Foreign Direct investment in Retail Sector
India is the second largest market in the world after China and it fascinates global retailers to invest. Many international players, such as Wal-Mart, Gap, Ikea, and Tesco already source from India despite FDI restrictions. Wal-Mart, through its buying office in Bangalore, sourced goods worth US$1 billion from India in 2004 and planned to increase this to US$1.5 billion in 2005.
The major pros and cons of opening up FDI in the retail sector are discussed here.
Pros
i. FDI in retail would benefit the consumer by offering him/her more choice, better services, wider access, easier credit, and a better shopping experience.
ii. Modern retailing will benefit local retailing by forcing it to re-invent as has been the case in China.
iii. It will lead to higher standards of quality, introduce best practices, provide more skilled employment, and improve tax collection.
iv. Foreign direct investment in retail would lead to less wastage of agri-produce due to improved food processing techniques and cold storage . facilities.
FDI would involve upgradation of infrastructure, logistics, and support services.
vi: It would help Indian products get global recognition.
vii. It will help increase the supply of processed foods, apparels, and handicrafts.
viii. Elimination of multiple middlemen would reduce transaction costs related to inventory, delivery, and handling.
Cons
1.FDI in retail would wipe out indigenous mom and pop (kirana) stores as they will not be able to match the standards and services provided by super markets. ii. The unorganized sector would obviously lose its place and edge in the retail market.
iii. Retail FDI would also introduce competitive pricing, forcing a lot of domestic players out of the game.
iv. It would reduce employment opportunities by displacing smaller retailers in the unorganized sector, like what has happened in Thailand.
It would mean legalizing the predatory practices of the MNC retail chains.
vi. Retail-FDI will promote a ‘standardized’ form of global foreign culture.
vii. India’s imports are likely to increase as MNCs will dump their product in India.
viii. Since very little investment is required in retailing, foreign players would setup remitting their profits.
Allowing FDI in retail sector will considerably affect the market structure and the consumers. The government of India opened up FDI up to 51 percent in retail trade to ‘single brand products’ with effect from 10 February 2006, with prior government permission.
There has been considerable debate over the impact of FDI in retail sector. Opening up of the retail sector in China has contributed to growth in labour-intensive manufacturing.
