FDI In retail

FDI In Retail

In the past few weeks we have seen so much of hue and cry over FDI. But what is the actual effect of FDI on India. Would it help Indian farmers, Indian Customers or would it again make India a subordinate country to Western Countries? I would like to give my viewpoint on this. As a starting point I would start by explaining the meaning of FDI. FDI refers to the Foreign Direct Investment or the investment done by the companies of foreign origin by directly engaging in the manufacturing/services industry. While FII or Foreign Institutional Investors engage in the investment only in the stock market and thus don't engage themselves in the economic activities of a country directly. Thus FDI is actually a more permanent way of earning foreign currency as FIIs can easily pull back their money anyday.

FDI Policy with Regard to Retailing in India

It will be prudent to look into sector specific guidelines for FDI with regard to the conduct of trading activities up till now:

a)      FDI up to 100% for cash and carry wholesale trading and export trading allowed under the automatic route.

b)      FDI up to 51 % with prior Government approval (i.e. FIPB) for retail trade of ‘Single Brand’ products.

c)      FDI is not permitted in Multi Brand Retailing in India.

FDI Policy After 2012

a) For cash and carry wholesale 100%

b) For Single brand retail 100% FDI

c) For Multi brand retail 51% FDI

CONS

v   It will lead to closure of tens of thousands of mom-and-pop shops across the country and endanger livelihood of 40 million people

v   It may bring down prices initially, but fuel inflation once multinational companies get a stronghold in the retail market

v   Farmers may be given remunerative prices initially, but eventually they will be at the mercy of big retailers

v   Small and medium enterprises will become victims of predatory pricing policies of multinational retailers

v   It will disintegrate established supply chains by encouraging monopolies of global retailers

PROS

v   It will cut intermediaries between farmers and the retailers, thereby helping them get more money for their produce

                                             

v  It will help in bringing down prices at retail level and calm inflation

v  Big retail chains will invest in supply chains which will reduce wastage, estimated at 40 percent in the case of fruits and vegetables

v   Small and medium enterprises will have a bigger market, along with better technology and branding

v  It will bring much-needed foreign investment into the country, along with technology and global best-practices

v  It will actually create employment than displace people engaged in small stores

It will induce better competition in the market, thus benefiting both producers and consumers

 My views

    Being a MBA student and considering the necessity of globalization, I feel it would be in our country's interest to participate in global economy by opening the doors for MNCs. But in no way this should be absolutely free as we all know whatever good the companies do for us their loyalty lies to their profit and their own country. In this context we can learn from China which has opened the door for MNCs but has actually  put on some restrictions on them.

      

   The farming crisis in Thailand, Myanmar and Brazil should not be repeated in our country. Contract farming the main evil should be rationalized.If we allow big retailers to take over retail segment without proper regulations and fair competition then the larger amount of money will be concentrated with few business houses leading to poverty.

     

     FDI should be allowed there is no need of blanket ban on it, but with appropriate safeguards for strengthening economy and by fixing the responsibility and making the MNCs and their governments answerable to their deeds. 

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