Essay on Foreign Direct Investment (FDI) in Retail Sector in India

Today I was reading CSR, and came across this topic. “Foreign Direct Investment in Retail- The Policy decision that has opened a paradox’s box”. So I too want to write something about FDI.

As we can get an idea that when a foreign company or investor , invest their money into our country, the term FDI comes into picture. Recently UPA government tried to bring some changes in FDI policy. Those were:

FDI IN INDIA

  • India will allow foreign groups to own up to 51% in “multi brand retailers”, as supermarkets are known in India, in most radical pro-liberalization reform passed by an Indian Cabinet in years.
  • Single brand retailers, such as Apple and IKEA, can own 100 % of their Indian stores, up from previous cap of 51%.
  • Both milt-brand and single brand stores in India must confine their operations to 53-odd cities with a population over one million, out of them 7,935 towns and cities in India, It is expected that these stores will now have full access to over 200 million urban consumers in India.
  • Single brand retailers must have a minimum investment of $100 million with at least half of the amount invested in back-end infrastructure, including cold chains, refrigeration, transportation, packing etc.

This policy was presented in Parliament on 24 Nov, 2011. The decision for foreign investment up to 51% was a sensational news at that time. Every man was talking about that. Actually before that, I too was not aware of that thing much. But reading news papers gave me some idea. Though I can’t decide whether it was good or bad, but I saw some politician supporting the government and few were opposing also. Like Akali Dal in Punjab welcomed this decision where BSP in UP openly opposed it. The supporters lauded the policy, but opposition parties warned government. So that was the political scenario.

At the time of BJP ruling government, they were also wanted to bring some kind of changes but opposition party ‘Congress’ opposed them. Not while ‘Congress’ has power, BJP is opposing the policy. But does this scene clear to a layman? The one who is buying vegetables, glossary, some daily use materials from local market and some kind of ‘HAT-BAZAR’? I think, the answer would be NO!

If we move out from our home, and walk through the street, we can a number of shops holding near by. Retailing is one of top businesses, that Indian do. And this is a like a pillar to our GDP. 15% of the total GDP comes from these grocery shops and retailers. It gives day meal to a number of people. India is considered to be the top 5 largest retailers in economic output. So these all things should be measured and analyzed by GOI before granting of permission to foreign investors.

Indian economic market can be divided into two categories- Organized and Unorganized. Organized are those who are having proper license and they pay show their all account to government. They pay proper tax and run their shops in a systematic manner. But we hardly find organized retailers in ruler or some small cities. Shops like mall, show room, big-bazaar, spencer come in this category. Apart from this, what is dominating our economy is ‘Unorganized retailer.’ In Indian market, they gie employment to more than 40 million people. These can be samll shops, groceries, one-man owner or betel shops. We can see most of them in open market, or in ruler ares. They are so small shops. They use to bargain their prices. They mostly don’t fixed their price. So they sell their product at any cost, however companies give a MRP (Maximum Retail Price). Ya ! I agree, they don’t maintain the standard. They lack in terms of health and quality. But for middle class people, who can’t afford mall or showroom, these unorganized shops are far better. Because something is better than nothing. These shops mostly pick up the product from farmers and sell them to some different market. So in this way a large amount is saved, which a branded retailer has to carry like income tax,service tax, transportation tax etc. So government is loosing a large amount of revenue in this way. But we should this think that, these organized retail shops give a large number of employments to our people.

According to Icier Report (2007), the retail business in India was estimated to grow at 13 percent from $322 billion in 2006-07 to $590 billion in 2011-12. But organized retail, make up to 10%. However in the present scenario, unorganized retailers do a business of 500 billion which is 90% of the total market.

Finally, I would like to say this government policy would ruin all our small markets. And competition will be among large players with deep pockets only. The foreign/ global companies would get a change to put their leg into our economy and they will dominate the market in every aspect. Very few people have welcomed this policy. Even one of the greatest Indian, Father of Green ‘Mr. M.S. Swaminathan’ has opposed this fact. and criticized the Government of India

The above article was written with the help of CSR January 2012 edition. I took this book as a reference.

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Deepesh Singh
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2 thoughts on “Essay on Foreign Direct Investment (FDI) in Retail Sector in India

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