After much gung-ho and political/social/civil protests, India finally let the doors open up to FDI in multi-brand retail. The decision came on the back of economic slowdown and snail-pace growth prospects apparent the world over, thus boosting sentiments in at least our country (though not everyone is happy with the decision).
Mass impact decisions are normally followed by criticism and opposition. This one is no exception and over the past couple of years, we have seen unfolding of series of events which kept reminding the foreign investors that entering India is no cake walk.
A Brief of the matter
As we all know foreign direct investment (FDI) is the investment directly into production in the domestic country by the company located in another country. This can take any form ranging from acquisition to Greenfield investments.
Starting from a baseline of less than $1 billion in 1990, a recent UNCTAD survey projected India as the second most important FDI destination (after China) for transnational corporations during 2010–2012. As per the data, the sectors which attracted higher inflows were services, telecommunication, construction activities and computer software and hardware. Mauritius, Singapore, U.S and U.K were among the leading sources of FDI.
The Decision
On 14 September 2012, Government of India allowed FDI; in aviation upto 49%, in Broadcast sector upto 74%, in multi-brand retail upto 51% and in single-brand retail upto 100%.
What does this mean? Well, as far as the retail sector goes up till now if a domestic company needed foreign funding, products sold by it to the general public should be of a ‘single brand’ and thus multi brand retailers were not able to tap foreign funds.
However in a step-by-step manner, the Govt. Has opened up the retail sector to FDI as seen below:
–Â Â Â Â Â Â Â Â Â In 1997, FDI in cash and carry (wholesale) with 100% ownership was allowed
–Â Â Â Â Â Â Â Â Â 51% investment in a single brand retail was allowed later
Now, 51% FDI is allowed in multi-brand retail as well along with partial freeway in the aviation sector also (Mr Mallya must be smiling at that!).
The Opposition
Indian continent is a retail goldmine with over 1.2 billion people to be tapped. Retail market here is estimated to be worth $450 billion and the fastest growing retail market in the world. It accounts for nearly 14-15% of the GDP.
Now in such circumstances, if a foreign player shows interest to enter the Indian continent and eat up the market with its scale and technology, would obviously trigger outburst among the native people.
The protest that we have been witnessing against the FDI in retail from quite some time is due to the fear of losing jobs, uncompetitive terms of operations by the foreign entity, shutting of SME outlets, outgo of wealth earned through domestic resources and many others.
The people are not wrong in protesting, in that anyone threatening to enter your territory would face opposition from you, but the method in which they carry out their outrage is wrong. Solving of problems through mutual decision making and understanding is the best way to avoid hostile situations and now that FDI is entering, we should be prepared with our terms of allowing foreign entities to work in a open but watchful manner with strong conditions laid out in front of them so that they do not harm our well-being.
FDI into the country has many advantages like technology upgradation, new products and service availability, operational efficiency to name a few. In contrast there also lies the above feared ill effects of FDI and thus the only way to control them is to let them enter with certain well laid out and strongly enforced pre-conditions.
Meanwhile, companies like Wal-Mart, IKEA, Carrefour are waiting to set up shops in India, but we as true citizens would openly welcome them with our arms open and eyes wide open.
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