Foreign Direct Investment : A Boon or A Bane

Foreign Direct Investment : A Boon or A Bane

FDI in retail refers to that foreign company in some categories can sell their products by their own retail shops.


Foreign Direct Investment: A Boon Or A Bane :

In the last decade, the retail sector of India has seen significant growth with a shift from its previous retailing format. In the current scenario, the retail sector is contributing to 10% of the GDP and 8% employment.

Consequently, the central government of India also discouraging the bigger retailers from entering into the market and protecting agriculturists and small traders for this process. The Indian retail sector is generating a large number of employment opportunities for decades but it is not able to compete with larger entities.

The retail market is one of the fastest-growing markets of the Indian economy.


FDI (Foreign Direct Investment) :

A Foreign Direct Investment refers to the investment which is made by a firm or an individual in one country into business interests located in another country. In the open markets, FDIs are openly utilized by investors.

FDIs are made in those countries in which the growth prospects for the investor are above average and the economy is open for the markets. The investing company can make its overseas investment in several methods:

  • Either by setting up a subsidiary or a foreign company in the country.
  • Acquiring the shares of the international company.
  • By the processes like mergers and joint ventures.



Various Modes of Foreign Direct Investment :

As we know that there are different modes of conducting FDI which can be easily classified in the two modes given below:

1. By Focusing on The Target: It will consist of focusing on a particular corporation and controlling it through the processes like mergers & Acquisitions.

2. By Goal: In this type of investment FDI is done for a particular motive in the corporation such as the efficiency of the market, resources, etc.


Concept of Retail :

These are generally classified into two categories:

1. Organized Retail: It consists of corporate-backed retail chains, supermarkets, and department stores that can sell only under the jurisdiction of a license and are viable to the huge taxes. 

2. Unorganized Retail: It maintains the bulk of the retail industry in India and consists of beedi/pan shops, hawkers and pavement vendors, convenience stores.


FDI in Retail :

FDI in retail refers to those foreign companies in some categories can sell their products by their own retail shops. In terms of the economy retail is one of the most popular pillars of the Indian Economy. Recently the government of India approved 100% and 51% in single-brand retail and multi-brand retail respectively.


Advantages of The FDI In Retail :

1. Increases The Growth of The Economy: As we know that when the foreign companies come into the country it will help in boosting the infrastructure and the sectors like real estate and banking will see growth. MNCs (Multinational Corporations) also pay a huge number of taxes to the government and helps in boosting the revenue deposits of the country.

2. Generation of Employment: In the organized retail sector it will help in the creation of a large number of job opportunities.

3. Increases The Competition: FDI in retail also increases the competition in the market and it will help both the consumers as well as producers.

4. Increasing Productivity: Currently we are seeing that the production in the agriculture sector is low and the FDI in retail will easily boost it.

5. Benefit to The Farmers: It will help both farmers and producers by procuring the produce directly from them without the interference of the intermediaries or middlemen.

6. Benefit for The Consumers: FDI in retail will give low prices, more variety of the products to the consumers, and helps in making efficient choices between the different commodities.


Disadvantages of The FDI In Retail :

1. The price policies of the giant retailers will harm the interest of the small retailing.

2. Farmers, become at the mercy of the big retailers and they might lose their dominance from the market.

3. The domestic retail players might not handle the tough competition from the MNC’s.

4. FDI may lead to the transferring of the countries' revenue shares to foreign countries.

5. Initially, MNCs will lower the prices of the commodities to become dominant in the market but as they become strong players they will do price dominance.


Summing Up :

FDI can act as a mode of competition between the industries which are facing low productivity and poor growth. FDI is integrating various countries with the global economy. It will lead to help both the global economy as well as country’s economy in growth & development. We can say that the government has emphasized more on the advantages of the FDI in retail in comparison to its disadvantages. In many countries like Thailand & China allowing FDI in the retail sector was first met with the demonstration & protests of a large number of peoples. Indian Government should always consider the interest of both organized. 

Edited By Team CLIQTAX

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