(QUES.) IS FDI IN RETAIL BENEFICIAL FOR INDIA OR NOT?

FDI is an investment made by a company or an entity based in one country into a company or entity based in another country. The investing company may make an overseas investment in a number of ways, either by setting up a subsidiary or associate company in the foreign country by acquiring shares of an overseas company or through a merger or joint venture. FDI traditionally concentrated mainly in the highly industrialised and developed countries, US being the Worlds largest recipient of FDI. However, in recent times, even the other developing countries like India have realized the importance of FDI, taking into consideration the following factors:i) ii) iii) iv) Availability of cheap labour Uninterrupted availability of raw materials Lower production cost compared to other developed countries Easy market penetration

FDI IN MULTI-BRAND RETAIL After a long wait, Government finally gathered courage to throw open the gates to foreign investment in several sectors including Multi-brand retail (51%) and Civil Aviation (49%) at a time when it was facing great criticism and pressure from the public as well as the opposition on the ground of policy paralysis.

This decision by the govt. is expected to pave the way for the much awaited entry of foreign retail giants such as Wal-mart, Tesco and Carrifoure into the retail market. However, the central government has decided to leave it to the state governments, whether or not they want to allow foreign retailers in their respective states. Also, it has been decided that the foreign investors would be required to invest at least 50% of the total amount invested towards warehouses, cold storage and modern transport system. This is expected to reduce the wastage which constitutes for about one-third of the total food production.

ANALYSIS
There is no doubt that this decision would boost growth, reduce unemployment by creating jobs and make food available at low prices to the common man. This will bring the food prices down and therefore may lead to lower inflation, whose major contributor is food inflation. The opposition parties have been claiming that this decision to allow FDI will hurt the small indigenous farmers and shop-keepers due to their inability to compete with multi-brand giants. However, Indias past experience with FDI has been quite impressive. In 1991, India opened to foreign investment in manufacturing. Like today, it faced criticism from various quarters. But as we know, Indian manufacturing companies today, are competing effectively both at home and abroad and they are investing around the globe. Therefore, the claim that openness to FDI would hurt the farmers is wide off the mark.

According to me, there are advantages and disadvantages associated with the openness to FDI, which can be summarised as follows:

Advantages
(1)Increase economic growth by introduction of international products - A vast variety of international capital intensive products which are currently not available in India or are available at a relatively high price would be easily available after introduction of FDI. These may include raw materials used by domestic firms and therefore reducing cost of production, thus production will increase this may lead to higher economic growth. (2)Increase in employment The foreign firms will employ plenty of labourers in India in there stores, which will help to bring down the unemployment rate in India which is currently soaring at 3.8% (3)Competition will increase the Indian supermarkets and shopkeepers would feel the urge to improve the quality of goods and services provided by them after giants like Wal-Mart would be introduced to the Indian market , and at the end the people of India will be benefitted from it.

Disadvantages
(1)Inflation might slightly increase As the employment will rise, the overall wages of the workers will also increase which will increase the aggregate demand and subsequently would increase the prices if the aggregate supply is not increased. (2)Domestic firms may suffer Some domestic firms and shopkeepers may suffer if they do not have the capacity to compete with big foreign firms.

According to me, FDI in retail will be beneficial for India in the long run and will increase the GDP growth rate of the country. It will also increase the aggregate supply to fulfil the increasing demand and create lots of employment opportunities for the youth. As far as farmers are concerned they will also be benefitted as they will get good quality equipments and warehouses, which could reduce the wastage. Although there are some disadvantages as mentioned above but the advantages outweigh the disadvantages and introduction of FDI may lead India to prosperity.