Fdi- Boon or Bane

FDI IN INDIAN sell SECTOR ABSTRACT The research newspaper aims to compreh intercept whether the FDI policy introduced in the sell sphere of influence in India is a Boon or a Bane. The paper gives an outlook of the Indian sell Sector, its growth trajectories and its contri hardlyion to the national gross domestic growth. It besides entails in detail the policy of FDI in this sphere of influence and its respective(a) clauses. The paper, in the end, talks close the benefits of fulfiling the FDI policy, and as well what disadvantages it possess. 1. OVERVIEW OF INDIAN RETAIL SECTORIndian sell sector is the well-nigh booming sector in the Indian economy and galacticst sources of enjoyment after agriculture. vocation or sell is the single titanicst component of the services sector in terms of contrisolelyion to GDP. Its coarse share of 14% is double the figure of the side by side(p) largest broad economic activity in the sector. India is the twinkling most attractive sell destination globally from among thirty emergent markets. It has made India the cause of a unplayful deal of excitement and the cynosure of many immaterial eyes.With a contri thoion of 14% to the national GDP and employing 7% of the total workforce ( lonesome(prenominal) agriculture employs to a greater extent) in the inelegant, the sell industry is unimpeachably one of the pillars of the Indian economy. It is to a lower placegoing a transitional phase to usher unionized retail. The attitudinal shifts of the Indian consumers were in terms of Choice gustatory modality, Value for money and the emergence of organized retail format. The all overall Indian retail sector is judge to rise to US $ 833 billion by 2013 and to US $ 1. 3 trillion by 2018.In line with the global developments in the retail industry, Indian retail is largely dominated by the unorganized retailers. It has witnessed a commodious transition in the last decade. Of the total retail sales, the food and g rocery segment constitute the study chunk. Growing in tandem with the economy is the Indian retail sector. The sector is on a spirited growth trajectory and is expected to grow by more than 27 per cent over the next 5 to 6 years. Initially it was predominately fragmented through the owner- run Mom and PopOutlets. The change in lifestyle, education, exit and dispos equal income has changed the pattern of consumption. Customers are aware of their surroundings and developments. The awareness was created through the advent of applied science such as television, cable and satellite channels. They are accustomed to the organized retail format. Understanding the pulse or trend of the market the large corporate groups like ITC, Reliance, Tata, Rahejia and others are infusing staggering measuring sticks of jacket crown into organized retail sector.The Cardiovascular SystemSome of the scarpering Indian retailers who had tapped this market were Bata India Ltd, Big Bazaar, Crossword, Eb ony Retail H centenarianings Ltd. , Food Bazaar, Globus Stores Pvt. Ltd. , Liberty plaza Ltd. , Music World Entertainment Ltd. , Pantaloon Retail India Ltd. , Shoppers Stop, Subhiksha, Titan Industries, Trent, Be pelfton, Addidas, Reebok, Levis, Diary Farm, KFC, at a lower placeground, WalMart, Marks & Spencers etc are nearly of the popular global retail brands that attain set up retail business in India.The organized retail sector comes with the concept of malls, supermarkets and department stores. Like Subhiksha, Marks & Spencers, Oberon etc it gives a dissimilar feeling and the environs of pick and choose from a variety of products. The modern retail formats are encouraging development of well-established and competent supply chains in each segment ensuring efficient movement of goods from farms to kitchens, which volition result in huge savings for the farmers as well as for the nation. The political sympathies also stands to gain through more efficient collection of t ax revenues.In the coming years it bathroom be said that the hypermarket route result emerge as the most preferred format for international retailers stepping into the country. At present, there are 50 hypermarkets operated by four to quintuplet large retailers spread across 67 cities catering to a people of half-a-million or more. Estimates indicate that this sector allow for have the potential to absorb many more hypermarkets in the next four to five years. According to World Bank report, it is suggested to have an organized retail sector so that it is easy to have a direct go steady on the price mechanism and to control on the macro economic variables.Strengths 1. India attracted US$16. 9bn in foreign direct investment (FDI) inflows in 2006, tally to the UN Conference on Trade and Development a 153% year-on year ontogeny. 2. A cheap, skilled, English-speaking workforce can do the jobs of Western workers for a fraction of the wages paid in North America or Europe. 3. Aver age annual GDP growth of 7. 7% is predicted by BMI through to 2016. With the population expected to increase from 1. 26bn in 2012 to 1. 32bn by 2016, GDP per capita is forecast to rise 77. % by the end of the forecast period, reaching US$2,980. 4. The appraise of the retail segment is expected to grow from an estimated INR22. 53trn (US$489. 80bn) in 2012 to INR27. 73trn (US$739. 56bn) by 2016. Weaknesses 1. The competitiveness of topical anaesthetic firms is undermined by official red tape, from foreign investment restrictions to inflexible labor laws. 2. Intellectual property rights are ailing protected in India, one of 12 countries on the 2009 priority watch list compiled by the US Trade Representative. 3.The rural population of India represents more than 70% of the total, while almost 37% is classified as not economically active by the UN. This is a study obstacle for retailers seeking to rapidly puff out their customer base. Opportunities 1. India could enhance the competit iveness of the local industry through further liberalization and deregulation. 2. Prime pastor Manmohan Singh is eager to cleanse the banking sector to increase the availableness of long-term financing, particularly for large infra complex body part projects. 3.The value of the OTC drug sector is forecast to grow by more than 94% by 2016, when it will be expenditure an estimated US$6. 58bn. Threats 1. The arrival of Western players, including management consultancy Accenture and technology company IBM, is raising local wages in the outsourcing sector. 2. China remains a major competitor for FDI flows into India. India has excessive bureaucracy and scant(p) infrastructure in comparison with China, which attracted US$60. 6bn of FDI in 2005. 3. foreign retailers are restricted by Indias strict FDI regulations.Single-brand retailers are able to own a 51% majority stake in a joint venture with a local partner, but multi-brand retailers must operate through a right or cash-and-carr y wholesale model. 2. WHAT IS FDI Foreign drive Investment (FDI) or foreign investment refers to the net inflows of investment to acquire a lasting management interest (10 share or more or voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital of the long term capital, and short-term capital as shown in the balance of parameters.It usually involves participation in management joint-venture, transfer technology, and expertise. There are two types of FDI inward foreign direct investment and outward-bound foreign direct investment resulting in a net FDI inflow (positive or negative) and stock of foreign direct investment and outward foreign direct investment, which is the cumulative number for a given period. Direct investment excludes investment through purchase of shares. FDI is one example of international factor movement. 3. FDI IN RETAIL IT ALL BEGAN IN 2006In 2006 the Indian government took the first step to promo te organized retail in India by clean-cuting up single brand retailing to FDI. There are five debut routes through which the international players enter into the market, such as franchising, cash and carry wholesale trading, joint venture, manufacturing and distribution. Government of India permitted ascorbic acid per cent FDI in cash and carry wholesale formats through automatic route and up to 51 per cent FDI in single brand retail through Foreign Investment advancement Board (FIPB).This rule made the international brand much easier to enter into the Indian retail market. through and through this agreement Reebok, Nokia and Adidas entered the Indian market. However the franchising is one of the way through which small retailers embrace organized retailing through brand association where theres a scope for leveraging business operations. The 100 per cent FDI permits for cash and carry has paved the way for retail giants like German Based Metro and US based Wal-Mart to set up th eir shops in India.Reliance Retail had made a tie up with UK based Marks & Spencer to float an equal joint venture and this would scale up 1400 stores by the end of the next fiscal year. The benefits of FDI investment in the retail sector were 1. It improves the quality in products and services because of luxuriouslyer(prenominal) competition 2. Improved the lifestyle 3. Economies of scale would help lower consumer prices and increase the purchasing power of the consumer 4. The technology upgraded the system in terms of logisticals, production and distribution channels. It adds as a driver in the tack on Chain Management. . The FDI investment will help in flourishing and developing the retail segment. 6. It not just if promotes tourism and would develop skills and manpower. 4. FDI NOW IN RETAIL Indias retailing industry is essentially owner man small shops. In 2010, larger format convenience stores and supermarkets accounted for intimately 4 percent of the industry, and these were present only in large urban centers Until 2011, Indian central government denied foreign direct investment (FDI) in multi-brand retail, forbidding foreign groups from any ownership in supermarkets, convenience stores or any retail outlets.Even single-brand retail was limited to 51% ownership and a bureaucratic process. In November 2011, Indias central government announced retail reforms for both multi-brand stores and single-brand stores. These market reforms paved the way for retail innovation and competition with multi-brand retailers such asWalmart, crosswalkandTesco, as well single brand majors such asIKEA, Nike, andorchard apple tree.In January 2012, India approved reforms for single-brand stores welcoming anyone in the origination to innovate in Indian retail market with 100% ownership, but imposed the requisite that the single brand retailer source 30 percent of its goods from India. Indian government continues the hold on retail reforms for multi-brand stores. On 14 folktember 2012, the government of India announced the opening of FDI in multi-brand retail, subject to approvals by individual states.This decision has been welcomed by economists and the markets, however has caused protests and an upheaval in Indias central governments political coalition structure. On 20 September 2012, the Government of India formally notified the FDI reforms for single and multi brand retail, thereby making it effective under Indian law. On 7 December 2012, the Federal Government of India allowed 51% FDI in multi-brand retail in India. The Feds managed to get the approval of multi-brand retail in the parliament despite heavy uproar from the opposition.The government of Manmohan Singh, outpouring minister, announced on 24 November 2011 the following * India will allow foreign groups to own up to 51 per cent in multi-brand retailers, as supermarkets are known in India, in the most radical pro-liberalisation reform passed by an Indian cabinet in years * Single br and retailers, such as Apple and IKEA, can own 100 percent of their Indian stores, up from the previous cap of 51 percent * Both multi-brand and single brand stores in India will have to source nearly a tercet of their goods from small and medium-sized Indian suppliers * All multi-brand and single brand stores in India must confine their operations to 53-odd cities with a population over one million, out of some 7935 towns and cities in India.It is expected that these stores will now have full rise to power to over 200 million urban consumers in India * Multi-brand retailers must have a minimum investment of US$100 million with at least half of the amount invested in back end infrastructure, including raw chains, refrigeration, transportation, packing, sorting and processing to considerably reduce the post harvest losses and bring remunerative prices to farmers * The opening of retail competition will be within Indias federal structure of government. In other words, the policy i s an enabling legal framework for India. The states of India have the prerogative to accept it and implement it, or they can decide to not implement it if they so choose. Actual implementation of policy will be within the parameters of state laws and regulations. The opening of retail industry to global competition is expected to pricker a retail rush to India.It has the potential to transform not only the retailing landscape but also the nations ailing infrastructure. A Wall Street Journal article claims that fresh investments in Indian organized retail will generate 10 million new jobs between 20122014, and about five to six million of them in logistics alone even though the retail market is being undecided to just 53 cities out of about 8000 towns and cities in India. It is expected to help tame stubbornly high inflation but is likely to be vehemently opposed by millions of small retailers, who see large foreign chains as a threat. The need to control food price inflationaverag ing double-digit rises over several yearsprompted the government to open the sector, analysts claim.Traders add huge mark-ups to farm prices, while offering niggling by way of technical support to help farmers boost their productivity, packaging technology, pushing up retail prices significantly. Big foreign retailers would provide an impetus for them to set up modern supply chains, with refrigerated vans, cold storage and more efficient logistics. Foreign chains can also bring in big logistical benefits and capital the biggest beneficiary would be the small farmers who will be able to improve their productivity by selling directly to large organized players. 5. ADVANTAGES 1. Huge Market Size and a spry Developing Economy India is the second largest country in the world just behind China in terms of population. Currently the total population is about 1. 2 billion.This huge population base mechanically makes a huge market for the business operators to capture and also a major par t of it is excuse can be considered as un-served or not yet been penetrated. Therefore FDI investors automatically get a huge market to capture and also ample opportunity to generate cash inflows at relatively quicker eras. The economy of India is also moving at faster pace than most of the economy of the world and inhabitants of the country also obtaining purchasing power at the same rate. 2. Availability of Diversified Resources and Cheap childbed Force The huge advantage e truly company gets by investing in India is the availability of alter resources. It is a country where distinguishable kinds of materials and technological resources are available.India is a huge country and has forest as well as mining and oil reserve as well. These are also coupled with availability of very cheap labor forces at almost every parts of the country. From Mumbai which is in the west to Bengal which is in the east there is ample opportunity to set up business venture and location and most keyly labor is available at low cost. 3. Increasing Improvement of Infrastructure A jalopy of research study in India finds out that historically the country fails to attract a significant amount of FDI mainly because of problems in infrastructure. But the scenario is changing. The Indian government has taken huge projects in transportation and qualification sectors to improve the case.The projects for developing road transport is worth of $90 billion, for rail it has undertaken several projects each worth of $20 million and for ports and airports the value of development projects is around $ 80 billion. In addition the investment in energy development is worth of $ 167 billion and investment in nuclear energy development is by(p) that calculation. These huge investments are changing the investment climate in the country and investors will benefit enormously by that (Department of Industrial Policy and Promotion, 2005 Dua & Rasheed, 1998). 4. Public Private Partnerships Another significant advantage foreign investors examine in India today is the opportunities of PPP or Public private Partnership in different important sectors like energy, transportation, mining, oil industry etc.It is advantageous in several ways as it has eliminated the traditional philippic barriers and also joint venture with government is risk free up to the great extent (GOI, 2007 IMF, 2005 Nagaraj, 2003). 5. IT gyration and English Literacy Today the modern India considered being one of the global leaders in IT. India has developed its IT sectors vastly in last few years and as of today many leading firms outsource their IT tasks in India. Because of IT advancement the firm which will invest in India will get cheap information access and IT capabilities as Indian firms are global leader. Along with that Indian youth are energetic and very capable in English language which is obligatory in modern business conduction.This capability gives India an inch over others. Foreign firms also find it profitable and worthy investment by recruiting Indian HR (GOI, 2006 GOI, 2007 IMF, 2005 Lall, 2002). 6. Openness towards FDI Recently the Government of India has liberalized their policies in certain sectors, like Increase in the FDI limits in different sectors and also made the approval system far easier and accessible. Unlike the historical tradition, today for investing in India government approval do not require in the special cases of investing in various important sectors like energy, transportation, telecommunications etc (stinting Department, 2005 GOI, 2007 Nagaraj, 2003). . Regulatory Framework and Investment Protection In the process of accelerating FDI in the country the government of India has make the regulatory framework lot more flexible. Now a days foreign investors get different advantages of tax holiday, tax exemptions, exemption of service and central taxes. The government also opened few special economic zones and investors of those zones also get a lot of befits by investing money. Apart from that there are number of laws has been passed and executed for making the investments safe and secure for the foreign investors (IMF, 2005 Nagaraj, 2003 intend Commission of India, 2002 World Bank, 2004).FDI can be a powerful catalyst to vigorous competition in the retail industry, due to the current scenario of low competition and poor productivity. FDI will help if farmers can bargain. Villages only know how to produce things. We have to tell them how to market their produce, how to do value addition. One of the things we have talked about a lot in the book is cooperative farming. In India, farmers have small holding but they form a cooperative, it becomes a large holding and then form a cooperative, it becomes a large holding and then the farmer has bargain power. FDI will accelerate retail market growth, providing more employment opportunities. It s a basic principle that creating competition in general is good for the market. But th e interrogative sentence is that, since proper procurement and distribution system and the infrastructure is not fixed, how the rest will fall in place, when the giant retailers enter our market. Back-end procurement will still remain big problem. Sumita Kale, economist, in his statement says that the argue that by-introducing 51 percent FDI, a lot of money will flow out of the country is an old school of thought. Lots of our Indian companies are operating abroad and have successfully contributed to our economy. The bigger takings is that with benefits we might end up paying a price hence we must work on a reasonable solution.As mentioned earlier the farmer will benefit from FDI as they will be able to get better prices for their produce. The elimination of the intermediate channels in that procurement process will lead to reduction of prices for consumers. Foreign brand will promote healthy completion in market. Every time the government brings up the subject of FDI, the domesti c retailers with the support of some politician jump to lobby against the bill. As the government initializing the FDI, there is bound to be some problems, which can definitely be resolved. The government in near future can appoint a regulating body to monitor the retail sector just like other sectors.There will be lot of man power requirement when FDI starts, logistic demands will be more, and people to serve in these stores will get jobs. Managerial positions will open up. Technological requirements and software developments will increase based on the Indian market software call for will be changed. Infrastructure and building constructions will take place. The living conditions will change, good roadstead will come up. There will be good flow of money that flows these are major benefits of FDI. 6. DISADVANTAGES Customers feel that retail stores offer better deals, but they dont realize that they end up paying and buying more than what is required.If 51 percent FDI is allowed in multi brand, it will teach the local retailers about real competition and help in ensuring that they give better service to Indian consumers. It is obviously good for local completion and there are no consequences of our local kirana shops disappearing. The Kirana stores operate in a different environment catering to certain set of customers and they will continue to find new ways to guard them. Kirana stores are convinced that stores all big stores will be set up far away from the city and the travel time in India will not help us to go practically and buy things from these large stores. Large store buying will help only in pot purchases. So there is no need to fear about the FDI investment in this context.Investing in India definitely has some negative sides as well. Most noticeably India considered as a huge market but a major portion of that is a lower and middle class person who still suffers from figure shortage. The infrastructure of the country also needs to be improved a lot and already it is under huge strain. There are also problems exists in the power demand shortfall, port traffic cognitive content mismatch, poor road conditions deal with an inefficient and sometimes still slow-moving bureaucracy. The huge market in India is an advantage but it is also very diverse in nature. India has 17 official languages, 6 major religions, and ethnic diversity as wide as all of Europe.This makes the tasks difficult for the companies to make appropriate product or service portfolio. India is not a member of the International Centre for the Settlement of Investment Disputes also not of the New York Convention of 1958. That make life bit difficult for the foreign investors. India still has a heavy regulation burden among other countries, for example the time taken to start business or to register a property is higher in India. Similarly, indirect taxes, entry-exit barriers and import duties have been major disadvantages (Nagaraj, 2003 homework Commission of India, 2002 USITC, 2007 World Bank, 2004). KEYWORDS Retail, FDI, SME, Multi-brand, Single-brand REFERENCES 1) Amanpreet Kang. (2012).Evaluating Effects of FDI In Developing Economies The Curious Case of Pharmaceutical Companies. ABS, Amity University Rajasthan (ISSN 2230 7230) 2) Anonymous. (11 Feb, 2008). FDI reforms. railway line Asia. 3) Anu Antony. (July December 2009). The Transitional Shift Of Indian Market Space And FDI In Retail. Globsyn Management Journal. 4) Dr Surender Kumar Gupta. (Feb 2012). FDI and Indian Retail Sector-The Path Ahead. International Journal of Marketing and Technology (ISSN 2249 1058). 5) Prof. G. V. Bhavani Prasad, E. Hari Prasad Sharma (June 2012). 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