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GDP. 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 assistance. However then increasing purchasing power of customers made India 4th largest economy in world after Japan, USA and China. 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 retailing.
Thus, foreign entities are now allowed to operate their stores, but only if they are single-brand stores and only up to 51 per cent ownership. 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 international standards. What is encouraging now for these global majors is the new policy thrust, which intends to further liberalize the FDI regime in Indian retail.
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 and warehousing. Franchising opportunities for local entrepreneurs. Growth of infrastructure. Increased efficiency. Cost reduction. Implementation of Information Technology in retail. Stimulate infant industries and other supporting industries.
Some domestic retailers have had to fold up because they expanded too fast and couldnt finance their plans. Eg. Vishal, Subhikshaand Koutons. FDI will provide the much needed funding. Will bring down the difference between farm prices and retail prices 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 business. creating monopoly. 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 Predatory pricing.
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 WORLDCOUNTRIES• 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.