DP FDI Multi-BrandRetailTrading 06 July 2010

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DISCUSSION PAPER SUBJECT: ISSUE OF DISCUSSION PAPER ON FOREIGN DIRECT INVESTMENT (FDI) IN MULTI-BRAND RETAIL TRADING 1.0 INVITATION OF VIEWS: 1.1 The Department of Industrial Policy and Promotion has decided to release Discussion Papers on some subjects on FDI. In the series of these Discussion Papers, this is the second paper on 'Foreign Direct Investment (FDI) in multibrand retail trading'. Views and suggestions are specifically invited on Section 7 of the paper entitled 'Issues for Resol
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  DISCUSSION PAPERSUBJECT: ISSUE OF DISCUSSION PAPER ON FOREIGN DIRECTINVESTMENT (FDI) IN MULTI-BRAND RETAIL TRADING 1.0 INVITATION OF VIEWS: 1.1 The Department ofIndustrial Policyand Promotion has decided to releaseDiscussion Papers on some subjects on FDI. In the series of these DiscussionPapers, this is the second paper on 'Foreign Direct Investment (FDI)in multi-brand retail trading'. Viewsand suggestions are specificallyinvited on Section 7of the paper entitled 'Issues for Resolution' apart from any other issues of concern relating to FDI in multi-brand retailing. These views/ suggestionsbacked up byfacts, figures and empirical evidence may be furnished by 31July,2010.1.2 The views expressed in this discussion paper should not be construed asthe views of the Government. The Department hopes to generate informeddiscussion onthe subject, soas toenable the Government to take an appropriatepolicydecision at the appropriate time. Page 1 1  DISCUSSION PAPER ON FOREIGN DIRECT INVESTMENT (FDI) IN MULTI-BRAND RETAIL TRADING1.0 PRESENT SCENARIO 1.1 FDI in Multi-Brand retailing is prohibited in India. FDIin Single-Brand Retailing was, however, permitted in 2006, to the extent of 51%. Sincethen, a total of 94 proposals have been received till May, 2010. Of this, 57proposals were approved. An FDI inflowof US $ 194.69 million (Rs. 901.64crore) was received between April, 2006 and March, 2010, comprising 0.21% of the total FDI inflows during the period, under the category of single brandretailing. The proposals received and approved related to retail trading of sportswear, luxury goods, apparel, fashion clothing, jewellery, hand bags, life-style products etc., covering high-end items. Singlebrand retail outlets with FDIgenerally pertain to high-end products and cater to the needs of a brandconscious segment of the population, mainly attracting a brand loyal clientele,which often has a pre-set positive disposition towards the specific brand. Thissegment ofcustomers is distinctly different fromone that is catered bythe smallretailers/  kirana shops.1.2 FDIin cash and carry wholesale trading was first permitted, to the extentof 100%, under the Government approval route, in 1997. It was brought underthe automatic route in 2006. BetweenApril,2000 to March, 2010, FDIinflowsof US $ 1.779 billion (Rs. 7799 crore) were received in the sector. This comprised1.54%ofthe total FDIinflowsreceivedduring the period.1.3 Trade is an important segment in India's Gross Domestic Product (GDP).As per the National Accounts, released by the Central Statistical Organisation(CSO), GDP from trade (inclusive of wholesale and retail in organised andunorganised sector), at current prices, increased fromRs4,33,963 crore in 2004-05 to Rs 7,91,470 crore, at an average annual rate of 16.2per cent. The share of trade in GDP,however, remained fairlystable at little over 15per cent inlast fouryears , The share of the private organised sector in total GDPfrom trade was23.2 per cent in 2008-09 and it grewat 15.0%during the year. The share oftheretail trade in GDPremained stable at 8.1per cent during this period. 'Quick Estimates of National Income, 2008-09, Central statistical Organisation Page 1 2  1.4 Though the data on volume of turnover by retail is not separatelymaintained, commodity composition ofprivate consumption expenditure providesreasonable estimates ofthe sizeofthe retail sector.1.4.1 As per the National accounts, private final consumption expenditure,increased fromRs 19,26,858 crore in 2004-05 toRs 32,26,826 crore in 2008-09,at an average rate of 13.8 per cent per annum-. However, expenditure on someitems like transport and communication; expenditure on food in hotels andrestaurants; expenditure on rent, fuel and power; and expenditure on educationand recreation are distinct fromtrade. Private consumption expenditure adjustedfor items which could be considered a.close approximation to trade, increasedfrom Rs 11,92,405 crore in 2004-05 to Rs 19,93,380 crore in 2008-09, at anaverage rate of 13.7 per cent3.Rate of growth of GDP at current market pricesduring this period at 14.5per cent, was higher than this growth. Table A: Private Final Consumption Expenditure- Commodity Composition(Rs. in crore) item 2004-052005-062006-072007-082008-09 Food and Beverages763,345 852,798947,8561,070,7941,182,211 Clothing & Footwear127,608 150,633188,276202,797213,344 Rent, Fuel and Power250,986 277,310311,915356,197415,436 Furniture and Appliances64,944 76,45893,401111,536121,984 Medical Care95,560 105,244115,900127,648140,584 Transport and Communication378,217 418,363477,521521,858608,048 Recreation, Education and Culture65,327 73,34882,77897,962110,954 Miscellaneous Goods and Services180,871 204,195259,562336,564434,265 Total Private Consumption 2,158,3492,477,2092,825,3563,226,826 Expenditure1,926,858Estimated Trade Sales 1,192,045 1,339,6461,538,8271,771,2521,993,380 1.4.2 When seen at constant 2004-05 prices, however, private final consumptionexpenditure increased fromRs 19,26,858 crore in 2004-05 toRs 26,51,786 crore 2 Quick Estimates of National Income, 2008-09, Central Statistical Organisation 3 Estimates of Retail Trade by ICRIER at Rs 11,308 billion in 2004-05 are close to these estimates. 4 Excluding expenditure on Rent, fuel and power; Transport and communication; Recreation, education and culturalactivities; and expenditure on Food in hotels and restaurants Page 1 3  in 2008-09, at an average rate of8.3 per cent per annum. Private consumptionexpenditure adjusted for items liketransport and communication etc, increasedfrom Rs 11,92,045 crore in 2004-05 to Rs 16,67,286 crore in 2008-09, at anaverage rate of 8.8 per cent. Rate of growth of GDP at constant market pricesduring this period at 8.4 per cent was lower than the growth of privateconsumption expenditure that could be attributed totrade. TableB: Private Final Consumption Expenditure- Commodity Composition(1999-2000 prices, Rs. in crore) item 2004-052005-062006-072007-082008-09 Food and Beverages 763,345820,702851,630912,807937,064 Clothing & Footwear 127,608158,249194,922210,720209,361 Rent, Fuel and Power 250,986259,624270,039283,040292,771 Furniture and Appliances 64,94474,13385,91798,474102,148 Medical Care 95,560101,101105,657108,278117,067 Transport and Communication 378,217397,148427,332464,794521,957 Recreation, Education and Culture 65,32771,12876,08586,15990,780 Miscellaneous Goods and Services 180,871209,554254,083319,085380,638 Total Private Consumption 2,091,6392,265,6652,483,3572,651,786 Expenditure 1,926,858 Estimated Trade Sales 1,192,045 1,316,3911,432,6671,582,1251,667,286 1.5 The National Accounts do not provide disaggregated data ofretail turnoveroriginating from the organised or unorganised sector. As per the study on Impact ofOrganised Retailing on the Unorganised Sector by ICRIER,organisedretail accounted for4.1 per cent ofthe total retail turnover in 2006-07 5. 1.6 Anumber of concerns have been expressed with regard to opening oftheretail sector forFDI.1.6.1 The first is that the retail sector in India is the second largest employerafter agriculture. As per the latest NSSO64 th Round, in 2007-08 retail trade 5 lCRIER study- Impact of Organised Retailing on the Unorganised Sector-May, 2008 Page 1 4
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