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Good morning, Can you help me with this question please. Why do
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Why do you think reform of FDI regulations in india has been so difficult ?
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1. Why do you think that the Indian retail sector is so fragmented? Post new questio Expert answers in as little as 2. What are the potential bene!ts to India of entry by foreign retail establishments? Who are the
potential losers here?
3. Who stands to lose as a result of foreign entry into the India retail sector?
4. Why do you think reform of FDI regulations in India has been so di?cult?
For years now, there has been intense debate in India about the wisdom of relaxing the country?s
restrictions on foreign direct investment into its retail sector. The Indian retailing sector is highly
fragmented and dominated by small enterprises. Estimates suggest that barely 6 percent of India?s
almost $500 billion in retail sales take place in organized retail establishments. The rest takes place in
small shops, most of which are unincorporated businesses run by individuals or households. In contrast,
organized retail establishments account for more than 20 percent of sales in China, 36 percent of sales in
Brazil, and 85 percent of all retail sales in the United States. In total, retail establishments in India employ
some 34 million people, accounting for more than 7 percent of the workforce.
Advocates of opening up retailing in India to large foreign enterprises such as Walmart, Carrefour, Ikea,
and Tesco, make a number of arguments. They believe that foreign retailers can be a positive force for
improving the e?ciency of India?s distribution systems. Companies like Walmart and Tesco are experts in
supply chain management. Applied to India, such know-how could take signi!cant costs out of the
economy. Logistics costs are around 14 percent of GDP in India, much higher than the 8 percent in the
United States. While this is partly due to a poor road system, it is also the case that most distribution is
done by small trucking enterprises, often with a single truck, that have few economies of scale or scope.
Large foreign retailers tend to establish their own trucking operations and can reap signi!cant gains from
tight control of their distribution system.
Foreign retailers will also probably make major investments in distribution infrastructure such as cold
storage facilities and warehouses. Currently, there is a chronic lack of cold storage facilities in India.
Estimates suggest that about 25 to 30 percent of all fruits and vegetables spoil before they reach the
market due to inadequate cold storage. Similarly, there is a lack of warehousing capacity. A lot of wheat,
for example, is simply stored under tarpaulins, where it is at risk of rotting. Such problems raise foods
costs to consumers and impose signi!cant losses on farmers.
Farmers have emerged as signi!cant advocates of reform. This is not surprising because they stand to
bene!t from working with foreign retailers. Similarly, reform-minded politicians argue that foreign
retailers will help to keep food processing in check, which bene!ts all. Ranged against them is a powerful
coalition of small shop owners and left-wing politicians, who argue that the entry of large, wellcapitalized foreign retailers
will result in the signi!cant job losses and force many small retailers out of businesses.
In 1997, it looked as if the reformers had the upper hand when they succeeded in changing the rules to
allow foreign enterprises to participate in wholesale trading. Taking advantage of this reform, in 2009
started to open up wholesale stores in India under the name Best Price. The stores are operated by a joint
venture with Bharti, an Indian conglomerate. These stores are only allowed to sell to other businesses,
such as hotels, restaurants, and small retailers. By 2012, the venture had 20 stores in India. Customers of
these stores note that unlike many local competitors, they always have products in stock, and they are
not constantly changing their prices. Farmers, too, like the joint venture because it has worked closely
with farmers to secure consistent supplies and has made investments in warehouses and cold storage.
The joint venture also pays farmers better prices?something it can a?ord to do because far less produce
goes to waste in its system.
For its part, in 2011 the Indian government indicated that it would soon introduce legislation to allow
foreign enterprises like Walmart entry into the retail sector. On the basis on this promise, Walmart and
Bharti were planning to expand downstream from wholesale into retail establishments, but their plans
were put on hold in late 2011 when the Indian government announced that the legislation had been
shelved for the time being. Apparently, opposition to such reform had reached such a pitch that
implementing it was not worth the political risk. Opponents argued that global experience showed that
FDI leads to job losses, although they cited no data to support this claim. Whether India will further relax
regulations limiting inward FDI into retail remains to be seen. Expert Answer
1. Indian retail sector is so much fragmented because the industry is majorly dominated by small retail outlets, ?kirana?
stores, and mom-and-pop stores. Most of the retail outlets/shops are being run by the individuals or households. Out of
the ... view the full answer CONTINUE TO PO Continue to edit and attach Operations Manage
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This question was answered on: Feb 21, 2020
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