A Quick Guide On Arguments Regarding FDI In Retail

The Government of India is planning to open a path for foreign companies who want to invest in the Indian market. In India, FDI in the retail sector has been a controversial issue. However, the Indian government has liberalised the Indian retail sector to enable direct foreign investment. The article discusses the positive and negative impacts of FDI in the retail sector in India. You will learn how the Indian economy gets affected by the government’s liberalisation in the FDI policy.

Arguments Against FDI In the Retail Sector In India

Argument 1. Loss of Jobs

The entrance of FDI will open the global multi-brand retail outlets. This can potentially result in huge job losses as small independent stores will get compelled to stop their operation. The UN skilled workers may suffer the most. It is the most adverse possible impact of FDI in the retail sector in India.

Argument 2: Price Drops

Big players in the retail Industry like Walmart can efficiently manage their supply chain leading to direct reception of products from suppliers. It will open up many ways in which prices can drop significantly. Hence it will not be beneficial for the suppliers or the farmers of the retail giants. 

Argument 3: The Power of Monopoly 

The entry of FDI in the retail sector in India will allow big players to lower their rates in the initial stages, even when they are just dumping the products. However, there is a possibility that they will become a monopoly at the final stage and raise the rates. 

Argument 4: End of The Local Economy

With the commencement of efficient and bigger retailers, the possibility of corporate profits not being spent in regions where they have been generated may lead to the economy’s downfall. It is another big impact of FDI in the retail sector in India. 

Argument 5: Consumers will be Unable to Make the Choice

The FDI in the retail sector in India takes away the consumers’ choice to choose the sellers they want to spend on. The competition in the retail sector will reduce, and only a few logos and brands will be accessible across the market. 

Argument 6: Buyer Power Violation

As per the data obtained by the centre for research on multinational corporations, a widespread violation of buyer power is observed across the European Union. An increase in incidences of late payments or retroactive payments may be observed. This practice allows the big retailers to earn maximum returns at suppliers’ costs. Moreover, this practice can equally impact consumer interest. 

Positive Arguments Regarding FDI In the Retail Sector In India

In the last two decades, FDI (foreign direct investment) has seen a dramatic shift in the global economic landscape. Both the host nation and the home country benefit from foreign direct investment. In many nations, especially emerging countries such as India, the fast expansion of foreign direct investment (FDI) by multinational corporations since the mid-eighties may be linked to major advances in technological capabilities, increased liberalisation of the trade and investment regimes, deregulation and privatisation of markets.

Argument 1: Problem Regarding Supply-side

Including FDI in multi brand retail trading can efficiently address the supply-side problem. Income growth has caused a significant gap between consumption and production. Sach kind of gap can only be fulfilled by a good amount of investment in relevant infrastructures. For example, cold storage, integrated storage, technology upgradation, transport linkage etc. 

Argument 2: Reduction In The Price Level

FDI in retail and its benefits may revolve around goods price reduction across the country. However, this would be possible if it operated under competitive circumstances only. Several global retail businesses, including Target, Walmart, Tesco, Metro, Carrefour etc., have been operating in many countries. They can potentially bring competition within the market. Moreover, as a result, food prices can get lower. Canada has been experiencing less frequent inflation because of the Walmart effect. 

Argument 3: Advantage To Consumers

Due to the presence of FDI in the retail sector, consumers might be benefited because of lower prices. Moreover, they will be able to access improved quality products. It will increase the scope of brand choices and options for consumers. 

Argument 4: Remunerative Prices

FDI in the retail sector can ensure remunerative or better prices to suppliers or farmers. By eliminating the intermediaries in the agriculture market, the profits for producers can be increased. It would have a tremendous impact on FDI in the retail sector in India as the middleman will no longer dominate the value chain in the country.

Conclusion

We covered the impact of FDI in the retail sector in India in positive and negative ways. Only after evaluating its pros and cons can we tell if the entrance of FDI in the retail sector can be a good move or not. Both sides of the argument are valid. Hence, it becomes the responsibility of the government to consider these factors. Establishing a middle ground that can balance the pros and cons of including FDI in the retail sector in India will be an appropriate approach.