FDI and the Indian Retail Sector

The Retail Sector is one of the biggest contributors to India’s GDP. It also has a high rate of employment.  A retail store is the final frontier of the manufacturing to consumer chain. It sells products to the customers for final consumption. Derived from a French word, it means “to cut again”. Simply put a retailer cuts off small portions of a big production for sale and consumption by the customer.  The shop at the corner, a multi-brand store or a single brand store is all retail shops. With the internet taking over the world online retail stores are now popular too.

The Current Structure

The Indian Retail Sector is mostly unorganized with small, family shops making almost ninety to ninety-five per cent of the sectors. The organized sector counts for only five to ten per cent. Moreover, all the retail stores are currently indigenous or have Indian nationals as their owner and proprietor.  Foreign Direct Investment (FDI) in this sector has long been a matter of debate. FDI is understood as an investment made by a company in one country into a company based in another. The investing company can either set up a company on its own or establish one in collaboration with a native country.

FDI in Indian Retail

Retailing can be multi-brand or single-brand. A store or showroom that gives consumers many options under one roof is a multi-brand retail. An exclusive store or a store that houses products pertaining to a single brand is a single-brand store. Currently, the Indian Government has allowed up to 51% FDI in multi-brand retail and up to 100% FDI in single-brand retail after years of contemplating on the possibilities and disadvantages. These investments are subject to permissions from the Government Authorities. The demand for FDI was long being pushed by the major players wanting to encash the phenomenon of globalization. But the government had its own share of apprehensions. Slowly it did open up the avenues with certain terms and conditions.

The Yay and the Nay Sayers

FDI in Indian Retail has always been an arguable issue. Those in favour deem it as a powerful catalyst which can make the retail sector organized and competitive in a healthy way. Opening up for foreign companies will bring growth to the economy by funding foreign currency in the Indian market. The new infrastructure requirement will call for more construction and help the real estate market. The financial needs will be met by the banks thus boosting the banking sector. Being an organized market needs people who can help it maintain the quorum thus facilitating and opening up more job opportunities. Big retailers generally get in touch directly with the producers or the farmers removing the middlemen. This brings greater benefits to the farmers and better price for their produce. It will also improve the supply chain management system and create a pool of skilled manpower. The consumers are to get benefit due to more options and better pricing.

Those against FDI are worried about the displacement, and job loss of thousands of small and medium-sized retail shop owners. They also fear the reverse effect or draining out of Indian revenue to foreign countries, thus weakening the Indian economy and growth. Another concern is that the initial prices may be lowered to lure in the customers and once the companies achieve a monopoly, they can hike the rates as per their wish. Similarly, for farmers, too much dependency on the companies may lead to lower prices in the longer run.

Changing Times

With changes in the global market, growth in purchasing power of Indian and their demand for quality products, the rise of organized retailing is imminent. The market is growing and is at peace with the unorganized section as shown by Indian Retail Brands which have been in operation for some time. Online retail is another segment that is rising by leaps and bounds. FDI can surely be given a chance to bring world-class products to Indian customers. They can also provide a great platform for the local produce. The slow and steady pace of opening the market can give a fair idea of how things are set to play in the market. With proper planning, transparent processes, correct channelling of information FDI can bring about the required and positive changes required in the Indian Retail Market and the economy as a whole.

  • Sneha Sinha