You are on page 1of 12

c 

 c 



 c

FDI stands for Foreign Direct Investment, a component of a country's national financial accounts. Foreign direct investment is
investment of foreign assets into domestic structures, equipment, and organizations. It does not include foreign investment into
the stock markets. Foreign direct investment is thought to be more useful to a country than investments in the equity of its
companies because equity investments are potentially "hot money" which can leave at the first sign of trouble, whereas FDI is
durable and generally useful whether things go well or badly.

   cc 

?  
?     
 ?      ?  

 

 
? 
    
  
 


   
 
  
  ?  

? ?

 


  ?     

?    


 




  





 


 ?
 
 

 

  
 

   
 


 ?     
 
 
 ?        
 
 
 
 

 
     
 
 ? 

 


 

 
?   

!

OY ?
 
 

        
 


 "
 
    
   


     
 
     
  
  
 #$$%
& 
  ' #($$

OY ?   
 
&     
 

 


 
  )$%  


   
  
     

   " 
 
  
 



?    )*%



 


+,



 -./+0?? ?0'. 

jY ?   



 

?
 





    
 
  




  



jY ?
 




 

 
  






&
 

 
 


? 

 

jY 
   
 

 
  



  
 
 1

 2 

jY  #3
   



   #)

 
? 
  


 

  c 

? 

 
?  
 



& 
&
 




?  
 
? 



 
 

 


1
4


? 

  




  

 
  
&   

   c



     


 

 
 ? 
   
 
 ? 
    

?  

 





 



 

 

#**# ?    
 


 
&   

 

? 
  




 

?#**# 
5 

c  






c

 Y  c c  






Y
Yþ  
     !YY ()*+,*-).

 
Y /
(from April 2000 to April 2010) Y
  YY !
"   #$%Y & $#'#%Y
Y Y
 YY YY  Y Y YY
    YY Y  Y Y YY  Y
YY  YY  Y YYY Y
 Y Y   YY
YY þ  
  Y"#$%$YY ()*,2*+23
 0 1
YY /Y

 Y
(from August 1991 to
April 2010)* Y


 Y&'Y()*+Y,&-./0/1Y2.3,+Y/0(Y'(- Y
Y´  0 1
  4 
    Y"„%YY ()*)3*2+:Y
þ 5
1!  6 0 1
 Y
YY /Y
´  3777!37)78„YY (from April 2000 to April
2010) Y
 9* Y
 YY4 !,Y
0
 YY

5Y  YY  
 Y
 YY YY   YY
&'Y   YYY 
Y
  YY6 !"  
#$%Y & $
#'#%* Y
 ! Y
 Y YY  Y
YYY

YY 
    Y%#"7YY (3*3)2Y
0 1
 Y
YY /Y

; 

þ
137)7!))(for April
2010)* Y


 c 

‘ Y þ Y  
 
 
Y 
Y
 Y 

Y 
Y 
Y  
 Y  Y  Y

„YY   Y %788„$Y Y 777#8YY "9%7YY 7%$88YY 


))*7<+6Y ))*37:6Y )7*,-+6Y
„„%8 YY
YY 
;5  Y Y „8„%YY „"99YY „„%"YY „
Y ,*7-,6Y ,*2.26Y 3*,-<6Y
8YY   Y Y Y 7899YY #YY %8YY
)*7:<6Y )*:736Y )*<2,6Y
7YY  Y Y Y 7$%YY 8#7YY 8%7YY
)*)-+6Y :+26Y +.-6Y
"YY
4 Y Y 9#YY 8%YY 7#8YY

Y +<.6Y ::,6Y :<<6Y
$YY B5
Y Y Y 888$YY „##%YY "$9YY „
:).6Y 27.6Y )*):,6Y
9YY þ15 Y Y Y 88#"YY "%#8YY 99#YY
:,26Y )*3:-6Y )*+3,6Y
#YY ;
1Y Y Y 9"YY 9"YY %#YY
.)26Y +3<6Y +3+6Y
%YY 
þY Y Y "#8YY %#YY „789YY
)2.6Y 2+-6Y ,7,6Y
„YY   Y Y Y „8%YY „„88YY 8„9YY
3.:6Y 3.-6Y +3<6Y
  
 HY   <:*++2Y )3,*73.Y )3,*,-:Y <
32*.:)6Y 3-*,,)6Y 3.*:::6Y 3*





   

2  Y Y Y
  Y Y  Y Y Y  YY Y   Y

  YYY Y1 Y 
YY2  Y Y YY 
 Y&'Y Y

Y
„„Y
Y Y Y Y Y 
YY Y 
Y   Y
  Y Y„%%„Y
Y#$Y Y
„%%„YY„„$Y Y9 Y
Y   Y 
YY 
5YY&'Y  Y Y
Y Y
Y7Y
  Y Y$Y Y   Y
  Y1 Y
 YY2  YY  Y
Y 
5Y
YY
   Y Y Y 
Y&'Y  YY Y Y 
5Y  Y
 Y
:   Y$"Y

YY&'Y  YY2  Y Y Y  Y Y"Y*,2'Y$ Y,   Y Y
 YY
Y YY&'Y  Y Y Y
Y"7Y
YYY Y"Y Y   Y
„%Y

Y Y2  Y
Y   YY 
YY Y Y 
 Y&'Y Y
 YY2  Y
YY
 Y
Y YYY
 Y?irstY2  Y   Y Y

Y Y Y„%9%Y Y   Y
„%%„Y Y
 YY Y 
5Y Y Y
:Y YY   Y  Y Y  
Y
 Y Y
Y YY   
Y, Y 
  Y
Y  Y

Y
 YYY
„%%„Y
  YY Y$ Y Y Y  YY Y  Y Y Y  Y
   Y

 YY2  Y YY  Y YY,(Y  Y Y   Y


Y   Y Y Y
 
 Y
Y  YY
 Y
SecondlyY 
YYY
Y Y Y ;Y YY 
 YYY    4Y
 YY Y
2  Y Y YY Y Y Y Y Y0 
Y  YY

Y YY

 Y
Y2  Y
Y Y  Y 5  Y%"<YY Y Y YY Y

Y
Y.YYY Y 4 Y
Y Y Y

   Y Y'
Y 5Y Y
= Y Y
;
Y Y

Y Y Y Y Y5Y
Y Y  Y YY  5Y
2  Y YY
 4 Y  Y Y ;Y
Y YY:Y„"Y  Y-  Y$ Y
c irdlyY Y 4 Y Y  Y YY 
Y 
Y Y YY YY !
Y
 Y
YY Y Y Y Y

 YYY( Y2  4 Y 

 Y YY
 YY
 Y Y 
 Y 
Y Y YY 5 Y Y
 YY5 Y Y
  Y Y
  Y
   Y2  Y Y Y 
Y Y Y  Y 
Y YY

  Y

Y  
Y
Y 5Y Y YY 
 Y    YY&'Y 
YY
5 Y
Y  Y 
 Y 
Y*,2'Y8 Y  Y
 Y Y

 Y Y
2  Y YY&'Y  Y YY  !Y Y2  Y Y YYYY
   Y

Y Y 
YY YY  Y   YY&'Y   Y  Y :  Y
Y
 YY Y
 Y YYY Y: Y
 YY  Y

c 
              
  c    !  
 " #
  $   #    #      %  " 
  %        $&   #  "     
 
          '(   "$
 
       
$    #  & $
      (       &     ##   
 
    "  #     
    
  $
   "' 
  &  )    
 
      )*+  %     # 
       
    "
    
   "$&    ,' 
$ 
 )  " 
   "   #    # c    
   
 
      '*,%# $& -
   
 $ 
 -
         $  #$   
         *)
 #      
  $
   
   &    # "+  .     " 
& "    
    
  #     & /Y

Y
c            
 &  " 
   " #   *0    $#   #   
            $&  "    1
#   "%1 $1 2   "  #    
 
0 # %
 $ "34& % 0 #  
  
 
 #  & $            & 56 
71 7   "$0     8 #$+ 
   c "   
9+
c:$7  $6!  &    % " )c 

*& 

   #     &      #    1%  
    & -
    #$1  c 
## #"     ;#<  
&    
      
  # c     & -#   
# #        0#     "
      #     
&   
;#       " 
    ;    

1  &  "$ 
    "    <& 
     - #      # 1; 1c1  
  #   #     
 $&    "  
#   2 #    "        # 
   #     
&     "  
 #$  "$$$#    $   #   # 

Y

&    


   #     
$ 
 c       #  #      
#    %   "$   1     34&
 $           9 1      : 
;# 1c #  & #  "    #  8   
  !  $  = > %6 c  $    #   
 
.   #     #   
 #


= a huge amount of China's FDI monies is a round tripping domestic money
sent out and then brought back to take advantage of the liberal FDI norms. This is no
new outside money. It is local profits making a round trip. If you strip away these
monies then a third of the FDI amounts reported by China will disappear. Round
tripping reduces taxes; hence it is a great advantage for non-resident Chinese
community in Hong Kong and Macao. Not a cent is paid in taxes. On the other hand
its arrival is facilitated.

Again China reports imported equipment as FDI. Imported equipment builds


factories. Factories supply the global economy and the global economy keeps the
commerce and trade going. In a true sense, the forgoing can be classified as FDI and
should be under this heading. It makes no sense why India reports this under import
heading and not as FDI. The forgoing also applies to short-term and long-term loans,
trade credits, grants, bonds, re-invested earnings, and many other items. China very
willingly includes all these as FDI. Again in a true sense it does fall under the
umbrella of FDI. Hence again it defies description that these are excluded from India's
reported FDI data.

&=%??0480@
0

*,2'Y2 
Y:Y
Y Y Y#Y 5Y Y YY&'Y Y Y
„„Y 5Y
Y YY 
Y YY YY!7YYY Y  YY„7„Y

  YY
Y
Y Y Y  Y  Y Y 
Y YY  
Y Y
  Y
Y  Y
 YY Y
Y Y  Y YY YY  YYY=Y YY
  >   Y
Y  ?Y
=Y   Y  Y
 YYY Y ;Y  YY Y    Y##Y

Y
  Y Y Y Y Y6 YY 4Y
Y&22Y7 Y
Y
 Y Y
   Y  YY8Y
Y Y  Y  Y&22Y8 Y

 YY
Y

 Y
 Y :Y$YY   
Y   Y Y 5Y97Y Y Y

YY
888YYY„Y
Y Y Y Y2  Y Y > Y
  Y Y3Y Y/ Y  Y
 YY Y Y
 YY

Y
Y
   Y Y  Y YY  YY&22Y7Y,   Y1  Y YY Y
Y
 Y$%7Y@Y! Y  Y YY
 YY  Y  Y
;
Y.YY
Y Y7%9„Y@Y9#%Y@Y YY    Y Y%%9"Y@Y Y  YYY

 Y
YYY
  Y 5Y Y Y  Y YY
  Y   Y

Y Y 9Y Y
YY
A Y   YY Y   Y YY
Y   
 Y@ Y2 
Y:Y
 
 Y Y
 Y Y  
Y Y 
 YY8$Y
Y2  Y  
Y Y 
 Y
Y$7Y

YY  Y
 Y
YY&'Y Y Y Y Y
  YY  Y  YY Y Y
  Y YY

 Y  Y   Y#Y Y Y
 YYYYY
 Y
  YYY
!
 5 Y
B YCY   YY
 Y   YY Y  Y
Y Y 5Y.YYY
 Y2  Y
Y Y Y6Y  Y 4Y  Y
! 5 Y Y Y Y YY&'Y
  Y

 Y=Y8 Y
.YYY Y Y  Y Y 
 Y&'Y  YY Y Y 4 Y  Y Y
 Y

Y
 YYYY=  Y&'Y
 YYY Y YY
 Y


Y
 YYY  YY >YY Y Y YY YYYY
  Y
„"Y
3  Y2 Y YY  Y Y Y Y&224 Y  YY
7YY
$%Y
YYY  Y  YY YY&'Y   Y Y Y

 YY Y
 Y Y Y YY  Y   %Y:
 Y!  Y Y 

Y Y
   YY

 Y Y Y Y
 Y Y > Y&'Y  Y Y YY

c 
    
 

It is submitted that retail trading in India constitutes as one of those few sectors where FDI is not
freely and healthily allowed. Although, FDI is fully admissible in µcash and carry¶ wholesale
(back-end retail), it is admissible only up to 51 per cent in single-brand front-end retail.

Importantly, there is a complete ban on foreign investment in multi-brand, front-end retail. This
has resulted in keeping all the giant corporate ± backed retailers of the world like Walmart
(USA), Carrefour (France), Tesco (UK), and Metro (Germany), who are very keen to foray into
India¶s retail sector, away from entering into the country. All of these retailers, therefore, to
make their presence felt in the country, have either tied-up or trying to tie-up with local
corporates, to offer their services for back-end operations like sourcing, logistics, inventory
management, among others, for front-end, multi-brand retail operations of such corporates.
§ The retail industry in India is of late often being hailed as one of the sunrise sectors in the
economy. AT Kearney, the well-known international management consultancy, recently
identified India as the µsecond most attractive retail destination¶ globally from among thirty
emergent markets. It has made India the cause of a good deal of excitement and the cynosure of
many foreign investors¶ eyes. With a contribution of an overwhelming 14% to the national GDP
and employing 7% of the total workforce (only agriculture employs more) in the country, the
retail industry is definitely one of the pillars of the Indian economy.

§4The Indian retail sector is very different from that of the developed countries. In the
developed countries, products and services normally reach consumers from the
manufacturer/producers through two different channels: (a) via independent retailers (µvertical
separation¶) and (b) directly from the producer (µvertical integration¶). In the latter case, the
producers establish their own chains of retail outlets, or develop franchises.

On the other hand, Indian retail industry is divided into organised and unorganised sectors.
Organised retailing refers to trading activities undertaken by licensed retailers, that is, those who
are registered for sales tax, income tax, etc. These include the corporate-backed supermarkets
and retail chains, and also the privately owned giant retail businesses. Unorganised retailing, on
the other hand, refers to the traditional formats of low-cost retailing, for example, the local
° shops, owner manned general stores,  shops, convenience stores, hand cart and
pavement vendors, etc.Unorganized retailing is by far the prevalent form of trade in India ±
constituting 98% of total trade, while organised trade accounts only for the remaining 2% ± and
this is projected to increase to 15-20 per cent by 2010.

§5 Needless to say, the Indian retail sector is overwhelmingly swarmed by the unorganized
retailing with the dominance of small and medium enterprises in contradiction to the presence of
few giant corporate retailing outlets. The trading sector is also highly fragmented, with a large
number of intermediaries who operate at a strictly local level and there is no µbarrier to entry¶,
given the structure and scale of these operations.

Moreover, the retail sector also acts as an important employment absorber for the present social
system. Thus, when a factory shuts down rendering workers jobless; or peasants find themselves
idle during part of the year or get evicted from their land; or the stagnant manufacturing sector
fails to absorb the fresh entrants into the job market, the retail sector absorbs them all.

According to the Investment Commission of India, the retail sector is expected to grow almost
three times its current levels to $660 billion by 2015. It is expected that India will be among the
top 5 retail markets then. The organized sector is expected to grow to $100 bn and account for
12-15% of retail sales by 2015.

§6According to Subha Kalathur, analyst at Valuenotes, there is certainly a lucrative opportunity


for foreign players to enter the Indian terrain. Growth rates of the industry both in the past and
those expected for the next decade coupled with the changing consumer trends such as increased
use of credit cards, brand consciousness, and the growth of population under the age of 5 are
factors that encourage a foreign player to establish outlets in India. However, it is not out of
place to mention here that the government policies towards FDI are the only hindering factors
that do not make this a fairy tale for foreign players.

c 
            
 


§7The history has witnessed that the concern of allowing unrestrained FDI flows in the retail
sector has never been free from controversies and simultaneously has been an issue for
unsuccessful deliberation ever since the advent of FDI in India. Where on one hand there has
been a strong outcry for the unrestricted flow of FDI in the retail trading by the ruling UPA
government and by an overwhelming number of both domestic and as well as foreign corporate
retail giants; to the contrary, the Left wing along with the critics of unrestrained FDI have always
fiercely retorted by highlighting the adverse impact, the FDI in the retail trading will have on the
unorganized retail trade, which is the source of employment to an enormous amount of the
population of India.

However, it is to be noted that lately there has been an remarkable surge in the demand for the
liberalization of the Indian retail sector both by at the domestic and as well as at the international
front and it seems that the government is giving the matter a very pensive and careful
consideration. Some of the factors that have contributed to this trend are the evident profits in the
ever growing but conserved Indian retails sector, reduction in tariff, cheaper real time
communications, and cheaper transport. The main reasons for such an unequivocal demand
stems from the realisation that (i) while the retail sector requires heavy investment for expansion,
there is hardly any local capital left in the capital markets as a consequence
of global financial meltdown, and (ii) efficient management of multi-brand, multi-product, multi
location retail, especially in the area of back-end operations, require heavy dose of technology,
which over the years has been developed and perfected by foreign players.

In wake of relentless protests for the opening up of the Indian retail market for the reception of
unrestrained FDI, the Investment Commission in July, 2006, suggested that 49% FDI be allowed
in the Indian retail sector without any restrictions on the number of outlets or location of stores.
The Indian retail boom and the Investment Commission¶s suggestions renewed the debate on the
issue of allowing FDI in the retail sector. The Commission opined that that foreign investment
would help in improving the retail and supply chain infrastructure, and generate large-scale
employment in the country. In addition, the Indian retailers could absorb some of the best
operational practices of these international retailers and gain in experience. Ultimately, the
consumers would benefit due to the availability of more product offerings, lower prices, and
efficient service.

§8The recommendations of the Investment Commission proved to be very promising and paved
the way for a positive feedback by then ruling UPA government and also the BJP government on
the issue of liberalization of the retail sector. It is interesting to note that Prime Minister Dr.
Manmohan Singh while speaking on the occasion of the mid term appraisal of the Tenth Five
Year Plan of the Government announced that his Government has been considering permitting
FDI in retail sector ostensibly to attain the target of employment generation.
§9Moreover, the Indian Council for Research on International Economic Relations (ICRIER)
drafted a report which suggested that the opening up of the FDI regime should be gradual²over
a to 5 year timeframe ± to give the domestic industry enough time to adjust to the changes. In
the initial stage FDI up to 49 per cent should be allowed which can be raised to 100 per cent in
to 5 years (depending on the growth of the sector). FDI cap below 49 per cent (i.e., 26 per cent)
would not bring in the desired foreign investment collaboration

§10.Furthermore, very lately in her address to Parliament in June, 2009, President Pratibha Patil,
had said, ³Our country has benefited from large foreign investment flows in recent years. These
flows, especially FDI, need to be encouraged through an appropriate policy regime´.

§11However, unfortunately the issue still remains nebulous; with only evident positive thinking
on part of the government and with no final affirmative or negative decision on the same
whatsoever.

&(4&?
(4

 Y  Y Y Y 


 Y Y   Y
Y Y„%%„Y Y YY

Y Y
Y 

  Y Y
  YYY Y Y  YY 4 Y&'Y. Y
    Y 
Y Y
Y  
 YY  Y Y   Y  Y Y  
Y Y
:
YY
 Y
 Y  YY 
 Y&'Y   Y YYY   YY&'Y Y
YY
 
Y

Y
   Y Y

Y Y Y    YY  Y
   Y
= YY  Y Y Y Y
 YY
  Y Y

Y  Y
Y Y

  Y
 Y&'Y
Y Y
 Y   Y  Y Y!  Y  >   4YY  Y
 4 Y
 Y Y Y&'Y    Y Y   Y
  Y:YY2  YY 
Y
Y  Y
YYY 
 YY Y Y Y&'Y    Y YY >Y Y YY  Y

   Y

 YY 
Y
 Y&'Y  YY Y YY 
 Y  Y   YYY Y Y
YYY
Y A   YY Y YYA   Y  Y   YY 
Y  YY

 Y Y
 Y Y  Y 5Y

Y  YY  Y Y  
Y

  Y Y

  YY Y

Y Y 
Y Y Y  Y  Y
 YY 5Y

 Y   Y
Y YY YY    Y Y@   5 YY   Y Y  Y

 Y
  YY  Y3 
Y  Y
Y  YYY Y ;Y Y Y Y 
 Y
'  YY  
Y 
YY Y  Y5Y Y Y  Y
YY
Y Y 
Y Y Y
YY   >  Y 
 
Y  Y
 Y Y Y

  Y

 Y  YY
YY 
YY&'Y  YY Y YY   Y
  Y
 Y Y Y Y 
YY 
YY&'Y  Y Y Y