FDI in Retail is a very popular topic when it comes to Group Discussions for MBA entrance exams. We here at www.jagranjosh.com have brought a comprehensive coverage of the topic.
FDI stands for Foreign Direct Investment. Now going by its definition FDI is the investment into the business of one country by a company operating in another country. It is basically a cross border investment with the purpose of establishing a lasting interest in the investee economy.
FDI in Retail has evolved as one of the burning topics across the nation whether it be schools, colleges, job interviews. The reason is retail sector is one of the most booming sectors in India on one hand and India being the 3rd largest economy in the world in terms of purchasing power parity.
India being a developing nation moving swiftly along the channels of becoming a developed nation for sure, needs lots of investments for its growth and development so FDI is a very good option.
If we come up with the statement that FDI in retail is really good and helpful for the nation then that is evident with the below mentioned facts:
1. Adds to a stable economy.
2. Lowers inflation.
3. Creates multiple employment opportunities.
4. Improves Infrastructure.
5. Access and advancement to the modern global technology.
6. Right, effective and judicious utilization of the resources.
7. Facilitates long term cash liquidity.
8. Buyers always get better choices.
9. Improved living standards.
10. Improved and empowered steps towards Globalization.
Practically speaking these have been evident in our Indian economy ever since FDI was introduced in Retail in 1991 resulting in:
• Increased GDP rate in India from 1.7% in early 90’s to almost 5% by 1995.
• Reduced Inflation rate to 7% by 1995 as compared to 17% in early 90’s.
• Financial deficit also came down from $9 Billion in early 90’s to almost $1 Billion in 1995.
On the contrary there have been times where questions have been raised against the essentiality of FDI in Retail in India providing evidences of it’s adverse effects on the Indian economy. There can’t be a single faced coin. So , typically speaking about the demerits of FDI in Retail in India, we can come up with some major issues:
1. Predatory pricing strategy: In this, the foreign companies introduce goods and commodities at a price lower than the prices offered for the similar commodities by their competitors of the nation wherein they are operating thereby thrashing the competition. Hence it’s an alarming threat to the local companies.
2. Monopoly driven market: If the incoming foreign company is a big company it would for sure, stand alone and drive the market thereby having a monopolistic effects in the running market scenario.
3. Adverse effects on Middle class people: Since the middle class people basically depend upon the small businesses so their prospects of livelihood gets hampered to a significant extent.
This can also be seen evident from the facts that follow:
• Only 30% of the total of goods and commodities related to retail is allowed to be purchased from the SME’s under the FDI rules.
• Rest 70% is majorly imported by large supermarkets that would multiply the existing account deficit of India thereby hampering the growth and development of SME’s ultimately leading to unemployment in the long run.
In nut-shell I would like to state that the introduction of FDI in Retail in India should be a monitored one that can be checked, controlled and commanded by the Indian Government so that it works substantially for the welfare of the nation in true sense and avoids unnecessary adversities to occur at any point of time.
”As mirror reflects the true image so should FDI reflect in Retail in India. It should emerge with only the intended growth and development prospects in all spheres.”