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Foreign Direct Investment or FDI is an investment made by a company of a nation into the company of another country. It leads to capital inflow from abroad, resulting in increased production volume of the economy. A retail store is the face of the manufacturing consumer product chain. FDI in the retail sector in India 2020 contributes heavily to GDP. It also offers a high rate of employment. India’s strength in the retail and consumer sector shows dominance and sustainability. The essential components of the Indian retail market are it is young, vibrant, volatile and has a large consumer market with a high level of awareness.
Penetration Of FDI In Retail Sector In India 2020
Today, the Indian Retail Sector consists mainly of the unorganised sector. The organised sector is only 5 to 10%. Moreover, all the retail stores are indigenous or have Indian owners or proprietors. The Government will need to act responsibly as the socio-economic balancer to ensure that the pillars of the economy, i.e., agriculture, retail, and manufacturing, remain strong.
Earlier, FDI was restricted in the retail sector because of the belief that the traders and the people might lose jobs. A fear that growing competition in the organised industry can promote the formation of monopolies and cartels and decrease business opportunities for small traders to take over the minds of people.
However, the scenario changed when the Government started getting benefits in terms of tax, consumers and farmers availed significant benefits in the agricultural sector, and people started getting jobs. These scenarios showed the Government how FDI benefits retaining business. Thus, the Government opened up the retail investment market.
In addition to the market dynamics, the Indian Government’s policy framework in the form of Foreign Direct Investment (FDI) has provided support to create a conducive investment environment. Another major factor contributing to FDI in the retail sector in India 2020 is improvement in ranking in terms of “ease of doing business.”
Monitoring FDI In Retail Sector In India 2020
India has signed the World Trade Organisation’s General Agreement for Trade and Services, facilitating the opening up of the retail market to foreign trade investment.
The Foreign Exchange Management Act, 1999 regulates Foreign Direct Investment in India. It also provides policies declared for FDI in the retail sector in India 2020 by the Indian Government. Even the Reserve Bank of India has issued varied notifications, including the Foreign Exchange Management Regulation, 2000.
The Ministry of Commerce and Industry observes and assesses the FDI policy regularly. The Department of Industrial Policy and Promotion (DIPP) and the Press Notes of the Secretariat for Industrial Assistance (SIA) issue notification policies on FDI. Foreign investors are free to invest in India except for a few market areas where pre-approval from the RBI and Foreign Investment Promotion Board (FIPB) is required.
Advantages
With the Government sanctioning 51% investment in the retail sector, let us understand how FDI benefits retail business.
- The Indian economy will grow with different companies coming to India to set up their business. It will also enhance infrastructure in the retail sector. The Banks will flourish by regulating the money of foreign investors.
- Farmers will benefit from FDI. They will give direct contracts to farmers for farming and, in turn, provide a fair share of profit earning. Farmers will not need to look for individual buyers for their produce.
- With FDI in the retail sector in India 2020, the Indian market has seen the entry of a lot of international products. Thus, consumers will access various products at a lower price than the prevalent market price.
- FDI can also play a vital role in solving the food inflation issue and its negative impacts on the Public Distribution System.
Disadvantages
After knowing how FDI benefits retail business, let us understand how it may harm the Indian market.
- The release of the Indian monetary resources and revenue to International Corporations may harm the Indian Economy.
- The Indian retail market may not be competent enough to deal with International business brands because of their dominance and great competition. It may lead to them losing their market share.
- India has a substantial unorganised retail sector. With FDI in the retail sector in India 2020, various small business owners and workers may lose their jobs or business. It may displace the small unorganised self-employed shop owners and retailers.
- With the entry of foreign companies into India, the creation of a monopoly led by predatory pricing and violation of the provisions of Competition laws may also enter the market.
Conclusion
Foreign Direct Investment benefits developing countries by uniting them with global economies. It helps the developing countries and the Global Economy. FDI provides Industry Restructuring, which implies the formation of new markets and reduction in the cost of production, enabling global growth. FDI can also act as a harbinger of change in industries with meagre competition and productivity by increasing competition and production.
After analysing the pros and cons of FDI, we can safely say how FDI benefits for retail business outweighs the disadvantages. The end customer will undoubtedly get the best benefits of the FDI process. However, the Government needs to play an active role in transiting the retail sector to the FDI regime.
