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Implications of Foreign Direct Investment in India : With Emphasis on Retail Industry - Dissertation Example

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Introduction Organized retail in India has undergone a change and is expected to become one of the pillars of growth in the Indian economy. At present only three percent of the retail market is in the organized sector (Sreejith & Raj, 2007). The fastest growing sector in retail in India is grocery retailing…
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Implications of Foreign Direct Investment in India : With Emphasis on Retail Industry
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Download file to see previous pages According to Sengupta (2008) India’s retail sector is expected to grow to $635bn by 2015. However, grocery retailing India is highly competitive which makes the margins very low. Nevertheless, the country is geographically large and the market potential is high. Organized international retail chains have not been able to enter the Indian market. There are large corporate houses such as Spencer’s, Reliance Fresh and Big Bazar that have been dominating the market. India has been slow in joining the retail revolution that has changed the world retail sector but it is now fast catching up. Inward Foreign Direct Investment (FDI) in India was less than US$ 2 billion prior to reforms in 1991 and it reached US$ 164 billion by the end of 2009 (Dreher, Nunnenkamp and Vadlamannati, 2012). In 2010 the retail market in India was valued at $435 billion and is expected to grow to $535 billion by 2013 (Bhattacharyya, 2012). In 2007, India was ranked the twelfth largest consumer market and is set to become the fifth largest consumer market by 2025, according to a study by McKinsey and Company (cited in Bhattacharyya, 2012). The total business in India is set to grow US$ 1 trillion by 2016-17 (Appendix A). FDI has been booming in India as the economy has opened up to the major world markets. FDI in the retail sector has been restricted to single-brand retailing until recently. The Indian government has recently changed its policy and now permits 51% in multi-brand retailing. All major retailers such as Wal-Mart, Office Depot and Tesco have been eyeing the Indian market. Tesco Plc is a global grocery retailer headquartered in the UK. It is the third largest retailer in the world in terms of revenue. The retailer currently has 5380 stores globally, employs 4, 92,714 people and boasts of a turnover of US $100 billion with a customer base of over 600 million (Mehdudia, 2003). Tesco has been keen to enter the Indian market with FDI in multi-brand retailing since the policies in India have been liberalized. The retail sector includes apparel, accessories, cosmetics and many other sectors. The focus on this study would be grocery retailing. It would be of interest to evaluate the trends in the Indian retail sector, the existing retailers, the power of unorganized retailing in India and the difference that organized retailing could make on the Indian economy. The outcome of this study could have marketing implications for the retailers eyeing to enter the Indian market. This paper could serve to educate them on the values, norms and regulations that govern businesses in India. It could also benefit the academia in terms of retail growth trends in the developing economies. This is because the consumer as well as the retail sector is in transition in most developing economies. Literature Review The Retail Sector in India A study by AT Kearney - Annual Global Retail Development Index (GRDI) for the year 2012 – places India in the fifth position on the basis of retail investment attractiveness (Bhattacharyaa, 2012). The growing Indian market and the retail boom attracted many retailers to enter the Indian market. According to Investment Commission of India, the retail sector in India is expected to grow to $660 billion by 2015 which is three times its current level. FDI in the retail sector can reduce the transaction and transformation costs of business through adoption of an advanced and sophisticated supply chain. This strategy then benefits the end ...Download file to see next pagesRead More
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