The Opportunities and Challenges of
FDI in Retail in India
FDI (Foreign Direct Investment) is an investment in a foreign
country with an intention to gain managerial interest in a company operating in
that country. There are many foreign players who have invested and are
investing in this way in India. The
main interest of any person interested in operations in this issue would be
supply chain. The large retailers would complement the investment of government
in supply chain i.e. roads, energy. This would lead to decrease in transaction costs
of business- both Business to business and business to customer such as
information costs, search costs,
transport costs, communication costs, contractual costs, distributional costs,
etc.
The Growth of
FDI in the global economic land scope over the last two decades has made it an
integral part of the development strategy of both the developed and developing
nations. It acts as a major catalyst in the development of a country through
up-gradation of technology, managerial skills and capabilities in various
sectors. Rise in purchasing power, growing consumerism and brand proliferation
has led to retail modernization in India. The growing Indian market has
attracted a number of foreign retailers and domestic corporate to invest in
this sector.FDI in the retail can expand markets by reducing transaction and
transformation costs of business through adoption of advanced supply chain and
benefit consumers and supplier. Oppositions have raised concerns about
employment losses, promotion of unhealthy competition among organized domestic
retailers resulting in exit of small domestic Retailers from the market and
distortion of urban cultural development. the overview of the Indian retail
sector along with the opportunities of expansion of FDI in retail in India and
the major challenges that it faces.
The government
of the host country may limit the percentage of foreign stake in any company
with the intention to avoid foreign control over its country’s economy and
people. This percentage varies from industry to industry depending on how
crucial the industry is for the country. Even India limits the percentage of
foreign stake. The industry-wise limitations are 100% for tourism, hospitality,
education, roads and highways, pharmaceuticals, petrochemicals; 51% for
multi-brand retail; 49% for civil aviation, insurance, D2H, public sector
banks; and 26% for print media, defence, etc to name a few. Retail industry in
India is on of the most developing industries and has a huge potential to grow
further. It contributes about 15% to GDP and 8% to employment of the country.
It can be classified into single-brand and multi-brand retail. Only 4% of the
retail in India is organized. The FDI limit for single-brand retail and
multi-brand retail in India was increased to 100% and 51% respectively in 2012.
The Indian
Government, however, recommends that retail firms source a percentage of manufactured
products from the small and medium domestic enterprises. With a restriction of this
sort, the opening up of the retail sector to FDI could therefore provide a
boost to small-and medium enterprises. Moreover, expansion in the retail sector
could also generate significant employment potential, especially among rural
and semi-urban youth. So it is very difficult to predict the future of Indian
retail sector. But the government of India must be cautious about the
apprehensions raised by the critics and adequate safeguards must be taken so
that the positive effects may outweigh the negative ones and the traditional
retailers co exist even after big foreign retailer enter the markets.
Shariba Tasleem, Faculty of commerce &
Management Department
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