Advantages of FDI in Retail in India

Advantages of FDI in Retail in India :

(1)       Growth in Economy : Due to foreign companies entering into retail sector, new infrastructure will be built thereby bolstering the jagging real estate sector. In turn, banking sector will also grow as the funds needed to build infrastructure will be provided by banks.

(2)     Job Opportunities : It has been estimated according to government, that approximately ten million jobs will be created mostly in retail and real estate sectors.

(3)     Benefits to Farmers : In the retailing business, the intermediaries have dominated the interface between the manufacturers or producers and the consumers. Hence the farmers and manufacturers lose their actual share of profit margin, as the lion’s share is eaten up by the middlemen.

This issue can be resolved by FD1, as farmers might get contract farming, where they will be able to supply an organised retailer based upon demand and will get paid handsomely for that and they need not run in search of buyers.

(4)     Benefits to consumers : Consumers will get variety of good quality products at low prices compared to market rates and will be able to choose from various international brands at one place.

(5)     Lack of Infrastructure : This has been one of the common issues in the retailing chain in India for years, which has led to the process of an incompetent market mechanism. To cite an example, inspite of India being one of the largest producers of fruits and vegetables, lack of proper cold storage facility significantly affects the selling of these perishable items and also in huge losses. Allowing FDI might help India have better logistics and storage technologies resulting in avoiding wastage. Due to FDI foreign companies will invest around $ 100 million in India. Thereby, infrastructure facilities, refrigeration technology, transportation sector will get a boost.

(6)     Cheaper Production facilities : FDI will assure operations in production cycle and distribution. Due to economies of operation, production facilities will be available at a cheaper rate and thus resulting in availability of variety products to the ultimate consumers at a reasonable and cheaper price.

(7)     Availability of new technology : FDI allows transfer of skills and technology from abroad and develops the infrastructure of the domestic country. Greater managerial talent will flow in from other countries. Domestic consumer will get the benefit of getting great variety and quality products at all price points.

(8)     Long term cash liquidity : FDI will render necessary capital for establishing organised retail chain stores. It is a long term investment because the physical capital in the domestic company is not easily liquidated.

            (9)     Conducive for the country’s economic growth : FDI will create a competition among the global investors, which will ultimately guarantee better and lower prices, thereby benefiting people in all sections of the society. The market growth and expansion will increase. It will step-up retail employment. 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.

(10)   FDI opens up a new avenue for Franchising : Restrictions on FDI are regarded as trade barriers as they traverse direct market access to foreign firms. Retail giants who are very keen in looking for entry into foreign markets look for other available alternatives. These restrictions on the global retailers regarding the inflow of FDI, leads them towards getting the market entry through franchises. Thus, countries which offer promising market potentialities for retail growth offer substantial growth in the franchising sector also.

(11)   According to the Indian Government’s condition, foreign companies have to source a minimum of 30% of their goods from Indian micro and small industries. This will encourage the domestic manufacturing by creating a big effect for employment and technology upgradation and income generation.

(12)   Countries like China, Indonesia and Thailand have 100% FD1 in retail. Reports show that these countries have experienced high growth in agro processing industry, refrigeration technology and infrastructure.

(13)   Foreign countries will also create a supply chain management in the Indian market. This will result in avoidance of food wastage and perishables.