MPPSC 2023: Exam Date, List of Exams, Eligibility Criteria, Qualification » MPPSC Study Materials » Economics » FDI IN RETAIL

FDI IN RETAIL

The FDI retail segment in India is uniquely classified from other countries. Retailers are keen to invest by familiarizing regulation terms to create a brighter future in retails.

FDI (Foreign Direct Investment) has been on the rise in various retails, hospitality, e-commerce and tourism in India for the past few years. This growth of retails has deliberately drawn attention to leading foreign retailers and multinational brands to stimulate foreign investment in India. The Indian government has supported FDI by inaugurating several initiatives and reforms, including FDI of about 100% in some sectors. The FDI has been flourished by the advancement of technology, increases in trade liberalization, globalization and privatization. 

Overview of FDI in Retails in India 

FDI in India can be observed in the previous establishment before independence, where some British companies had created their own FDI system in Indian mining sectors, as per their economic interest. In this regard, India, after independence faced some issues regarding MNCs operation, foreign capital and grabbing attention from the policymakers. India saw advantages in introducing FDI, such as the USA, UK, Singapore, Japan on getting their economic benefits. In terms of problems, for example, bottom-up approaches for small and medium Indian industries, cottage industries, unemployment etc. are static ones. India also faced deterioration in balance position in the 1980s, which encouraged MNCs, for enhancing growth in industries and increasing competency which resulted in a partial economic liberalization in the 1990s. Being a globalized country, India attracted almost 16 companies and reached 60 in 2008.

Definition of FDI in Retail 

Retailing is defined as the interface between consumer and producer for fulfilling personal consumption. FDI in retail means the foreign firms in some categories can sell their products by their retail shop in a foreign country. India, as a developing country has promoted FDI to bring flourishment in economic growth. 

Current scenario of FDI in retail, in India 

Currently, in India, 95% of retail industries are unorganized and 2% are organized. The organized sectors are allowed to result under a license and accumulate sales and incomes taxes. In 2006, the Indian government allowed 51% FDI through ‘single brand’ retailers, where India gained up to $195 million in 2010. India has also been permitted to sell products under a ‘single brand’ internationally. Additionally, a single brand covers the products that are purchased under the same brand internationally. In addition, the Indian government has excluded large multi-brand retailers such as Carrefour and Walmart. On the other hand, the unorganized sector, majorly in local and Kirana shops, employed over 7.2% or 33.1 million workforces in India. India has gathered USD 64 billion in 2020, as it increased 27% from the previous year.

Advantages of FDI in retail in India  

  • India has gained growth in the economy due to the coming of foreign firms. Additionally, India gets the chance to refurbish real estate, baking infrastructure to maintain monetary transactions. This also created new regulators in Indian banks.
  • FDI in the retail sector increased job employment and created other positive impacts in other sectors.
  • Farmers also get benefits as they can supply their products to retailers based on demand, and can earn good cash, without looking for a buyer. 
  • FDI also helps consumers, as they get to choose from various products and can make price comparisons. 
  • The previously poor market infrastructure in India led to a chance to make new market mechanisms to get advantages and profits. 

Disadvantages of FDI in retail in India  

  • FDI has drained India’s revenue share, where foreign countries get the most benefits, which created a certain negative impact on the Indian economy. 
  • The organized domestic sectors and small shops might not be competitive as the international ones, as they can lose market share and it can turn into unemployment as well. 

Impact of FDI in the multi-brand retail sector, consumer and unorganized retailers in India  

India is willing to proceed with FDI 51% and regulates new policies on allowing multi-brand retailers. The Indian government has made policies on allowing multi-brand retailers. For instance, allowing agricultural products as unbranded phenomena. The minimum amount needed to bring in is $100 million of multi-brands. 50% of total FDI needs to be invested in ‘back-end infrastructure’ and other investments would be made by MBRT retailers. About 30% of FDI raw products need to be sourced from Indian SMEs. 

Consumers have gained product and price comparison, as overall consumer spending has increased in organized retails. Unorganized sectors gained competitive advantages including consumer goodwill, amenability for bargaining etc. 

Conclusion

The impact of FDI in retail industries created a negative impact on profit and sales of unorganized sectors, due to the large market entry of well-structured organized sectors. Additionally, it created new reforms in the Indian economy and positively in other services.