What is Foreign Direct Investment (FDI) 1.

FDI or foreign investment refers to long term participation by country A into country B. It usually involves participation in management, joint venture, transfer of technology and expertise. 2. There are two 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. 3. 1. Direct investment excludes investment through purchase of shares. Retail sector is one of the largest contributors to Indian GDP. It provides 15% of employment through worlds Importance of retail sector in India largest retail network with 12 million outlets which makes it second largest employment provider in India after agriculture. 2. The organized retail sector is growing at a rapid pace of 28% p.a. Hence India is sometimes referred to as Nation of shopkeepers. FDI and Retail sector Current scenario

1. Government has permitted FDI in single brand retail upto 51% in joint venture for the retail of branded
products. Brands like Adidas, Nokia; Amway, Samsung, Sony etc are the examples of single brand products which are an outcome of FDI. 2. Though 100 per cent FDI is permitted in cold chain through the automatic route in the absence of FDI in retail, the flow of such funds to the sector has been insignificant. The present FDI regime allows 51 per cent foreign investment in single brand retail and 100 per cent in wholesale cash and carry. The Ministry of Consumer Affairs and Public Distribution initially suggested a cap of 49 per cent FDI in multibrand retail, while the Micro, Small and Medium Enterprises Ministrys recommendation is for 18 per cent FDI. But the recent skyrocketing of food prices especially those of onions and the declining inflow of FDI have opened a door for the Government to take a more ambitious decision on the prickly issue.

3. But it has its meaning confined to single brand because multi brand retail sector is one of the few sectors
where FDI is not allowed. It is because there have been protests by trading associations and other stakeholders against allowing FDI in multi brand retail. 4. A crucial argument against allowing foreign investment in retail is the belief that small retailers will suffer because of penetration of foreign players in the market. But government is showing some positive signs and planning to allow upto 51% in multi brand retail sector. It has already issued a concept paper in this regard. Retail sector as an emerging market for FDI

After liberalization, Privatization and Globalization (LPG), India has radically emerged in retail sector. The rapid growing GDP rate, strategic location and geography, versatile demographics have attracted foreign investors and India has been portrayed as an important investment destination for global players. According to A.T Kearney, a well known international management consultant- India is second most attractive retail destination globally amongst 30 emergent markets. Even world renowned retailing organizations like Wal Mart has decided to enter India via joint venture with Bharti and a French retailer Carrefour is also planning to enter into supermarket retail through Dubai based Landmark group. Arguments in favour of FDI 1. 2. 3. 4. 1. FDI will bring the latest technology and management practices to build modern supply chains in India Modernization of the creaky old distribution system. Better customer services, lower prices and product quality because of competition between domestic and Breakdown of domestic monopoly and capital constraints. Present retail scenario in India will not be able to survive competition from global markets. It is because connecting small producers with national and even global markets.

international players in retail market. Arguments against FDI lending rates in India are quite high and hence high cost of borrowing will force domestic players to charge higher prices. 2. 3. FDI can upset import balance. Domestic retail players have a threat of being unemployed.

According to The Hindu newspaper dated 18/01/2011 With the recent uproar on rising food and vegetables prices providing a handy trigger, the Manmohan Singh Government is all set to give its approval to 51 per cent Foreign Direct Investment (FDI) in the multi-brand retail sector with the Commerce and Industry Ministry likely to move a Cabinet note next week.