Impact of Foreign Direct Investment (Fdi) in India’s Retail Sector.

Topics: Retailing, Shopping mall, Investment Pages: 14 (4292 words) Published: May 12, 2013
Impact of Foreign Direct Investment (FDI) in India’s retail sector.

ABSTRACT: Retailing in India is one of the pillars of its economy and accounts for about 15 percent of its GDP. Organized retailing is absent in most rural and small towns of India. Supermarkets and similar organized retail stores account for just 4 percent of the market. The main fear of FDI in retail trade is that it will certainly disrupt the livelihood of the poor people engaged in this trade. The opening of big markets or foreign-sponsored departmental outlets will not necessarily absorb them; rather they may try to establish the monopoly power in the country. Challenges to the retail trade in general include, geographically dispersed population, complex distribution network, little use of IT systems, limitations of mass media and existence of counterfeit goods. FDI is a major source of external finance which means that countries with limited amounts of capital can receive finance beyond national borders from wealthier countries. Until 2011, Indian government denied foreign direct investment (FDI) in multi-brand retail, forbidding foreign groups from any ownership in supermarkets, convenience stores or any retail outlets. But, single-brand retail was limited to 51 percent ownership with government approval. But now, the government continues the hold on retail reforms for multi-brand stores. There are some, who are in favour of the entry of FDI in multi brand retail in India and some against it.

According to International Monetary Fund (IMF), FDI is defined as “ an investment that is made to acquire a lasting interest in an enterprise operating in a economy other than that of the investor” The investor’s purpose is to have an effective voice in the management of the enterprise (IMF,1977).FDI is the process by which the residents of one country (the source country) acquire the ownership of assets for the purpose of controlling the production, distribution and other productive activities of a firm in another country (the host country).In recent years, bulk of the foreign direct investment in Indian business sectors of infrastructure, telecommunication, information technology, computer hardware and software, and hospitality services, have been made by investors of countries like US, UK, Mauritius, Singapore, and many others. Global Jurix, one of the leading full-fledged legal organizations of India with global repute, has been helping companies, business corporations, organizations, and other potential investors of countries all around the world, in making foreign direct investment in Indian

business sectors. Major research and consulting firms have undertaken large-scale international studies on the concept.

Evolution of Retail industry in India:
Retail industry, being the fifth largest in the world, is one of the sunrise sectors with huge growth potential and accounts for 14-15% of the country’s GDP. Comprising of organized and unorganized sectors, Indian retail industry is one of the fastest growing industries in India, especially over the last few years. According to the Global Retail Development Index 2012, India ranks fifth among the top 30 emerging markets for retail. The recent announcement by the Indian government with Foreign Direct Investment (FDI) in retail, especially allowing 100% FDI in single brands and multi-brand FDI has created positive sentiments in the retail sector. Retail outlets such as Food world in FMCG, Planet M and Music world in Music, Crossword in books entered the market before 1995. Shopping malls emerged in the urban areas giving a world-class experience to the customers. Eventually hypermarkets and supermarkets emerged. The evolution of the sector includes the continuous improvement in the supply chain managements, technology, back-end operations, etc.this would finally lead to more of consolidation, mergers and acquisitions and huge investments.|

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