FDI In Retail Sector Of India

Introduction

Foreign direct investment (FDI) refers to long term participation by country A into country B. It usually involves participation in management, joint-venture, transfer of technology and expertise. There are three types of FDI: inward foreign direct investment and outward foreign direct investment, resulting in a net FDI inflow (positive or negative) and "stock of foreign direct investment", which is the cumulative number for a given period. Direct investment excludes investment through purchase of shares.

It is the policy of the Government of India to attract and promote productive FDI from nonresidents in activities which significantly contribute to industrialization and socio-economic development. FDI supplements the domestic capital and technology.

Advantages of FDI

Causes a flow of money into the economy which stimulates economic activity 

Employment will increase  long run aggregate supply will shift outwards Aggregate demand will also shift outwards as

investment is a component of aggregate demand It may give domestic producers an incentive to

become more efficient  The government of the country experiencing

increasing levels of FDI will have a greater voice at international summits as their country will have more stakeholders in it.

Disadvantages of FDI

FDI has adverse effects on competition.FDI will be make the host country lost the control over

domestic policy.Certain foreign policies are adopted that are not

appreciated by the workers of the recipient countryAnother disadvantage of foreign direct investment is that

there is a chance that a company may lose out on its ownership to an overseas company.

Local market is affected badlyIf there is a lot of FDI into one industry e.g. the automotive

industry then a country can become too dependent on it and it may turn into a risk that is why countries like the Czech Republic are "seeking to attract high value-added Problems of Foreign Capital or why .Too services such as research and development (e.g.) biotechnology)" 

FDI In Retail Sector Of India In 1991, India was under great debt, to overcome such financial crisis Indian

government open the gates of foreign investment, to invest in India. This led to the economic development, stability & foreign money which overcomes the economic depression & capital crisis. This step boost the government to inflow the money through various sectors like industry, health, infrastructure, service etc. to process development in a planned manner & not depend only on the tax payers money which can be improvise through liberal fiscal & monetary policy & also to improve the condition of banking sector. To put India at the forefront, improve GDP & to generate employment opportunities with better diagnostic techniques. In the 1970s there was almost no foreign investment, with little in 1980, with liberalisation in 1991 and in year 1996 inflow to India exceed $6billion. Though dampened by globalfinancial crises after 1997, net direct investment flows to India remain positive. India similar to international market in different economy permit foreign investment and open gates through RBI route or through Government approval route.

  With the rapid economic development & changing scenario of market, India

also permit foreign investment in various sectors like energy, power, health, education, media, aircraft, telecom etc. through either mode foreign direct investment, foreign portfolio investment scheme, foreign venture capital investment, investment in government securities by Non-Resident Indian, Person of Indian origin, Foreign entity in partnership firm, companies, LLP etc. through various investment securities like issues of shares, debentures etc.

FDI Policy in India

FDI as defined in Dictionary of Economics (Graham Bannock et.al) is investment in a foreign country through the acquisition of a local company or the establishment there of an operation on a new (Greenfield) site. To put in simple words, FDI refers to capital inflows from abroad that is invested in or to enhance the production capacity of the economy.

Foreign Investment in India is governed by the FDI policy announced by the Government of India and the provision of the Foreign Exchange Management Act (FEMA) 1999. The Reserve Bank of India (‘RBI’) in this regard had issued a notification, which contains the Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000. This notification has been amended from time to time.

FDI Policy with Regard to Retailing in India

It will be prudent to look into Press Note 4 of 2006 issued by DIPP and consolidated FDI Policy issued in October 2010 which provide the sector specific guidelines for FDI with regard to the conduct of trading activities.

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, subject to Press Note 3 (2006 Series).

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

Issues & Problem: FDI in India 1. Restrictive FDI regime The FDI regime in India is still quite restrictive. As a consequence, with regard to cross border

ventures. Foreign ownership of between 51 and100 percent of equity still requires a long procedure of governmental approval. In ourview, there does not seem to be any justification for continuing with this rule. This ruleshould be scrapped in favor of automatic approval for 100-percent foreign ownershipexcept on a small list of sectors that may continue to require government authorization.

  2. Lack of clear cut and transparent sectorial policies for FDI Expeditious translation of approved FDI into actual investment would require moretransparent

sectorial policies, and a drastic reduction in time-consuming red-tapism.   3. High tariff rates India’s tariff rates are still among the highest in the world, and continue to block India’s

attractiveness as an export platform for labour-intensive manufacturing production. On tariffs and quotas, India is ranked 52nd in the 1999 GCR, and on average tariff rate, India is ranked 59th out of 59 countries being ranked. Much greater openness is required which among other things would include further reductions of tariff rates to averages in EastAsia.

  4. Lack of decision-making authority with the state governments The reform process so far has mainly concentrated at the central level. India has yet tofree up its

state governments sufficiently so that they can add much greater dynamism tothe reforms. In most key infrastructure areas, the central government remains in control,or at least with veto over state actions. Greater freedom to the states will help fostergreater competition among themselves. The state governments in India need to beviewed as potential agents of rapid and salutary change. Brazil, China, and Russia areexamples where regional governments take the lead in pushing reforms and promptingfurther actions by the central government.

Conclusion

FDI provides India with stability in inflow of funds, access to international markets, export growth, transfer of technology and skills and improves balance of payments.

More FDI does not necessarily guarantee high growth rates. The relative emphasis must shift from a broad (scatter shot) approach to one of targeting specific companies in specific sectors. Socially responsible FDI should be encouraged through the development of national and international investment guidelines and regulations.

FDI is beneficial to India’s growth and India’s growth is beneficial for FDI. India needs to create a talent pool suitable for the investors and it needs to develop infrastructure that will encourage the investors. These steps taken by India to bring FDI will also help India to grow on its own. FDI if monitored and nurtured in such a way that it will bring more skills and resources to India will be mutually beneficial.