Privatization and liberalization... Has the Government's policies made the rich; richer, and the poor; poorer? Current declaration of pumping FDI into the retail sector has sparked debates for and against the act. The move would augment Indian retail growth unquestionably, and the sector is getting the rush. But, how successful would it remain in the long run?
FDI has become the much talked about issue; currently. Retail is one of the world's biggest private industries. Inviting FDI in the retail sector will cause a massive restructuring in the industry. India is ranked as the most potential destination; globally, in terms of financial attractiveness during 2010. During the past two years approximately USD48 billion has been invested in the Indian economy from across the borders. KPMG estimates state that during 2011-12, FDI investments may cross USD 35 billion. Indian retail contributes to 14% of the national GDP, employing 7% of the total workforce. Despite the retail industry's existence for quite a long time, it lacks investment in backend operations, warehousing, transport, and infrastructure. The industry needs to align with the global supply chain to adopt best practices. Foreign investors have the caliber to invest and make the distribution network strong.
Arguments persist that encouraging FDI will be a win-win situation for all the parties involved. Investment in backend will enhance the supply chain, thereby benefiting the retail growth. Times of India reports Prime Minister Manmohan Singh saying this move will make India an eminently bankable and creditworthy economy. Ron Somers, President of the US India Business Council welcomes this move stating it will benefit the Indian consumer by spurring the modernization of India's retail marketplace.
Top 10 investing countries for India (April 2000-August 2010)
Advantages:
Benefit of FDI in retail industry superimposes its cost factors. Opening the retail industry to FDI will bring forth benefits in terms of advance employment, organized retail stores, availability of quality products at a better and cheaper price. This would result in increased market growth and further expansion. It enables the country's product or service to enter into the global market. It provides adequate capital for setting up organized retail chain stores. This would be a long term investment because unlike equity capital, the physical capital invested in the domestic company is not easily liquidated.
Indian manufactures would become a part of the global apparel supply chain. FDI enables transfer of skills and technology from across the borders, and enhances the infrastructure of the domestic country. Efficiency will be increased in the sourcing and distribution system. This will ensure value for the money spent by customers.
Disadvantages:
Ever since the Government declared on inviting FDI in multi brand retail, and increasing the cap for single brand retailing from 50% to 100%, it has been battling on multiple fronts. Oppositions reiterate stating this move will cause poverty in the country. Inviting foreign investment would create a 'survival of the fittest' situation in the retail sector. This move of the Government is feared to cause unrest among small industries. Foreign retailers would always prefer to invest wherein they get options for management control. It is been criticized that, initially they might sell the products at inexpensive prices, but later on they may force the indigenous retailers out of the market, and hike prices. Foreign investments might lead to monopoly in the long run.
As a global investment hub, India shows strong growth potential registering good economic growth. Government is making efforts in making India an investor friendly destination. Careful observation and analysis is required from the Government, and come up with comprehensive policies before opening up the sector to foreign investors.
References:
1) Data source: dipp.nic.in
2) Timesofindia.indiatimes.com
3) Dnaindia.com
FDI has become the much talked about issue; currently. Retail is one of the world's biggest private industries. Inviting FDI in the retail sector will cause a massive restructuring in the industry. India is ranked as the most potential destination; globally, in terms of financial attractiveness during 2010. During the past two years approximately USD48 billion has been invested in the Indian economy from across the borders. KPMG estimates state that during 2011-12, FDI investments may cross USD 35 billion. Indian retail contributes to 14% of the national GDP, employing 7% of the total workforce. Despite the retail industry's existence for quite a long time, it lacks investment in backend operations, warehousing, transport, and infrastructure. The industry needs to align with the global supply chain to adopt best practices. Foreign investors have the caliber to invest and make the distribution network strong.
Arguments persist that encouraging FDI will be a win-win situation for all the parties involved. Investment in backend will enhance the supply chain, thereby benefiting the retail growth. Times of India reports Prime Minister Manmohan Singh saying this move will make India an eminently bankable and creditworthy economy. Ron Somers, President of the US India Business Council welcomes this move stating it will benefit the Indian consumer by spurring the modernization of India's retail marketplace.
Top 10 investing countries for India (April 2000-August 2010)
Advantages:
Benefit of FDI in retail industry superimposes its cost factors. Opening the retail industry to FDI will bring forth benefits in terms of advance employment, organized retail stores, availability of quality products at a better and cheaper price. This would result in increased market growth and further expansion. It enables the country's product or service to enter into the global market. It provides adequate capital for setting up organized retail chain stores. This would be a long term investment because unlike equity capital, the physical capital invested in the domestic company is not easily liquidated.
Indian manufactures would become a part of the global apparel supply chain. FDI enables transfer of skills and technology from across the borders, and enhances the infrastructure of the domestic country. Efficiency will be increased in the sourcing and distribution system. This will ensure value for the money spent by customers.
Disadvantages:
Ever since the Government declared on inviting FDI in multi brand retail, and increasing the cap for single brand retailing from 50% to 100%, it has been battling on multiple fronts. Oppositions reiterate stating this move will cause poverty in the country. Inviting foreign investment would create a 'survival of the fittest' situation in the retail sector. This move of the Government is feared to cause unrest among small industries. Foreign retailers would always prefer to invest wherein they get options for management control. It is been criticized that, initially they might sell the products at inexpensive prices, but later on they may force the indigenous retailers out of the market, and hike prices. Foreign investments might lead to monopoly in the long run.
As a global investment hub, India shows strong growth potential registering good economic growth. Government is making efforts in making India an investor friendly destination. Careful observation and analysis is required from the Government, and come up with comprehensive policies before opening up the sector to foreign investors.
References:
1) Data source: dipp.nic.in
2) Timesofindia.indiatimes.com
3) Dnaindia.com
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