Leading Education consultant in India
This growth has become major attraction for foreigners to
enter in India.
The reason why retailing has not given success to many
India is because of the requirement of huge financial
However then increasing purchasing power of customers
made India 4th largest economy in world after Japan, USA
In January 2006, the Government relaxed FDI (foreign
direct investment) controls on retailing to allow foreign
retailers to participate directly in the Indian market for the
first time by allowing equity ownership in `single brand
Thus, foreign entities are now allowed to
operate their stores, but only if they are
single-brand stores and only up to 51 per
The impact of the consequent increase in
FDI, in Indian retail, is expected to not just
develop strong backward linkages but also
create a domestic supply chain of
What is encouraging now for these global
majors is the new policy thrust, which intends
to further liberalize the FDI regime in Indian
Benefits of FDI in Indian Retail
Inflow of investment and funds.
Improvement in the quality of employment.
Generating more employment.
Increased local sourcing.
Provide better value to end consumers.
Investments and improvement in the supply chains
Franchising opportunities for local entrepreneurs.
Growth of infrastructure.
Implementation of Information Technology in retail.
Stimulate infant industries and other supporting
Some domestic retailers have had to fold up because they
expanded too fast and couldn't finance their plans. Eg. Vishal,
Subhikshaand Koutons. FDI will provide the much needed
Will bring down the difference between farm prices and retail
Will bring technical know-how to set up efficient supply chains
which could act as models of development
Will increase employment as companies will need to hire
millions for their pan-India retail operations
It will also make joint ventures easier, simpler and cleaner
Researchers estimate avoidable supply chain costs (wastage,
excess inventory and excess transportation costs) in Indian
food and grocery sales to be about US$24 billion
It will bring with it the technologies and expertise required to
build robust food supply chains.
Foreign players will invest in backend infrastructure and cold
chains necessary to reduce wastage of farm produce.
It can tackle food inflation which is a major problem today
Drawbacks FDI in Indian Retail
Would give rise to cut-throat competition
rather than promoting incremental
Increase in the real estate prices.
Marginalize domestic entrepreneurs.
The financial strength of foreign players
would displace the unorganized players.
Absence of proper regulatory guidelines
would induce unfair trade practices like
Retail sector is the second-largest employer in the
country and a flood of foreign competition may lead to
many people losing their jobs
Local traders and retailer associations, manufacturers,
small retailers and NGOs are strongly opposing it
Fear that foreign players will totally monopolise and
grasp the market
Many fear farmers would be forced to sell their
produce at lower prices
It would lead to unfair competition and ultimately result
in large-scale exit of domestic retailers, especially the
small family managed outlets, leading to large scale
displacement of persons employed in the retail sector
Indian organised retail sector is still in a nascent stage
and therefore it is important that the domestic retail
sector is allowed to grow and consolidate first, before
opening this sector to foreign investors
SCENARIO IN OTHER THIRD WORLD
• FDI is permitted in the retail sector in Brazil,
Argentina, Singapore, Indonesia, China and
Thailand without limits on equity participation
(that is 100% FDI allowed)
• Thailand: Since 1997, 100% FDI. Positive
result: Thailand has now become an
important shopping and tourist destination.
Foreign Direct Investment could change
the face of Indian retail by offering quality
goods at lower prices to the consumers. In
addition to this, the presence of global
retailers in Indian retail industry will further
enhance exports from India as they would
also source Indian goods for their
international outlets in a big way leading to
a remarkable increase in Indian exports.