Foreign Direct Investment in the Retail Sector in India

Foreign Direct Investment (FDI) is defined as “cross-border investment made by a resident of one economy in a business in another economy with the goal of profiting in the target country.” The majority of the investment is in production, either through the purchase of a company in the chosen country or the expansion of an existing business in that country.” These investments can be undertaken for a variety of reasons, including taking advantage of lower wage rates, particular investment opportunities offered by the country, or the country’s favourable climate.

Foreign direct investment in the retail sector is good for India:

FDI in retail will undoubtedly benefit India in the long run, but the situation is murky in the near and medium-term. In India, organised retail accounts for between 5% to 6% of overall retail, with approximately 12 million Kirana outlets. Because of three criteria, the latter continues to serve a large portion of India. First, because they are ubiquitous, they provide the convenience of location. Second, the majority of them provide home delivery services. Third, they frequently give credit to customers who do not have traditional credit. These alternatives are not available at most modern stores. While consumer demand, the primary driver of modern retail, has extended consumption choices by a factor of 20 in the previous 20 years, it has not altered radically enough to entice FDI into the sector.

According to the Department of Industrial Regulation and Promotion’s (DIPP) most recent policy, 100 percent foreign direct investment (FDI) is permitted in single-brand retail and duty-free stores via the automatic method.

Role of FDI in the retail sector:

In India, foreign direct investment (FDI) is banned in the retail industry. For the first time in 2006, the government relaxed retail policy, allowing up to 51% FDI through single-brand retail. Since then, FDI in the retail industry has steadily increased, with total FDI in single-brand retail reaching $195 million by the middle of 2010. (DIPP, 2010).

Single-brand retail, according to the Indian government’s Department of Industrial Policy and Promotion (DIPP), includes retailers who sell products “of a’single brand’ only, such that products should be sold under the same brand internationally; and single-brand product retailing covers only products that are branded during manufacturing.” FDI is permitted to a maximum of 51% in this category. In the multi-brand retail sector, however, no FDI is permitted. This includes huge international retailers like Wal-Mart and Carrefour, as well as all enterprises in organised retail that attempt to stock and sell multiple brands.

Advantages:

• Job opportunities: It is estimated that this will result in the creation of approximately 80 lakh jobs.
• Consumer benefits: Consumers will have access to a wider range of products at lower prices than the market, as well as a greater selection of worldwide brands in one location.
• For years, one of the most common challenges in India has been a lack of infrastructure in the retailing chain, which has resulted in an ineffective market mechanism.
• The public distribution system has been shown to be ineffective in recent years. Despite the government’s efforts to provide subsidies, food inflation continues to have a detrimental impact, which can be mitigated by FDI.

Disadvantages:

• According to the non-government cult, FDI will bleed the country’s revenue share to foreign countries, potentially harming India’s total economy.
• The organised retail sector in the United States may not be competitive enough to compete with international competitors, and it may lose market share.
• Because many people work in unorganised retail businesses like small shops, many small business owners and workers from various functional areas may lose their jobs.

Percentage of FDI in the retail sector in India:

It is prudent to review DIPP’s Press Note 4 from 2006 and the consolidated FDI Policy from October 2010, both of which give sector-specific FDI guidelines for the conduct of trading activities.

• Under the automatic route, FDI can be up to 100% for cash and carry wholesale trading and export trading.
• FDI up to 51 percent for retail trading of ‘Single Brand’ products with prior Government permission (i.e. FIPB), subject to Press Note 3. (2006 Series).

• Conclusion:

  In industries with little competition and low productivity, FDI can be a potent motivator for boosting competition. Competition, in turn, is essential for spreading FDI-driven innovation throughout an industry. The integration of developing countries into the global economy is also aided by foreign direct investment. As a result, both the global economy and emerging countries profit from this. FDI also facilitates industrial restructuring, which promotes global growth by lowering company production costs and opening up new markets.