An Analysis of Foreign Direct Investment on Indian Economy

Topics: Retailing, Investment, Shopping mall Pages: 7 (2475 words) Published: February 22, 2013
It is the stated intent and objective of the Government of India to attract and promote foreign direct investment in order to supplement domestic capital, technology and skills, for accelerated economic growth. ―Foreign Direct Investment, as distinguished from portfolio investment, has the connotation of establishing a lasting interest in an enterprise that is resident in an economy other than that of the investor. FDI (FOREIGN DIRECT INVESTMENT) :

FDI is defined as investment by a resident entity in one economy that reflects the objective of obtaining a lasting interest in an enterprise resident in another economy. The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence by the direct investor on the management of the enterprise. Prior to 2006, India prohibited FDI in both single brand and multi brand retail. In the second month of 2006, government decided to open retail sector for FDI which was subject to certain conditions. At that time government provided 51 percent FDI in single brand retail. There have been recommendations to further liberalize the Indian government‘s policy regarding FDI in retail trading, including to increase the permissible level of FDI in single-brand retail operations and to open up the multi-brand retail sector to FDI. The government of India on January 12, 2012 allowed 100 percent FDI in single brand retail and still there was no FDI in multi brand retail in the country. The Indian government has opened the retail sector to FDI slowly through a series of steps, In 1995, World Trade Organization’s General Agreement on Trade in Services, which includes both wholesale and retailing services, came into effect then in 1997,FDI in cash and carry (wholesale) with 100% rights allowed under the government approval route. Later in 2006, FDI in cash and carry (wholesale) brought under the automatic route. Up to 51 percent investment in a single-brand retail outlet was permitted. In 2011, 100% FDI in single brand retail permitted. And in December 2011, the Indian government removed the 51 percent cap on FDI into single-brand retail outlets in and opened the market fully to foreign investors by permitting 100 percent foreign investment in this area. The current regulations on retail allow 100% FDI in wholesale cash-and-carry trading. In single-brand retailing, 100% FDI is permitted while it is prohibited in multi-brand retailing. The question arises whether opening up of FDI in multi-brand retail will create problems or provide opportunities. There is no clear answer and ample views have been expressed by that in favour and against FDI.

The latest policy of the government Foreign Direct Investment in multi-brand retail is an economic reform which would allow global chains like Wal-Mart, Carrefour and Tesco etc. to own up to 51 percent of joint retail ventures with Indian companies. The policy would let foreign retailers own up to 51 percent in multi-brand retailing and 100 percent of single brand retailing. The debate over benefits and drawbacks on FDI has been taken a number of times in the past but the proposal was dropped partly due to political compulsions and economic apprehensions. Since 1990’s with the advent of liberalisation, privatisation and globalisation reforms have been evident in FDI Sector. The total amount of FDI in India came to around US$ 42.3 billion in 2001, in 2002 this figure stood at US$ 54.1 billion, in 2003 this figure came to US$ 75.4 billion, and in 2004 this figure increased to US$ 113 billion. This shows that the flow of foreign direct investment in India has grown at a very fast pace over the last few years. It has been referred tat Walmart entered Mexico in 1991 and in 21 years, the company has grown to the position of domination with nearly 50 percent market share of the retail sector. It is estimated...
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