92 1.38
Hotel and Tourism 52500.05 1217.50 1.49
Food ProcessingIndustries
34362.49 760.32 0.98
Electronics 33914.75 748.57 0.96
Misc. Mechanical &Engineering industries
28310.13 648.86 0.80
Information &Broadcasting (Incl.Print media)
52115.90 1194.20 1.48
Mining 21204.94 522.86 0.60
-
7/28/2019 Project Report on FDI in Retail
8/52
Regulatory Mechanism for FDI
-
7/28/2019 Project Report on FDI in Retail
9/52
Measuring FDI restrictiveness
The FDI Index gauges the restrictiveness of a countrys FDI rules bylooking at the four main types of restrictions on FDI:
Foreign equity limitations Screening or approval mechanisms Restrictions on the employment of foreigners as key personnel Operational restrictions, e.g. restrictions on branching and on
capital repatriation or on land ownership
The FDI Index is not a full measure of a countrys investment climate. Arange of other factors come into play, including how FDI rules areimplemented. Entry barriers can also arise for other reasons, including
state ownership in key sectors. A countrys ability to attract FDI will beaffected by factors such as the size of its market, the extent of itsintegration with neighbours and even geography.
Nonetheless, FDI rules are a critical determinant of a countrysattractiveness to foreign investors. Furthermore, unlike geography, FDIrules are something over which governments have control. FDI restrictionstend to arise mostly in primary sectors such as mining, fishing andagriculture, but also in media and transport.
-
7/28/2019 Project Report on FDI in Retail
10/52
Year wise FDI Inflow
-
7/28/2019 Project Report on FDI in Retail
11/52
Diversified FDI Inflows
-
7/28/2019 Project Report on FDI in Retail
12/52
Governments Participation In FDI
On February 11, 2010, the Government of India approved new rules on foreign directinvestment. They were issued on March 26 by the Department of Industrial Policy and
Promotion (DIPP) and entered into force on April 1. Under the liberalized measures, the
Finance Minister can endorse proposals involving foreign equity of up to
INR1200crore[1croreequals 10,000,000 Indian rupees (INR)](about US$268 million
as of April 5, 2010) without seeking approval from the Cabinet Committee on Economic
Affairs (CCEA), creating an automatic consideration procedure.
Previously, FDI proposals for amounts above INR600 crore were referred to the CCEA.Because the CCEA is comprised of several ministers in charge of various portfolios, it could be
a time-consuming procedure. The new FDI rules stipulate that proposals for FDI of up toRS1,200 crore will be handled by the FIPB, which is under the Finance Ministry. Thisadministrative change is expected to streamline the process. (Singh,supra.) Now, foreigninvestors who have already obtained the requisite approval are not required to obtain newapprovals in order to make additional investments in the same entity if:
1) The investment activities or sectors have been transferred to the automatic procedure;
2) Previous sectoral caps on foreign FDI activities have been removed or the permitted FDIamount increased and the activities have been placed under the automatic route; or
3) The approval was obtained to meet previous requirements set forth in Press Note 18/1998 orPress Note 1/2005. These Notes address foreign investment/ technical collaboration proposals"where the foreign investor has or had any previous joint venture or technologytransfer/trademark agreement in the same or allied field in India. Moreover, foreign investorswill no longer need to obtain no-objection certificates (NOC) from domestic company joint-venture partners in order to invest on their own in the same sectors.
-
7/28/2019 Project Report on FDI in Retail
13/52
LAWS OF FDI
GOVERNING LAWS
Both domestic (of the investing andrecipient economies) and international
laws govern FDI. Domestic investment codes typically include provisions to
attract FDI and safeguard direct investors, such as promises ofnational
treatment, most-favored-nation treatment, tax incentives, security
measures, and/or dispute resolution .In the event of an investor-State
dispute, investors generally must exhaust local remedies before turning to
other nations or international dispute resolution, such as the International
Centre for Settlement of Investment Disputes, an international arbitration
institution.
International law also governs FDI. Sources of international law include, inter
alia, multilateral treaties, bilateral investment treaties (BITs), customary
international law, and judicial decisions. Multilateral treaties, such as
the Agreement on Trade-Related Investment Measures (regarding trade in
goods) and the Agreement on Trade-Related Aspects of Intellectual
Property (regarding intellectual property) harmonize disparate domestic
laws. Attempts, however, to negotiate a comprehensive, multilateral
investment treaty have failed. As such, the U.S. views BITs as particularly
important and has negotiated40 that are currently in force.
http://topics.law.cornell.edu/wex/national_treatmenthttp://topics.law.cornell.edu/wex/national_treatmenthttp://topics.law.cornell.edu/wex/most_favored_nationhttp://icsid.worldbank.org/ICSID/Index.jsphttp://icsid.worldbank.org/ICSID/Index.jsphttp://topics.law.cornell.edu/wex/multilateral_treatieshttp://topics.law.cornell.edu/wex/bilateral_investment_treatyhttp://topics.law.cornell.edu/wex/customary_international_lawhttp://topics.law.cornell.edu/wex/customary_international_lawhttp://www.wto.org/english/docs_e/legal_e/18-trims.pdfhttp://www.wto.org/english/docs_e/legal_e/27-trips.pdfhttp://www.wto.org/english/docs_e/legal_e/27-trips.pdfhttp://www.ustr.gov/trade-agreements/bilateral-investment-treatieshttp://www.ustr.gov/trade-agreements/bilateral-investment-treatieshttp://tcc.export.gov/Trade_Agreements/Bilateral_Investment_Treaties/index.asphttp://topics.law.cornell.edu/wex/national_treatmenthttp://topics.law.cornell.edu/wex/national_treatmenthttp://topics.law.cornell.edu/wex/most_favored_nationhttp://icsid.worldbank.org/ICSID/Index.jsphttp://icsid.worldbank.org/ICSID/Index.jsphttp://topics.law.cornell.edu/wex/multilateral_treatieshttp://topics.law.cornell.edu/wex/bilateral_investment_treatyhttp://topics.law.cornell.edu/wex/customary_international_lawhttp://topics.law.cornell.edu/wex/customary_international_lawhttp://www.wto.org/english/docs_e/legal_e/18-trims.pdfhttp://www.wto.org/english/docs_e/legal_e/27-trips.pdfhttp://www.wto.org/english/docs_e/legal_e/27-trips.pdfhttp://www.ustr.gov/trade-agreements/bilateral-investment-treatieshttp://www.ustr.gov/trade-agreements/bilateral-investment-treatieshttp://tcc.export.gov/Trade_Agreements/Bilateral_Investment_Treaties/index.asp -
7/28/2019 Project Report on FDI in Retail
14/52
Foreign Direct Investment (FDI)
Permissable Limits in Different
Sectors as on December 2012
Sl. No. Sector FDI Permissible Limit
1 Hotel & Tourism 100%
2 Power 100%
3 Drugs & Pharmaceuticals 100%
4 Roads, Highways, Ports and Harbours 100%
5 Pollution Control and Management 100%
6 Call Centers in India 100%
7 Telecom Sector 74%
8 Insurance 26%
9 Defense 26%
http://www.blogger.com/email-post.g?blogID=4420455964467110669&postID=1188357161317809215 -
7/28/2019 Project Report on FDI in Retail
15/52
What are the Permissible Limits for FDI in
different Sectors :
(A) 26% FDI is permitted in
Defence
Newspaper and media **
Petroleum refining
Pension sector (allowed in October 2012 as per cabinet
decision)
(B) 49% FDI is permitted in :
Banking
Cable network**
DTH **
Infrastructure investment
Telecom
Insurance (Enhanced from 26% to 49% in October, 2012)49% (FDI & FII) in power exchanges registered under the Central
Electricity Regulatory Commission (Power Market) Regulations
2010 subject to an FDI limit of 26 per cent and an FII limit of 23
per cent of the paid-up capital is now permissible. [Permitted in
September 2012]
(C ) 51% is Permitted in
Multi-Brand Retail (Since September 2012)
Petro-pipelines
-
7/28/2019 Project Report on FDI in Retail
16/52
(D) 74% FDI is permitted in
Atomic minerals
Science Magazines /Journals
Petro marketing
Coal and Lignite mines
Telecom
(E)100% FDI is permitted in
Single Brand Retail (Increased to 100% from 51% in December
2011).
Advertizement
Airports
Cold-storage
BPO/Call centres
E-commerceEnergy (except atomic)
export trading house
Films
Hotel, tourism
Metro train
Mines (gold, silver)
Petroleum exploration
Pharmaceuticals
Pollution control
Postal service
Roads, highways, ports.
-
7/28/2019 Project Report on FDI in Retail
17/52
Township
Wholesale trading
Insurance Sector: FDI in Insurance sector in India
FDI up to 26% in the Insurance sector is allowed on the automatic route subject to obtaining
license from Insurance Regulatory & Development Authority (IRDA)
Telecommunication:
FDI in Telecommunication sector
i. In basic, cellular, value added services and global mobile personal communications by
satellite, FDI is limited to 49% subject to licensing and security requirements and
adherence by the companies (who are investing and the companies in which investment
is being made) to the license conditions for foreign equity cap and lock- in period for
transfer and addition of equity and other license provisions.ii. ISPs with gateways, radio-paging and end-to-end bandwidth, FDI is permitted up to 74%
with FDI, beyond 49% requiring Government approval. These services would be subject
to licensing and security requirements.
iii. No equity cap is applicable to manufacturing activities.
iv. FDI up to 100% is allowed for the following activities in the telecom sector :
a. ISPs not providing gateways (both for satellite and submarine cables);
b. Infrastructure Providers providing dark fiber (IP Category 1);
c. Electronic Mail; and
d. Voice Mail
-
7/28/2019 Project Report on FDI in Retail
18/52
The above would be subject to the following conditions:
e. FDI up to 100% is allowed subject to the condition that such companies would
divest 26% of their equity in favor of Indian public in 5 years, if these companies
are listed in other parts of the world.
f. The above services would be subject to licensing and security requirements,
wherever required.Proposals for FDI beyond 49% shall be considered by FIPB
on case to case basis.
Trading:
FDI in Trading Companies in India
Trading is permitted under automatic route with FDI up to 51% provided it is primarily export
activities, and the undertaking is an export house/trading house/super trading house/star trading
house. However, under the FIPB route:-
i. 100% FDI is permitted in case of trading companies for the following activities:
exports;
bulk imports with ex-port/ex-bonded warehouse sales;
cash and carry wholesale trading;
other import of goods or services provided at least 75% is for procurement and sale of
goods and services among the companies of the same group and not for third party use or
onward transfer/distribution/sales.
ii. The following kinds of trading are also permitted, subject to provisions of EXIM Policy:
a. Companies for providing after sales services (that is not trading per se)
b. Domestic trading of products of JVs is permitted at the wholesale level for such trading
companies who wish to market manufactured products on behalf of their joint ventures
in which they have equity participation in India.
-
7/28/2019 Project Report on FDI in Retail
19/52
c. Trading of hi-tech items/items requiring specialized after sales service
d. Trading of items for social sector
e. Trading of hi-tech, medical and diagnostic items.
f. Trading of items sourced from the small scale sector under which, based on technology
provided and laid down quality specifications, a company can market that item under its
brand name.
g. Domestic sourcing of products for exports.
h. Test marketing of such items for which a company has approval for manufacture
provided such test marketing facility will be for a period of two years, and investment in
setting up manufacturing facilities commences simultaneously with test marketing
FDI up to 100% permitted for e-commerce activities subject to the condition that such
companies would divest 26% of their equity in favor of the Indian public in five years, if these
companies are listed in other parts of the world. Such companies would engage only in business
to business (B2B) e-commerce and not in retail trading.
Power:
FDI In Power Sector in India
Up to 100% FDI allowed in respect of projects relating to electricity generation, transmission
and distribution, other than atomic reactor power plants. There is no limit on the project cost and
quantum of foreign direct investment.
Drugs & Pharmaceuticals
FDI up to 100% is permitted on the automatic route for manufacture of drugs and
pharmaceutical, provided the activity does not attract compulsory licensing or involve use of
recombinant DNA technology, and specific cell / tissue targeted formulations.
-
7/28/2019 Project Report on FDI in Retail
20/52
FDI proposals for the manufacture of licensable drugs and pharmaceuticals and bulk drugs
produced by recombinant DNA technology, and specific cell / tissue targeted formulations will
require prior Government approval.
Roads, Highways, Ports and Harbors
FDI up to 100% under automatic route is permitted in projects for construction and maintenance
of roads, highways, vehicular bridges, toll roads, vehicular tunnels, ports and harbors.
Pollution Control and Management
FDI up to 100% in both manufacture of pollution control equipment and consultancy for
integration of pollution control systems is permitted on the automatic route.
Call Centers in India / Call Centres in India
FDI up to 100% is allowed subject to certain conditions.
Business Process Outsourcing BPO in India
FDI up to 100% is allowed subject to certain conditions.
Special Facilities and Rules for NRI's and OCB's
NRI's and OCB's are allowed the following special facilities:
1. Direct investment in industry, trade, infrastructure etc.
2. Up to 100% equity with full repatriation facility for capital and dividends in the
following sectors
i. 34 High Priority Industry Groups
ii. Export Trading Companies
-
7/28/2019 Project Report on FDI in Retail
21/52
iii. Hotels and Tourism-related Projects
iv. Hospitals, Diagnostic Centers
v. Shipping
vi. Deep Sea Fishing
vii. Oil Exploration
viii. Power
ix. Housing and Real Estate Development
x. Highways, Bridges and Ports
xi. Sick Industrial Units
xii. Industries Requiring Compulsory Licensing
3. Up to 40% Equity with full repatriation: New Issues of Existing Companies raising
Capital through Public Issue up to 40% of the new Capital Issue.
4. On non-repatriation basis: Up to 100% Equity in any Proprietary or Partnership engaged
in Industrial, Commercial or Trading Activity.
5. Portfolio Investment on repatriation basis: Up to 1% of the Paid up Value of the equity
Capital or Convertible Debentures of the Company by each NRI. Investment in
Government Securities, Units of UTI, National Plan/Saving Certificates.
6. On Non-Repatriation Basis: Acquisition of shares of an Indian Company, through a
General Body Resolution, up to 24% of the Paid Up Value of the Company.
7. Other Facilities: Income Tax is at a Flat Rate of 20% on Income arising from Shares or
Debentures of an Indian
-
7/28/2019 Project Report on FDI in Retail
22/52
India Further Opens Up Key Sectors for Foreign Investment
India has liberalized foreign investment regulations in key sectors, opening up commodity
exchanges, credit information services and aircraft maintenance operations. The foreign
investment limit in Public Sector Units (PSU) refineries has been raised from 26% to 49%.
An additional sweetener is that the mandatory disinvestment clause within five years has been
done away with. FDI in Civil aviation up to 74% will now be allowed through the automatic
route for non-scheduled and cargo airlines, as also for ground handling activities. 100% FDI in
aircraft maintenance and repair operations has also been allowed.
But the big one, allowing foreign airlines to pick up a stake in domestic carriers has been given a
miss again. India has decided to allow 26% FDI and 23% FII investments in commodity
exchanges, subject to the proviso that no single entity will hold more than 5% of the stake.
Sectors like credit information companies, industrial parks and construction and development
projects have also been opened up to more foreign investment. Also keeping India's civilian
nuclear ambitions in mind, India has also allowed 100% FDI in mining of titanium, a mineral
which is abundant in India.
Sources say the government wants to send out a signal that it is not done with reforms yet. At
the same time, critics say contentious issues like FDI and multi-brand retail are out of the policy
radar because of political compulsions.
Forbidden Territories:
Arms and ammunition
Atomic Energy
Coal and lignite
-
7/28/2019 Project Report on FDI in Retail
23/52
Rail Transport
Mining of metals like iron, manganese, chrome, gypsum, sulfur, gold, diamonds, copper,
zinc.
Foreign Investment through GDRs (Euro Issues)
Indian companies are allowed to raise equity capital in the international market through the issue
of Global Depository Receipt (GDRs). GDR investments are treated as FDI and are designated
in dollars and are not subject to any ceilings on investment. An applicant company seeking
Government's approval in this regard should have consistent track record for good performance
(financial or otherwise) for a minimum period of 3 years. This condition would be relaxed for
infrastructure projects such as power generation, telecommunication, petroleum exploration and
refining, ports, airports and roads.
1. Clearance from FIPB
There is no restriction on the number of Euro-issue to be floated by a company or a group of
companies in the financial year. A company engaged in the manufacture of items covered under
Annex-III of the New Industrial Policy whose direct foreign investment after a proposed Euro
issue is likely to exceed 51% or which is implementing a project not contained in Annex-III,
would need to obtain prior FIPB clearance before seeking final approval from Ministry of
Finance.
2. Use of GDRs
The proceeds of the GDRs can be used for financing capital goods imports, capital expenditure
including domestic purchase/installation of plant, equipment and building and investment in
software development, prepayment or scheduled repayment of earlier external borrowings, and
equity investment in JV/WOSs in India.
Foreign direct investments in India are approved through two routes
-
7/28/2019 Project Report on FDI in Retail
24/52
1. Automatic approval by RBI
The Reserve Bank of India accords automatic approval within a period of two weeks (subject to
compliance of norms) to all proposals and permits foreign equity up to 24%; 50%; 51%; 74%and 100% is allowed depending on the category of industries and the sectoral caps applicable.
The lists are comprehensive and cover most industries of interest to foreign companies.
Investments in high priority industries or for trading companies primarily engaged in exporting
are given almost automatic
approval by the RBI.
2. The FIPB Route Processing of non-automatic approval cases FIPB stands for Foreign Investment Promotion Board which approves all other cases where the
parameters of automatic approval are not met. Normal processing time is 4 to 6 weeks. Its
approach is liberal for all sectors and all types of proposals, and rejections are few. It is not
necessary for foreign investors to have a local partner, even when the foreign investor wishes to
hold less than the entire equity of the company. The portion of the equity not proposed to be
held by the foreign investor can be offered to the public.
iii. Analysis of sector specific policy for FDI
Sr. No. Sector/Activity FDI cap/Equity Entry/Route
1. Hotel & Tourism 100% Automatic
2. NBFC 49% Automatic
3. Insurance 26% Automatic
4. Telecommunication:
cellular, value added services
ISPs with gateways, radio-
paging
Electronic Mail & Voice Mail
49%
74%
100%
Automatic
Above 49% need Govt. licence
5. Trading companies:
primarily export activities 51% Automatic
-
7/28/2019 Project Report on FDI in Retail
25/52
bulk imports, cash and carry
wholesale trading 100% Automatic
6. Power(other than atomic reactor
power plants) 100% Automatic
7. Drugs & Pharmaceuticals 100% Automatic8. Roads, Highways, Ports and
Harbors
100% Automatic
9. Pollution Control and
Management
100% Automatic
10 Call Centers 100% Automatic
11. BPO 100% Automatic
12. For NRI's and OCB's:
i. 34 High Priority
Industry Groups
ii. Export Trading
Companies
iii. Hotels and
Tourism-related Projects
iv. Hospitals,
Diagnostic Centers
v. Shipping
vi. Deep Sea Fishing
vii. Oil Exploration
viii. Power
ix. Housing and Real
Estate Development
x. Highways,
Bridges and Ports
100% Automatic
-
7/28/2019 Project Report on FDI in Retail
26/52
xi. Sick Industrial
Units
xii. Industries
Requiring Compulsory
Licensing
xiii. Industries
Reserved for Small Scale
Sector
13. Airports:
Greenfield projects
Existing projects
100%
100%
Automatic
Beyond 74% FIPB14 Assets reconstruction company 49% FIPB
15. Cigars and cigarettes 100% FIPB
16. Courier services 100% FIPB
17. Investing companies in
infrastructure (other than
telecom sector)
49% FIPB
iv. Analysis of FDI inflow in India
From April 2000 to August 2011-12
(Amount US$ in Millions)
S.No Financial Year Total FDI Inflows % Growth Over Previous Year
1. 2000-01 4,029 ----
2. 2001-02 6,130 (+) 52
3. 2002-03 5,035 (-) 18
4. 2003-04 4,322 (-) 14
5. 2004-05 6,051 (+) 40
-
7/28/2019 Project Report on FDI in Retail
27/52
6. 2005-06 8,961 (+) 48
7. 2006-07 22,826 (+) 146
8. 2007-08 34,362 (+) 51
9. 2008-09 35,168 (+) 02
10. 2009-10 16,232 (-) 0.1
11. 2010-2011 19427 (+) 15
12. 2011-2012 28403 (+) 31
-
7/28/2019 Project Report on FDI in Retail
28/52
-
7/28/2019 Project Report on FDI in Retail
29/52
v. Analysis of share of top ten investing countries FDI equity in flows
From April 2000 to January 2012
(Amount in Millions)
Sr. No Country Amount of FDI Inflows % As ToTotal FDI
Inflow
1. Mauritius 19,18,633.61 44.01
2. Singapore 3,80,142.56 8.72
3. U.S.A. 3,32,935.60 7.64
4. U.K. 2,40,974.98 5.53
5. Netherlands 1,78,047.76 4.08
6. Japan 1,50,129.05 3.44
7. Cyprus 1,32,448.04 3.04
8. Germany 1,12,242.06 2.579. France 61,686.39 1.42
10. U.A.E. 50,915.59 1.17
-
7/28/2019 Project Report on FDI in Retail
30/52
-
7/28/2019 Project Report on FDI in Retail
31/52
Mauritius
Mauritius invested Rs.19,18,633 million in India Up to the January 2010, equal to 44.01 percent
of total FDI inflows. Many companies based outside of India utilize Mauritian holdingcompanies to take advantage of the India- Mauritius Double Taxation Avoidance Agreement
(DTAA). The DTAA allows foreign firms to bypass Indian capital gains taxes, and may allow
some India-based firms to avoid paying certain taxes through a process known as round
tripping.
The extent of round tripping by Indian companies through Mauritius is unknown. However, the
Indian government is concerned enough about this problem to have asked the government of
Mauritius to set up a joint monitoring mechanism to study these investment flows. The potential
loss of tax revenue is of particular concern to the Indian government. These are the sectors
which attracting more FDI from Mauritius Electrical equipment Gypsum and cement products
Telecommunications Services sector that includes both non- financial and financial Fuels.
-
7/28/2019 Project Report on FDI in Retail
32/52
Singapore
Singapore continues to be the single largest investor in India amongst the Singapore with FDI
inflows into Rs. 3,80,142 crores up to January 2010
Sector-wise distribution of FDI inflows received from Singapore the highest inflows have beenin the services sector (financial and non financial), which accounts for about 30% of FDI
inflows from Singapore. Petroleum and natural gas occupies the second place followed by
computer software and hardware, mining and construction.
U.S.A.
The United States is the third largest source of FDI in India (7.64 % of the total), valued at
732335 crore in cumulative inflows up to January 2010. According to the Indian government,
the top sectors attracting FDI from the United States to India are fuel, telecommunications,
electrical equipment, food processing, and services. According to the available M&A data, the
two top sectors attracting FDI inflows from the United States are computer systems design and
programming and manufacturing
U.K.
The United Kingdom is the fourth largest source of FDI in India (5.53 % of the total), valued at2,40,974 crores in cumulative inflows up to January 2010
Over 17 UK companies under the aegis of the Nuclear Industry Association of UK have tied up
with Ficci to identify joint venture and FDI possibilities in the civil nuclear energy sector.
UK companies and policy makers the focus sectors for joint ventures, partnerships, and trade are
non-conventional energy, IT, precision engineering, medical equipment, infrastructure
equipment, and creative industries.
-
7/28/2019 Project Report on FDI in Retail
33/52
Netherlands
FDI from Netherlands to India has increased at a very fast pace over the last few years.
Netherlands ranks fifth among all the countries that make investments in India. The total flow of
FDI from Netherlands to India came to Rs. 1, 78,047 crores between 1991 and 2002. The totalpercentage of FDI from Netherlands to India stood at 4.08% out of the total foreign direct
investment in the country up to August 2009.
Following Various industries attracting FDI from Netherlands to India are:
Food processing industries
Telecommunications that includes services of cellular mobile, basic telephone, and radio
paging
Horticulture
Electrical equipment that includes computer software and electronics
Service sector that includes non- financial and financial services
-
7/28/2019 Project Report on FDI in Retail
34/52
vi. Analysis of sectors attracting highest FDI equity inflows
From April 2000 to March 2010
(Amount in Millions)
Sr. No Country Amount of FDI
Inflows
% As To
Total FDI
Inflow
1. Service Sector
(Financial & Non Financial)
9,65,210.77 22.14
2. Computer Software & Hardware 4,13,419.03 9.48
3. Telecommunication 3,68,899.62 8.46
4. Housing & Real Estate 3,25,021.36 7.46
5. Construction Activities 2,65,492.96 6.096. Automobile Industry 1,90,172.22 4.36
7. Power 1,79,849.92 4.13
8. Metallurgical Industries 1,25,785.57 2.89
9. Petroleum & Natural Gas 1,11,957.00 2.57
10. Chemical 1,01,680.18 2.33
The sectors receiving the largest shares of total FDI inflows up to arch 2010 were the
service sector and computer software and hardware sector, each accounting for 22.14
and 9.48 percent respectively. These were followed by the telecommunications, real
estate, construction and automobile sectors. The top sectors attracting FDI into India via
M&A activity were manufacturing; information; and professional, scientific, and
technical services. These sectors correspond closely with the sectors identified by the
Indian government as attracting the largest shares of FDI inflows overall.
The ASSOCHAM has revealed that FDI in Chemicals sector (other than fertilizers) registered
maximum growth of 227 per cent during April 2008 March 2009 as compared to 11.71 per
-
7/28/2019 Project Report on FDI in Retail
35/52
cent during the last fiscal. The sector attracted USD 749 million FDI in FY 09 as compared to
USD 229 million in FY 08.
During the year 2009 government had raised the FDI limit in telecom sector from 49 per cent to
74 per, which has contributed to the robust growth of FDI. The telecom sector registered a
growth of 103 per cent during fiscal 2008-09 as compared to previous fiscal. The sector
attracted USD 2558 million FDI in FY 09 as compared to the USD 1261 million in FY 08,
acquired 9.37 per cent share in total FDI inflow.
India automobile sector has been able to record 70 per cent growth in foreign investment. The
FDI inflow in automobile sector has increased from USD 675 million to 1,152 million in FY 09
over FY 08. The other sectors which registered growth in highest FDI inflow during April
March 2009 were housing & real estate (28.55 per cent), computer software & hardware (18.94
per cent), construction activities including road & highways (16.35 per cent) and power (1.86
per cent).
-
7/28/2019 Project Report on FDI in Retail
36/52
Foreign Investment Promotion Board
The FIPB (Foreign Investment Promotion Board) is a government body that offers a single
window clearance for proposals on foreign direct investment in the country that are not allowed
access through the automatic route. Consisting of Senior Secretaries drawn from different
ministries with Secretary ,Economic Affairs in the chair, this high powered body discusses and
examines proposals for foreign investment in the country for restricted sectors ( as laid out in the
Press notes and extant foreign investment policy) on a regular basis. Currently proposals for
investment beyond 600 crores require the concurrence of the CCEA (Cabinet Committee on
Economic Affairs). The threshold limit is likely to be raised to 1200 crore soon.The Board thus
plays an important role in the administration and implementation of the Governments FDI
policy. In circumstances where there is ambiguity or a conflict of interpretation, the FIPB has
stepped in to provide solutions. Through its fast track working it has established its reputation as
a body that does not unreasonably delay and is objective in its decision making. It therefore has
a strong record of actively encouraging the flow of FDI into the country. The FIPB is assisted in
this task by a FIPB Secretariat. The launch of e- filing facility is an important initiative of the
Secretariat to further the cause of enhanced accessibility and transparency .
-
7/28/2019 Project Report on FDI in Retail
37/52
Low Income Countries in Global FDI Race
The situation of foreign direct investment has been relatively good in the recent times with an
increase of 38%. Normally, the foreign direct investment is made mostly into the extractive
industries. However, now the foreign directinvestors are also looking to pump money into the
manufacturing industry that has garnered 47% of the total foreign direct investment made in
1992. However, the situation has not been the same in the countries with a middle income range.
The middle income countries have not received a steady inflow of foreign direct income coming
their way. The situation is comparatively better in the low income countries. They have had an
uninterrupted and continually increasing flow offoreign direct investment. It has been observed
that the various debt crises, as well as, other forms of economic crises have had less effect on
these countries.
These countries had lesser amounts of commercial bank obligations, which again had been
caused by the absence of properfinancial markets, as well as the fact that their economies were
not open to foreign direct investment. During the later phases of the decade of 70s the Asian
countries started encouraging foreign direct investments in their economies. China has received
the most of the foreign direct investment that was pumped into the countries
with low income. It accounted for as much as 86% of the total foreign direct investment made in
the lower income countries in with low income. It accounted for as much as 86% of the total
foreign direct investment made in the lower income countries in 1995.
The economic liberalization in China started in 1979. This led to an increase in the foreign direct
investment in China. In the years between 1982 and 1991 the average foreign direct investmentin China was US$ 2.5 billion. This average increased by seven times to become US$ 37.5
billion during 1995. A significant amount of the foreign direct investment in China was
provided in the industrial sector.
http://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.html -
7/28/2019 Project Report on FDI in Retail
38/52
It was as much as 68%. Around 20% of the foreign direct investment of China was made in the
real estate sector. During the same period Nigeria had been the second best in terms of receiving
foreign direct investment. In the recent times India has risen to be the third major foreign direct
investment destination in the recent years. Foreign direct investment started in India in 1991
with the initiation of the economic liberation.
There were more initiatives that enabled India to garner foreign direct investments worth US$
2.9 billion from 1991 to 1995. This was a significant increase from the previous twenty years
when the total foreign direct investment in India was US$1 billion. Most of the foreign direct
investment made in India has been in the infrastructural areas like telecommunications and
power. In the manufacturing industry the emphasis has been on petroleum refining, vehicles and
petrochemicals Vietnam is a low income country, which is supposed to have the same potential
as China to generate foreign direct investment.
The foreign direct investment laws were introduced in Vietnam in 1987-88. This led to an
increase in the foreign direct investment made in the country. The amount stood at US$ 25
million in 1993 compared to US$ 8 million in 1993. This amount increased by 3 times after the
USA removed its economic sanctions in 1994. The gas andpetroleum industries were the
biggest beneficiaries of the foreign direct investment. Bangladesh started receiving increasing
foreign direct investment after 1991, when the economic reforms took place in the country.
After 1991 it was possible for foreign companies to set up companies in Bangladesh without
taking permission beforehand. The foreign direct investment rose from US$ 11 million in 1994
to US$ 125 million in 1995. As per the available statistics the manufacturing industry,
comprising of clothing and textiles took up 20% of the total approved foreign direct investment.
Food processing, chemicals and electric machinery were also important in this regard. The
increase in the foreign direct investment in Ghana was remarkable as well. The figures increased
from US$11.7 million, on an average, from 1986 to 1992 to US$ 201 million, on an average,from 1993 to 1995. This improvement was brought about by the privatization of the Ashanti
Goldfields.
http://www.economywatch.com/foreign-direct-investment/global-fdi-race.htmlhttp://www.economywatch.com/foreign-direct-investment/global-fdi-race.html -
7/28/2019 Project Report on FDI in Retail
39/52
FDI in Retail Sector
More than two decades after the first wave of reforms were introduced in the year1991; the countrys
socio-economic health has by no means become better. In the midst of these galloping problems, the
announcement by the UPA government about FDI in multi brand retail comes not as a relief but as a
matter to be given a serious thought. The debate so far is threefold: (a) one section which is droolingover the reforms and projecting huge surge of investment in infrastructure and thereby increment in
the employment levels. (b) The second group is the one which is sceptical about the opening of
markets for foreign retail giants like Walmart, Carrefour, Kmart etc. not because they fear that it
would affect the overall development of the economy. Rather, this group fears competition from the
big foreign companies which have deep pockets to procure products from the world market. Thus, it
would affect their profits by a huge margin. (c) The third group comprises of the unorganized retail
sector which fears its elimination from the market in the long run.
Various claims made by UPA seem to fall flat on any reason if we take into consideration the
outcomes of previous reforms. Employment in formal sector has not increased by any count since
1991, informalization of labour in the formal sector is a clear indication of this fact. Productivity in
agriculture, where almost 54 per cent of the population is dependent has declined. It is no longer a
profitable venture as the input costs have gone up in the post green revolution phase. Rise in the
phenomena of rural to urban migration, rural non-farm employment, farmer suicides, show what
precarious condition agriculture has landed into. Gradual shift of the economy from agriculture to
industry, as expected in the prospects of reforms, has proven to be a fallacy. Instead, the existing
industries have become more capital intensive leading to the displacement of labour on a mass scale.
Trade liberalisation has given the global players a free hand to rein the economy. As a consequence
rate of inflation is rising unchecked as the price of crude oil is fluctuating globally. These examples
showcase that reforms and liberal policies have not led to the overall development of the economy.
In the light of the above observations, announcement of FDI in multi brand retail does not give
much hope. The Indian retail sector is not only very vast but also varied in its composition. The huge
population of the country, the rise of the middle class and its purchasing power and a huge market
for foreign investment in India are factors that have invoked the interest of the foreign investors.
But, it becomes imperative to see what this FDI would entail for the retail sector when it is analyzed
by keeping the informal economy at the centre of the debate.
When only 4 percent of the retail trade in India comes under the organized retail it becomes
essential to evaluate or assess the viability of FDI taking into consideration not this 4 percent but the
96 percent which belongs to the unorganized retail sector. The unorganized retail sector is not a
homogeneous category, it comprises of peddlers, street vendors, kiosks, push-cart vendors, weekly
traders. It is not unknown that the majority of those engaged in retailing at the lower end of the
economy depend on the small and medium enterprises for their supplies. It has been reiterated timeand again, by many economists, how and under what conditions the unorganized sector has risen to
such heights in India and other developing countries via the route of the neo-liberal regime. Indian
retail market is quite diverse in terms of scale, culture and structure. Some reasons for this diversity
can be attributed to the divide that exists between rural and urban India. Traditional forms of
marketing (neighbourhood markets, mandis, and periodic/weekly markets) coexist with modern
day markets (supermarkets, hypermarkets, Single brand outlets etc.). Decline of the rural economy
coupled with lack of employment in the manufacturing sector (organized sector) created a vast pool
-
7/28/2019 Project Report on FDI in Retail
40/52
of surplus labour in the country in the post reform period. This multitude of labour started
migrating to urban centres in search of employment and many of them landed up with self
employment in the service sector of which retailing forms a huge part. Annihilation of small scale
and self employed lower middle class will lead to large scale poverty and destitution because the
unorganised sector is absorbing the shocks of migration and rural distress. It manages by catering to
middle classes in the metropolis. If this market is gone, they will all be unemployed.
On the one hand the government is trying to convince that FDI would not harm the local trading
practices and on the other hand various traders associations, vendors are fearing its exit from the
retail market in the long run when various multi brand retail giants with their deep pockets and
marketing skills would create direct contacts with farmers and producers of essential commodities.
Whether its a small vendor selling fruits on his bicycle or a trader who has a kiosk in a
neighbourhood where he sells grocery or a weekly market trader who sells garments, all three of
them depend on a vegetable mandi, grain mandi and wholesale market for garments respectively.
With the entry of the multi-brand retail giants in the market two possibilities emerge (a) these retail
giants are expected to procure 30 percent of goods from medium scale enterprises (but it is not
necessary that these enterprises should be from the host country) thus, in case it decides to capture
the domestic market it would create direct contact with small and medium enterprises and get
commodities at the lowest possible cost and take benefit of the economies of scale. In case this
happens, then the retail giants would slowly gain hands and monopolize the market and dictate the
prices of essential commodities in the domestic market. This would slowly displace small vendors
who dont have enough working capital to compete with retail giants. These vendors who till now
were able to purchase goods from the wholesale market by proving their credit worthiness would no
longer be able to give cash and carry goods to the retail market.
(b) Since multi brand retail stores have the liberty to buy products from anywhere in the world and
they have enough resources to conduct market research, it would explore the world market and
invest wherever they would be able to maximize their profits through final sale. In this scenario,
small vendors and traders would continue to have access to the products which are produced by thesmall scale industries but at the same time these enterprises would face severe competition from
cheap commodities imported from elsewhere. In the long run it is speculated that the prices of their
commodities would fall in the markets and sooner or later these domestic small enterprises would
be forced to quit. For example, T. Vellayan, president of the Tamil Nadu Federation of Traders
Associations gives the example of how the import of palm oil and soyabean oil for edible purposes
proved ineffectual to the oil manufacturing units. Vellore, Tiruvannamalai, Cuddalore and
Villupuram districts had several stone oil presses. But these traditional oil mills closed down. In
Pudukottai district, oil mill premises have been converted into marriage halls ( Frontline, Dec.2011).
Another justification given by the government for allowing FDI is that it would stabilize the
inflationary trends that the Indian economy is witnessing for the past two years. This logic seems tobe a wishful thinking because rising inflation cannot be controlled by the multi brand retail giants
instead the prices of food grains, fruits and vegetables and essential commodities would only
increase once these retail outfits will make a market for their products in India. Price of diesel and
petrol has been exponentially hiked up; this is going to affect the cost of production both in
agriculture and manufacturing. Farmers are not going to benefit in any way as they would continue
to be exploited by the multi brand retail giants in the long run. If in this context we see the large
-
7/28/2019 Project Report on FDI in Retail
41/52
unorganized retail sector, we can observe how small vendors of fruits and vegetables are able
contain the inflationary pressure by offering lower prices.
One round of a weekly market in the neighbourhood of Delhi or elsewhere would show that the
margins between the prices at which weekly traders sell their products and the price at which any
supermarket sells the same thing varies by more than 20 to 30 percent. Multi brand retail giantswould not only affect the price of food grains at the national level but it might also result in the
disappearance of Agricultural Produce Marketing Committees which keep a certain minimum check
on the price of the foodgrains coming to the grain markets. Thus, corporate capital would get a free
reign in the indigenous markets of India and the process of primitive accumulation would set in as
predicted by C.P. Chandrashekhar, Prabhat Patnaik et. al. This would have direct impact on that
section of the unorganized retail sector which is employed in the lowest level of the market hierarchy
who do not have ready cash to invest and whose livelihood is dependent on the recycling of debt for
a day, a week, a month or a year because the prices are going to rise in the long run and so will the
interests on the borrowed sum.
The adverse impact of the FDI would befall the unorganized retail sector with great intensity if theState makes more stringent rules of zoning and regulation. I have been researching the local weekly
markets of Delhi for the past three years. These markets are very prominent feature in all parts of
Delhi and NCR. There are around twelve hundred weekly markets of which only one fourth are
recognized by the Municipal Corporation of Delhi (consequence of zoning). Approximately 2.5
million people are employed through these markets. This figure would just double if we take in to
account additional employment that is created around these markets. Various own account and
household enterprises are producing commodities on a daily basis for such low end markets. Local
weekly markets provide a very easy channel of distribution of commodities produced not only in
local small scale industries but also in the neighbouring States. For instance, rubber chappals and
shoes made in Agra, sarees made in Surat, hosiery made in Coimbatore, woollens made in Ludhiana
are all sold at affordable prices here in these very markets. FDI in multi brand retail would either
displace various wholesale markets or the size of such markets would shrink. Today the localmarkets run on capital which has a fluid or floating nature. But with the coming of multi brand retail
stores this floating capital would freeze and small retailers and vendors will be evicted from the
market.
It is argued by the government that FDI in retail would create employment opportunities. But
employment for whom is the crucial question? It would create employment for those who are
educated and have professional experience. Taking cue from my observation in the weekly markets
of Delhi I would argue that majority of those now employed in these markets have minimal
education and have no professional degrees apart from their marketing knowledge. Now if FDI in
multi brand retail comes, it is not in any way going to benefit these traders if they lose their sole
means of survival.
-
7/28/2019 Project Report on FDI in Retail
42/52
I have observed in the course of my research that through weekly markets of Delhi hundreds of
people have employed themselves who were displaced for one reason or the other. At the same time
it has created a distinct market for lower middle class who would not go to a super market or a mall
for shopping. Where will this section of population shop for daily needs with the entry of multi
brand retail outlets in case it leads to the displacement of weekly markets?
Instead of providing infrastructural facilities the State already keeps street vending, peddling and
weekly markets at the helm by keeping them in that buffer zone where it is difficult to recognize
their real viabilility for the economy at large. Often these are characterized as unlawful, black, or
hidden activity.
It is my contention that in order to make way for the private capital the State might evict street
vendors, cancel their licenses, or remove tehbazaari rights for weekly markets in the times to come.
Just as in Delhi, Mumbai, Bangalore and other metropolitan cities, the State, has from time to time
uprooted slums and relocated them to the periphery of the city, to make way for the investment by
private corporate builders in order to make the city slum free. Similar decisions if taken for the
unorganized retail sector would gravely increase inequality and poverty.
Challenges
Automatic approval is not allowed for foreign investment in retail.
Regulations restricting real estate purchases, and cumbersome local laws.
Taxation, which favours small retail businesses.
Absence of developed supply chain and integrated IT management.
Lack of trained work force.
Low skill level for retailing management.
Lack of Retailing Courses and study options
Intrinsic complexity of retailing rapid price changes, constant threat of product obsolescence
and low margins
-
7/28/2019 Project Report on FDI in Retail
43/52
-
7/28/2019 Project Report on FDI in Retail
44/52
Sector Specific Foreign Direct Investment in India
Hotel & Tourism: FDI in Hotel & Tourism sector in India
100% FDI is permissible in the sector on the automatic route,
The term hotels include restaurants, beach resorts, and other tourist complexes providing
accommodation and/or catering and food facilities to tourists. Tourism related industry include
travel agencies, tour operating agencies and tourist transport operating agencies, units providing
facilities for cultural, adventure and wild life experience to tourists, surface, air and water
transport facilities to tourists, leisure, entertainment, amusement, sports, and health units for
tourists and Convention/Seminar units and organizations.
-
7/28/2019 Project Report on FDI in Retail
45/52
For foreign technology agreements, automatic approval is granted if
i. up to 3% of the capital cost of the project is proposed to be paid for technical andconsultancy services including fees for architects, design, supervision, etc.
ii. up to 3% of net turnover is payable for franchising and marketing/publicity support fee,
and up to 10% of gross operating profit is payable for management fee, including
incentive fee.
Private Sector Banking:
Non-Banking Financial Companies (NBFC)
49% FDI is allowed from all sources on the automatic route subject to guidelines issued from
RBI from time to time.
i. Merchant banking
ii. Underwriting
iii. Portfolio Management Services
iv. Investment Advisory Services
v. Financial Consultancy
vi. Stock Broking
vii. Asset Management
viii. Venture Capital
ix. Custodial Services
x. Factoring
xi. Credit Reference Agencies
-
7/28/2019 Project Report on FDI in Retail
46/52
xii. Credit rating Agencies
xiii. Leasing & Finance
xiv. Housing Finance
xv. Foreign Exchange Brokering
xvi. Credit card business
xvii. Money changing Business
xviii. Micro Credit
xix. Rural Credit
b. Minimum Capitalization Norms for fund based NBFCs:
i) For FDI up to 51% - US$ 0.5 million to be brought upfront
ii) For FDI above 51% and up to 75% - US $ 5 million to be brought upfront
iii) For FDI above 75% and up to 100% - US $ 50 million out of which US $ 7.5 million
to be brought up front and the balance in 24 months
c. Minimum capitalization norms for non-fund based activities:
Minimum capitalization norm of US $ 0.5 million is applicable in respect of all permitted non-
fund based NBFCs with foreign investment.
d. Foreign investors can set up 100% operating subsidiaries without the condition to
disinvest a minimum of 25% of its equity to Indian entities, subject to bringing in US$ 50
million as at b) (iii) above (without any restriction on number of operating subsidiaries without
bringing in additional capital)
-
7/28/2019 Project Report on FDI in Retail
47/52
e. Joint Venture operating NBFC's that have 75% or less than 75% foreign investment will
also be allowed to set up subsidiaries for undertaking other NBFC activities, subject to the
subsidiaries also complying with the applicable minimum capital inflow i.e. (b)(i) and (b)(ii)
above.
f. FDI in the NBFC sector is put on automatic route subject to compliance with guidelines of
the Reserve Bank of India. RBI would issue appropriate guidelines in this regard.
Methods of Foreign Direct Investments
The foreign direct investor may acquire 10% or more of the voting power of an enterprise in an
economy through any of the following methods:
by incorporating a wholly owned subsidiary orcompany
by acquiring shares in an associated enterprise
through a mergeror an acquisition of an unrelated enterprise
participating in an equityjoint venture with another investor or enterprise
Foreign direct investment incentives may take the following forms:
low corporate tax and income tax rates
Tax holidays
Special economic zones
Investment financial subsidies
Soft loanor loan guarantees
Free land or land subsidies
Job training & employment subsidies
http://en.wikipedia.org/wiki/Subsidiaryhttp://en.wikipedia.org/wiki/Companyhttp://en.wikipedia.org/wiki/Mergerhttp://en.wikipedia.org/wiki/Takeoverhttp://en.wikipedia.org/wiki/Joint_venturehttp://en.wikipedia.org/wiki/Corporate_taxhttp://en.wikipedia.org/wiki/Income_taxhttp://en.wikipedia.org/wiki/Tax_holidayhttp://en.wikipedia.org/wiki/Tax_holidayhttp://en.wikipedia.org/wiki/Special_economic_zonehttp://en.wikipedia.org/wiki/Special_economic_zonehttp://en.wikipedia.org/wiki/Soft_loanhttp://en.wikipedia.org/wiki/Soft_loanhttp://en.wikipedia.org/wiki/Soft_loanhttp://en.wikipedia.org/wiki/Guaranteeshttp://en.wikipedia.org/wiki/Subsidiaryhttp://en.wikipedia.org/wiki/Companyhttp://en.wikipedia.org/wiki/Mergerhttp://en.wikipedia.org/wiki/Takeoverhttp://en.wikipedia.org/wiki/Joint_venturehttp://en.wikipedia.org/wiki/Corporate_taxhttp://en.wikipedia.org/wiki/Income_taxhttp://en.wikipedia.org/wiki/Tax_holidayhttp://en.wikipedia.org/wiki/Special_economic_zonehttp://en.wikipedia.org/wiki/Soft_loanhttp://en.wikipedia.org/wiki/Guarantees -
7/28/2019 Project Report on FDI in Retail
48/52
Infrastructure subsidies
RESULTS OF THE STUDY:
My project report will help to find out how FDI contributed Growth in following
Employment
Firms attempt to capitalize on abundant and inexpensive labor.
Host countries seek to have firms develop labor skills and sophistication.
Host countries often feel like least desirable jobs are transplanted from home
countries.
Home countries often face the loss of employment as jobs move.
FDI Impact on Domestic Enterprises
Foreign invested companies are likely more productive than local competitors.
http://en.wikipedia.org/wiki/Infrastructurehttp://en.wikipedia.org/wiki/Infrastructurehttp://en.wikipedia.org/wiki/Infrastructure -
7/28/2019 Project Report on FDI in Retail
49/52
The result is uneven competition in the short run, and competency building
efforts in the longer term.
It is likely that FDI developed enterprises will gradually develop local supporting
industries, supplier relationships in the host country.
WORK DONE:-
The following can be mentioned under work done. This section is to specify the work done till
date.
My Project will be completed tentatively within 2 months. The break up time is as follows
1. Reading / note taking / planning / writing introduction 1 Week
2. Writing review of literature 1 Weeks
3. Writing of research methodology 1 Weeks
4. Carrying out work / recording findings 2 Weeks
5. Data analysis 1 Week
6. Preparing conclusions / Bibliography 1 Week
7. Typing / proof reading / corrections / binding 1 Weeks
8. Total Time Taken: 8 Weeks (2 Months)
-
7/28/2019 Project Report on FDI in Retail
50/52
LIMITATION OF FOREIGN DIRECT INVESTMENT.
Foreign direct investment is not free from limitations. Developing countries like India
has very little choice when it comes to opening the different sectors of the economy to
foreign investment. A case in point is the opening up of the consumer non-durable
industry to foreign investment.
Eg :- The advent of Pepsi and Coke saw the exit of domestic soft drink manufactures
and the emergence of a duopoly. Similarly, the experience with regard to FDI in the
power sector has been far from desirable. The governments of developing countries
must be able to channelize FDI in the most desirable areas of investment and the
government policy towards FDI should be stable over the long run.
Conclusion
India, the 4th largest economy in the world is undoubtedly one of the most preferred
destinations for foreign direct investments (FDI) as India has proven its caliber in thefield of information technology and a host of other significant arenas.
The latent strength of India has made it one of the most exciting emerging markets in
the world. The strength of India is its skilled managerial and technical manpower that
matches the best available in the world. The size of middle class population, a vital part
of India, exceeds the population of the USA or the European Union so it provides India
-
7/28/2019 Project Report on FDI in Retail
51/52
with a distinct cutting edge in global competition. Apart from that Indias time tested
institutions offer foreign investors a transparent environment that guarantees the
security of their long term investments in this promising land.
Indias liberalized economy was a big boon for investors as the updated FDI policy
allows a 100% FDI stake in a venture in few sectors. The industrial sector was among
the first sectors to be liberalized in India in a series of measures. The industrial policy
reforms have substantially reduced the industrial licensing requirements, removed
restrictions on expansion and facilitated easy access to foreign technology and foreign
direct investment FDI. These factors make India one of the hottest destinations for FDI
investment across the globe.
Bibliography
www.rbi.org
www.fin.in.nic
www.sebi.org
www.economywatch.com
wikipedia.org
www.investopedia.com
www.fdiworldental.org
www.fdimarkets.com
-
7/28/2019 Project Report on FDI in Retail
52/52