FDI in Retailing Meaning, Need for FDI in Indian Retail Scenario

Retail is the sale of goods to end users, not for resale, but for use and consumption by the purchaser. The retail transaction is at the end of the supply chain. Manufacturers sell large quantities of products to retailers, and retailers sell small quantities of those products to consumers. Example: A person who wants to obtain a product for their own personal use will usually purchase it at a retail store or from some other retail marketing channel.

FDI in retail industry means that foreign companies in certain categories can sell products through their own retail shop in the country. At present, foreign direct investment (FDI) in pure retailing is not permitted under Indian law. Government of India has allowed FDI in retail of specific brand of products. As India is one of the developing countries, so FDI must be promoted but must be kept under control as it can affect the economy of the country.

Retail is derived from a French word with the prefix re and the verb tailer meaning “to cut again”. It was first recorded as a noun with the meaning of a “sale in small quantities” in 1433 (from the Middle French retail, “piece cut off, shred, scrap, paring”). Like the French, the word retail in both Dutch and German (detailhandel and Einzelhandel, respectively) also refers to the sale of small quantities of items.

The Government of India was initially very apprehensive of the introduction of the Foreign Direct Investment in the Retail Sector in India. The unorganized retail sector as has been mentioned earlier occupies 98% of the retail sector and the rest 2% is contributed by the organized sector. Hence one reason why the government feared the surge of the Foreign Direct Investments in India was the displacement of labour. The unorganized retail sector contributes about 14% to the GDP and absorbs about 7% of our labour force. Hence the issue of displacement of labour consequent to FDI is of primal importance.

There are different viewpoints on the impact of FDI in the retail sector in India, According, to one viewpoint, the US evidence is empirical proof to the fact that FDI in the retail sector does not lead to any collapse in the existing employment opportunities. There are divergent views as well. According to the UK Competition Commission, there was mass scale job loss with entry of the hypermarkets brought about by FDI in the UK retail market. This paper highlight is Introduction & Definition of Retail, Division of Retail Industry, FDI Policy in India, FDI Policy with Regard to Retailing in India, Foreign Investor’s Concern Regarding FDI in Single and Multi Brand Retail, Major players, Future of FDI and Conclusions.

An investment made by a company or entity based in one country, into a company or entity based in another country. Foreign direct investments differ substantially from indirect investments such as portfolio flows, wherein overseas institutions invest in equities listed on a nation’s stock exchange. Entities making direct investments typically have a significant degree of influence and control over the company into which the investment is made. Open economies with skilled workforces and good growth prospects tend to attract larger amounts of foreign direct investment than closed, highly regulated economies.

Need of FDI:

• Foreign capital is usually essential, at least as a temporary measure, during the period when the capital market is in the process of development.
• Domestic capital is inadequate for economic growth of the country.
• Foreign capital usually brings it with other scarce productive factors like technical knowhow, business expertise and information about latest business trends at global level.

Advantages of FDI in Retail in India

• Job Opportunities
• Growth in Economy
• Benefits to Farmers
• Lack of Infrastructure
• Benefits to consumers
• Cheaper Production facilities
• Long term cash liquidity
• Availability of new technology
• Conducive for the country’s economic growth
• FDI opens up a new avenue for Franchising

Disadvantages of FDI in Retail in India

• Limited Employment Generation
• Impact on Local Markets (Kirana Shops)
• Fear of Lowering Prices
• Negative Impact on Indian Economy
• Negative Impact on Indian Domestic Market

Criticism of FDI

• Small enterprises fear that they may not be able to compete with world class large companies and may ultimately be edged out of business.
• Domestic companies fear that they may lose their ownership to overseas company.
• Large giants of the world try to monopolies and take over the highly profitable sectors.
• Government has less control over the functioning of such companies as they usually work as wholly owned subsidiary of an overseas company.
• Such foreign companies invest more in machinery and intellectual property than in wages of the local people.

FDI is prohibited under the Government Route as well as the Automatic Route in the following sectors:

• Gambling and Betting
• Lottery Business
• Business of Chit Fund
• Nidhi Company
• Housing and Real Estate business (except development of townships, construction of residential/commercial premises, roads or bridges to the extent specified in notification.
• Agricultural (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. under controlled conditions and services related to agro and allied sectors) and Plantations activities (other than Tea Plantations).
• Trading in Transferable Development Rights (TDRs).
• Manufacture of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes.