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Before delving into foreign investment in retail, it’s critical to grasp the importance of the world’s largest private sector, retail. Because of deregulation, this industry has undergone a massive transformation.
There are significant cost syllables that should be considered, but the kind of benefits delivered by FDI in India in the Retail Industry far outweigh them. It has benefits like more employment, better-organised stores, and the availability of higher-quality products at lower prices. It provides varied resources to one country to develop into a global market.
Organised and Unorganised Retail Sector in India
Organized Retail Sector | Unorganized Retail Sector |
The government of India regulates the organised retail sector, and employment terms and working hours each day are also set in this sector. | The government does not control the unorganised retail sector, and employment terms and working hours are not set in this sector. |
Various acts control the organised retail sector in India, including the Bonus Act, the Factories Act, the Minimum Wage Act, and the PF Act, among others. | There is no law in place to regulate the unorganised retail industry. |
In the organised retail industry, government regulations are closely adhered to. | There is no law in place to regulate the unorganised retail industry. |
Employees are paid a regular monthly salary every month. | Employees are paid daily. |
Employees in the organised retail sector have job security. | In the unorganised retail industry, worker hours are not set. |
In the organised retail industry, workers are compensated for the greater number of hours they work. | In the unorganised retail sector, workers are not compensated for the greater number of hours they work. |
Employers contribute to the provident fund of their employees. | Employers do not contribute to the provident fund of their employees. |
Employees are paid a salary equal to that set by the Indian government. | Employees are paid less than the minimum wage set by the Indian government. |
Employees receive salary hikes regularly, usually once a year. | Employees are only offered salary hikes on a very occasional basis. |
Employees in the organised retail industry are entitled to additional benefits such as a pension, medical coverage, leave pay, travel pay, etc. | Employees in the unorganised retail industry do not receive any benefits. |
FDI in the Retail Sector
Due to the introduction of various new businesses, the Indian retail industry has become one of the most dynamic and fast-growing industries. As a result, the retail sector is expected to increase to nearly $1.5 trillion by 2030, up to $700 billion from its current size of $793 billion in 2020.
India’s e-commerce business has grown at a breakneck pace in recent years and continues to thrive. Foreign Direct Investment in E-Commerce in India might result in a capital inflow, boosting the country’s economic potential. India’s $30 billion retail e-commerce market will grow at a 30% compound annual growth rate (CAGR) to $200 billion in gross merchandise value by 2026.
India is one of the best countries to invest in the retail sector:
The following factors can make India the best place to invest in the retail sector”
- India is the second-largest populous country
- with 600 million middle-class people in India
- Increasing urbanisation
- household incomes are rising in India
- Consumer spending is also rising
India was ranked second in the Global Retail Development Index in 2019. (GRDI). In FY20, India’s retail industry contributed $800 billion to the country’s GDP and employed 8% of the workforce (35 million people). It is expected that by 2030, 25 million additional jobs will be added.
Recent regulatory reforms have opened up the automatic route to 100 per cent FDI in e-commerce for single-brand retail businesses.
The ‘Pros’ & ‘Cons’
Pros:
- Increased economic growth as different companies come to India to open up shop, resulting in infrastructure improvements since there has been a lack of infrastructure in the retail sector. The banking sector will grow as money will be regulated by Indian banks.
- This would result in a rise in the number of jobs in the retail sector and subsequent job re-distribution in many other sectors, all of which will be beneficial.
- In the supply chain retail industry, it has always been a concern that the intermediary parties control the manufacturers and buyers, resulting in farmers losing their share of the benefit or profit margin. Farmers will benefit from the FDI policy since they will receive farming contracts from retailers and will receive a fair portion of the profits earned, as well as the elimination of the need to find individual purchasers.
- Many multinational products will enter the Indian market due to FDI, allowing customers to acquire a wide range of products at lower and more fair rates than the current market prices.
- FDI policy can also help to alleviate the problem of food inflation and its adverse effects on the government of India’s Public Distribution System.
Cons:
- Foreign direct investment (FDI) may result in the release of monetary resources and Indian revenue to multinational firms, negatively impacting the country’s economy.
- Due to international brands’ prominence and fierce competition, the Indian retail sector may prove inept at dealing with multinational corporate brands, causing them to lose market share.
- India has a significant part of the unorganised retail sector. As a result of FDI in India, many small company owners and workers in these areas may lose their jobs as they operate in smaller stores and businesses.
- As international corporations enter India, they would be tempted to form monopolies, resulting in predatory pricing violations of Indian competition regulations.
Conclusion
In case of low growth and productivity FDI will help to improve and boost the competition. When competition arises, it will help to spread innovation. FDI also helps developing countries integrate into the global economy. FDI also contributes to industry restructuring, which leads to a reduction in company costs and the growth of the global economy.
If we have an available FDI policy in the retail sector, it will have lots of benefits compared to disadvantages. Many experiments of FDI in retail happened in countries like Thailand and China, where initially, they protested heavily against allowing FDI in retail. Still, later it proved to be the best decision of the government. It results in massive development in the retail sector. So, both global and developing countries benefit from FDI.
