FOREIGN DIRECT INVESTMNT IN RETAIL

WHAT IS FDI?  FDI or Foreign Investment refers to the net inflows of investment to acquire a lasting management interest (10% or more) in an enterprise operating in an economy other than that of the investor.  It usually involves participation in management, joint venture, transfer of technology and expertise.  FDI can be used as one measure of growing economic globalization.

SINGLE AND MULTI BRAND RETAIL SINGLE BRAND RETAIL :  It implies that a retail store with foreign investment can only sell one brand.  Eg. Nokia, Reebok and Adidas. MULTI BRAND RETAIL :  Retail store can sell multiple brands under one roof.  Global retailers like Wal – Mart, Carrefour and Tesco can open stores offering a wide range of household items and grocery directly to consumers in the same way as the “ Kirana” stores..

PRESENT SHAPE OF FDI  Retail industry – Second largest employer ( with an estimated 35 million people engaged by the industry).  The Union Cabinet on 24 th Nov 2011 proposed to increase FDI in multi brand to 51%.However government was put to hold after strong opposition from several political parties, including UPA and Trinamool Congress.  New policy will allow multi brand foreign retailers to set up shop only in cities with a population of more than 10 lakhs as per the 2011 census.( there are 53 such cities)

 Foreign retailers will be required to put up 50% of total FDI in back-end infrastructure excluding that on front end expenditures ( land cost and rent will not be counted ).  Big retailers will need to source atleast 30% of manufactured or processed products from small retailers OR MANUFACTURERS.  According to the newspaper Indo – Asian News Service, Washington US has said that FDI in retail tradewould be beneficial to both India and U.S.  In Jan 2012 SINGLE BRAND FDI hiked to 100 % from 51%.

FAVOURABLES  INDIAN FARMERS : Farmers will be the biggest beneficiary of FDI in retail who will be able to improve their productivity.  INDIAN CONSUMERS : Indian consumers will get access to quality goods at a low cost, that too at home.  PROPER TAX SYSTEM :Tax revenue will increase like VAT and service tax.  PARTERNSHIP OPPORTUNITY : Indian Retailers have reason to be happy as it involves a lot of learning that could take them to higher profitability.  HIGH AVAILABILITY OF JOBS

 DISTRIBUTION SYSTEM : 30-35% of India’s total production of fruits and vegetables is wasted every year due to inadequate cold storage and transport facilities. Giant retailers will help India to have strong storage system with highly developed transportation.  INDIAN MIDDLE CLASS  KNOWLEDGE ENHANCEMENT : FDI in retail will make way for inflow of knowledge from international experts.  MANAGEMENT EDUCATIONAL INSTITUTE BOOM : Growth of organized retail in India will be a “ sunrise” for the management educational institute.  INFLATION CONTROL :Inflation will be curbed.

UN-FAVOURABLES  The new system will displace the traditional shops and petty retail shops in markets and mohallahs.  Around 38% people in rural areas and around 47% in urban areas depend on retail trade for their livelihood, which will be affected. Around 14 crore people are directly or indirectly earning from the retail sector. So this may in turn render the people engaged there jobless and non business oriented.