Foreign direct investment (FDI) is a direct investment into production or
business in a country by a company in another country, either by buying a
company in the target country or by expanding operations of an existing
business in that country.
Need of FDI :
High level of investment for development
Fulfill the technological gap
Exploitation of natural resources
Development of economic infrastructure.
Impact of FDI on Indian economy is assessed by analyzing the
performance of three sectors where FDI has been permitted. These
Some of the benefits of liberalization of Telecom Sector were:
Provided private players to tap the existing potential in the
Assisted the industry in upgrading technology
Reduction of Call Rates
Gave consumers more choices in terms of services, products.
Provided financial support to set up infrastructure to spread
Some of the benefits of liberalization of Automobiles Sector were:
Increase in Production, Domestic Sales and Exports
Development of a healthy Auto Component’s Industry
Greater Choice for the Consumer
FDI bought the required capital into the sector which assisted players
scaling up their supply thereby assisting their overall efficiency and
Some of the benefits of liberalization of IT/ITES Sector were:
High Growth Rates
Increase in export of software services
Government’s focus on reforms
The government has decided to pursue policies to
attract higher foreign direct investment (FDI). It has
liberalized policy norms for FDI in the following
i. Single Brand Retail
ii. Multi Brand Retail
iii. Civil Aviation
iv. Broadcast Services
Single brand retail
Government of India increased the threshold limit of Foreign Direct
Investment (FDI) in Single Brand Retail from 51% to 100% for the
purpose of attracting investment in production and marketing and
improving the availability of such goods for the consumer.
Products to be sold should be of a 'Single Brand' only.
Products should be sold under the same brand internationally i.e.
products should be sold under the same brand in one or more
countries other than India.
'Single Brand' product-retail trading would cover only products
which are branded during manufacturing.
The foreign investor should be the owner of the brand.
In respect of proposals involving FDI beyond 51%, at least 30% of
the value of products sold would have to be mandatory sourced
from Indian 'small industries/ village and cottage industries,
artisans and craftsmen'.
Multi brand retail
Government of India announced the opening of FDI in multi-brand
retail, subject to approvals by individual states.
The government has approved 51% of FDI in multi-brand retail
with the following conditions:
Minimum amount to be brought in, as FDI would be USD 100
At least 50% of total FDI should be invested in ‘backend
infrastructure’ like processing, manufacturing, distribution, design
improvement, quality control, packaging, logistics, storage etc.
At least 30% of the procurement of manufactured/processed
products shall be sourced from `small industries` (less than USD
Retail sales locations may be set up only in cities with a
population of more than 10 lakh as per 2011 Census. Only 53
qualify out of nearly 8000 towns & cities.
Government will have the first right to procurement of
FDI in other sectors are:
Aviation up to 49%
Pension sector up to 26%
Insurance sector up to 49%
Broadcasting up to 74%
Impact of these reforms:
It will eliminate multiple layers of middlemen
thereby giving better prices to the farmers.
Benefit to agriculture sector
Better back-end infrastructure- supply chains and cold
storage(less wastage of farm produce)
Minimizing the layers of intermediaries as a result of
which farmer get much lower prices than they could if
they supplied directly to retail stores.
Modern retailers will also provide farmers
with new high yield varieties of seeds and
better technologies that will help bring
down the cost and more yields.
It accounts for 14-15 % of GDP - estimated to be USD $450 billion
Indian retail industry is essentially owner manned shop(kirana
Retail and logistic industry employ 40 million Indians (3.3 % of
Indian retail sector is in 2 parts :
Organised retailing- trading activities undertaken by licensed
retailers, which are registered for sales tax, income tax etc. Like
supermarkets, privately owned large retail businesses (about 5%)
Unorganized retailing- refers to the traditional low-cost retailing, for
example, the local corner shops, owner manned general stores,
paan/beedi shops, convenience stores, hand cart and pavement
(about 95 %)
Inflow of equipment and technology.
Improved consumer welfare through reduced cost , wider
choice and improved quality.
Important contribution will be in the generation of a large
number of ‘semi-skilled’ or skilled jobs for India’s young
Mandating 30% of sourcing from small
Industries will boost their growth
Indian carriers posted a combined loss of 12,000 crore in the
last financial year and airline honchos have time and again
urged the government to modify the jet fuel tax structure.
Relaxing FDI rules will help bring a much-needed cash flow to
India's bleeding private airlines.
The aviation sector in India has witnessed strong growth in
Civil Aviation facilitates:
Trade - by offering a reliable and faster mode of transport
services to move products and personnel across long
Generates both direct and indirect employment
Causes a flow of money into the economy which
stimulates economic activity
It may give domestic producers an incentive to become
Due to inbuilt inefficiencies and wastage in distribution
and storage about 30% of food production doesn't reach
Prevent labour exploitation
FDI in retail sector will transform the way perishable
agricultural produce is acquired, stored, preserved, and
marketed -- and thus help control India's persistent food
Although FDI brings with it lot of advantages but it is
not free from disadvantages as well. Following are
some of its demerits
domestic firms may suffer if they are relatively
There may be loss of jobs of peoples
if there is a lot of FDI into one industry e.g. the
automotive industry then a country can become too
dependent on it
Various Indian sectors having FDI restrictions:
FDI Restrictions in Indian Sectors have been imposed in order to
protect the interests of the country, as these sectors either relate to
national security or sensitive enough to keep apart the foreign
Foreign direct investment restrictions in Indian sectors have also
been imposed in order to allow the domestic companies to make
more profits with less competition, than that of in the presence of
rivalry international firms.
Betting and gambling
Ammunition and arms
Chit fund business
although there are certain apprehensions about FDI in India
but all these fears are unfounded.
the future of India lies in FDI & the government must proceed
in that direction if it wants to make the Indian economy a
It is expected that states will keep away their political causes
and take a decision in such a way that will be beneficial to the
small businessmen and for the youth who seeks for career
growth and opportunities in retail industry.