FDI can be defined as a cross border investment, where foreign assets are invested into the organizations of the

domestic market excluding the investment in stock. It brings private funds from overseas into products or services. The domestic company in which foreign currency is invested is usually being controlled by the investing foreign company. Eg. An American company taking major stake in a company in India. Their ROI is based on the performance of the project. In the past decades, FDI was concerned only with highly industrialized countries. US was the worlds largest recipient of FDI during 2006 with an investment of 184 million from OECD (Organization for Economic Co-operation and Development) countries. France, Greece, Iceland, Poland, Slovak Republic, Switzerland and Turkey also have a positive record in FDI investments. Now, during the course of time, FDI has become a vital part in every country more particularly with the developing countries. This is because of the following reasons: Availability of cheap labor. Uninterrupted availability of raw material. Less production cost compared with other developed countries. Quick and easy market penetration.

FDI in the Retail sector:

Retailing is one of the worlds largest private industry. Liberalizations in FDI have caused a massive restructuring in retail industry. The 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. It enables a countrys product or service to enter into the global market.
Cheaper production facilities:

FDI will ensure better operations in production cycle and distribution. Due to economies of operation, production facilities will be available at a cheaper rate thereby resulting in availability of variety products to the ultimate consumers at a reasonable and lesser price.
Availability of new technology:

FDI enables transfer of skills and technology from overseas and develops the infrastructure of the domestic country. Greater managerial talent inflow from other countries is made possible. Domestic consumers will benefit getting great variety and quality products at all price points.
Long term cash liquidity:

FDI will provide necessary capital for setting up organized retail chain stores. It is a long term investment because unlike equity capital, the physical capital invested in the domestic company is not easily liquidated.
Lead driver for the countrys economic growth:

FDI would create a competition among the global investors, which would ultimately ensure better and lower prices thus benefiting people in all sections of the society. There would be an increase in the market growth and expansion. It will increase retail employment and suppress untrained manpower and lack of experience. It will ensure better managerial techniques and success. Higher wages will be paid by the international companies. Urban consumers will be exposed to international lifestyles.
FDI opens new doors for Franchising:

Restrictions on FDI are considered as trade barriers as they deny direct market access to foreign firms. Retail giants who are at their wings, seeking entry into foreign market look for other available alternatives. These restrictions on the global retailers regarding the inflow of Foreign Direct Investment, leads them towards acquiring the market entry through franchises. Thus, countries which offer promising market potentialities for retail growth offers substantial growth in the franchising sector as well.
FDI Success story China:

China is the worlds largest FDI recipient, and has used it deftly to increase its exports. It started off with an FDI investment of $19 billion in 1990, and reached $300 billion in 1999. 40 retailers now have a secured approval in the Chinese market. FDI has created an encouraging effect in both traditional as well as modern formats of retail business in China.

Carrefour from France, Tesco from England, Metro from Germany, and Wal-Mart from US have entered the Chinese retail sector and has uplifted the countrys economy. Initially during 1992, China allowed FDI only in a few selected cities and also restricted the ownership by 26 percent. Later on as the exports of the country progressively increased, by 2002, the Government increased the FDI cap to 49 percent. China

continues to hit new records. More than 28 million people and approximately 10 percent of Chinas total population are working in companies funded with FDI.
With the advent of FDI, retail sector is likely to make massive strides, and catalyze the growth of the ountrys economy. As far as developing nations are concerned, it is the life blood of economy.

FDI in Retail: Why all the political opposition and rhetoric?

Most of the politicians who appeared on various TV channels on 24th November the day that the union cabinet took a decision to allow 51% FDI in mulibrand retail and 100% in single brand retail - said that India had 1.2 crore (12 million) kirana shops. By the next week, the number had moved up to 40 million kirana stores and by the 3rd of December, it had shot up to 50 million kiranas. If one was to believe this incredible claim that there are 50 million kirana stores, does it mean that there is one kirana shop for every 24 Indians? And if an average kirana shop employs four people,
does it mean that 200 million of the 635 million Indians of employable age (31.5% of all employable Indians) are employed by kirana shops? Does any politician actually expect any educated Indian voter to believe this nonesense? Since West Bengal's Chief Minister and Trinamool Congress party chief Mamta Bannerjee, as well as the lest parties who ruled the state for the last 34 years, are the most vocal critics of FDI, let me take the state of West Bengal as an example.

If there is a kirana shop for every 24 Indians, West Bengal (population 91.348 million) should have 3.81 million kirana shops. Since the state has an estimated consumption of Rs.553 billion in food, grocery & FMCG products (products sold at kirana stores), of which Rs.542 billion (98%) is sold by the unorganized sector , these 3.81 million kirana shops should be doing an average business of only Rs.142,257 per year or just Rs.390 per day. Obviously, this does not make any sense. It is much more likely that there are only 180,000 kirana stores in West Bengal (1 shop for every 507 persons ), and the average business per kirana shop is Rs.3.011 million per year or Rs.8250 per day. This is not hard to believe, considering that West Bengal had 217,595 registered dealers as per the 2010-11 Administrative Report of the West Bengal Directorate of Commercial Taxes. If there are as many as 3.81 million kirana shops, then both the Left parties, as well as Trinamool Congress, need to answer why there are only 217,595 registered dealers in the state.

So how many kirana shop owners will get out of business if Walmart, Carrefour, Tesco and other foreign retailers are allowed to set up hypermarkets in West Bengal? Since Kolkata is the only city in West Bengal with a population of more than one million, "foreign " hypermarkets can only be set up in Kolkata. By any measure, Greater Kolkata can only have a maximum of 20 more hypermarkets. These 20 hypermarkets cannot displace more than 1400 kirana stores (@ 70 kirana stores per hypermarket ). There will be absolutely no change in employment as about 7800 people will get employed by the "foreign " hypermarkets. Certainly, the 1400 kirana shops are not employing more than 7800 people. So, no one will lose jobs, period. On the contrary, the 7800 employees of the "foreign " hypermarkets will have benefits such as PF, ESI and insurance. They will have far better training in personality development and selling skills, thus making them far more marketable. Does the kirana provide them all of this?

Long Term Stock Picks

So is Mamta Bannerjee opposing FDI only for the purpose of saving the livelihoood of 1400 small traders (many of them non-Bengali ), at the cost of a better life for 7,800 Bengalis? Is this what the hoo haa is all about? Is this why the Indian parliament has got disrupted for nine days? West Bengal's retail sector is estimated to have annual sales of Rs.1754 billion (at an average per capita retail expenditure of Rs.1600 per month). The state's sales tax (VAT) revenues in 2010-11 were only about Rs.74 billion (excluding fuel & LPG, aluminium , cement, chemicals, engineering goods, fertilizer, iron & steel and other items not sold through retail trade), or only 4.4% of the preVAT retail sales of Rs.1680 billion, whereas the most common VAT rate was 12.5%. This proves that there is tremendous tax revenue leakage in the state. If the VAT collection should have been Rs.174 billion (at an assumed average VAT rate of 11%, since some items will have different rates than 12.5%), who is answerable for the balance Rs.100 billion ? This is not a small amount of money! The 20 "foreign" hypermarkets in Kolkata are expected to do sales of Rs.18.48 billion per year. At an average 11% VAT rate, they will contribute Rs.1.831 billion in VAT. In all probability , zero VAT is being collected from the 1400 kirana shops that they might displace . That's a 2.5% increase in West Bengal's VAT collections . If Mamta Bannerjee realizes the benefits of this and actually supports the UPA government in allowing 51% FDI in cities with a population of 300,000 and above (as opposed to one million and above), then foreign retailers can open hypermarkets in Asansol, Durgapur, Siliguri, Gopalpur, Panihati and Bardhaman also. Another 10 hypermarkets can be opened in these cities and West Bengal's VAT collections will go up by almost 4%