Thursday, August 26, 2010

FDI in Indian Retail

Indian organized retail industry is one of the sunrise sectors with huge growth potential. Total retail market in India currently stands at USD 353 billion in 2009-10 and estimated to attain USD 543 billion by 2013-14. Organised retail industry accounts for only 5.5% of total retail industry  and expected to reach 10% by 2012. The success of Indian economy in bouncing back from global economic slowdown is making it a favorite beneficiary of foreign direct investment (FDI).
More and more global players are eying the developing countries like India and their consumption market to lay the roots of their retail chains. Moreover, to cater the needs of the growing and changing society these global giants are invited by government for direct as well as indirect investments. Currently, Indian Government allows up to 100% FDI in Cash and Carry (B2B), 51% FDI in single-brand retail – that means, the brand can sell various categories of products with the same brand identity – apparel, accessories, watches, footwear, etc. Insofar single brand retail, the restriction is to ensure that Joint Ventures are formed only with Indian partners, thereby benefitting Indian business houses.
The government recently came out  with a concept note on foreign direct investment (FDI) in multi-brand retail trading. This is an emotional issue, and has been placed on the back burner by successive governments in response to fears about its impact on small retailers, who are large generators of employment. This fear is worthy of examination. Trade constitutes around 15% of our gross domestic product, of which retail trade makes up at least half. The retail sector is the second largest employer after agriculture, providing job opportunities to at least 33 million people. Few can underestimate the importance of being circumspect with regard to any legislation that will affect so many jobs. Those favouring the entry of FDI in retail argue that FDI inflow in retail sector is vital for the growth of the country’s agricultural sector and rural infrastructure. Moreover, the massive employment opportunities provided by the capital inflow is immensely helpful in sustaining the economy of the rural segment. Improvement in farmer income, reining in consumer prices and thereby inflation and elimination of inefficiency in the supply chain structure are some of the advantages pointed out. Prosperity of rural areas and growth in agriculture being two major criteria for the country’s economic well-being, the idea of FDI in retail is finding many takers.
However, detractors argue that, FDI in retail would displace small vendors resulting in loss of jobs and livelihood. Small-time farmers need to be organized to have any bargaining power. This needs to be addressed, so do other important issues like electricity and surface water.Still discussion and arguments are going on this topic. To tackle this problem, the department of industrial policy and promotion (DIPP) floa­ted a paper to elicit feedba­ck from various stakeho­lde­rs on this contentious iss­ue. This sector has a potential for tremendous growth and decision on this policy reform has enough power to give a new and dynamic direction to India’s economic growth.

Contributed by:
Jinan Shah
Batch 2009-11


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