FDI in India’s retail sector: Is it win-win game? By: Sharad Pandey
Foreign Direct Investment (FDI) is defined as cross-border investment, where investment is made by a foreign country or organization in another country’s domestic market. The issue of FDI has been a debatable topic in India for years now, since government started promoting it. But is it really going to help the Indian economy? Yes, it will, as it will help farmers. In fact, farmers are not the only ones who will benefit from it, society as a whole will be a beneficiary.
For the past few years opposition governments have, and are still opposing FDI in India’s retail sector. Watching political parties switch position on the issue of FDI in the retail sector is a bit interesting, and a drama to watch. It is interesting to note that, when BJP was in power, they came up with the idea of allowing FDI in the retail sector, but was opposed by ”Congress'’, which was then serving as opposition political party. When Congress came to power few years ago, it wanted to adopt a policy of allowing FDI into India’s retail sector, but this policy has met stiff resistance from the BJP. The changing position of the Country’s top political parties suggests that both the parties know that FDI it is good for the country. Each political party wants the policy to be effectuated under its leadership so that most of the benefits can be reaped by it.
As I indicated earlier, FDI in the retail sector is going to help India a lot. India’s increasing debt to GDP ratio is a great concern. With the cash inflow into the Indian economy that will come with FDI, it can be hoped that this amount of money flowing from foreign investors will help India raise liquid capital for reducing its debts, thereby reducing the debt to GDP ratio.
Apart from FDI helping to reduce India’s debt, it will help provide the needed cash for public sector expenditure, such as the expenditure for the food security bill, which is expected to create a single platform for running food security programs across all states in India. So, to cover up this, and other public sector expenses, FDI will be an important source which will help government in raising money for sponsoring such programs, while government will still have an opportunity to reduce the Country’s debt to GDP ratio.
Additionally, FDI will create more employment opportunities as foreign companies will open stores in India. Those companies will need workers (as they won't bring all of their workers from their own countries, so workers will be taken from the domestic market). This will increase employment rate for India, which is good for the Country's prospect. There are perceptions that FDI in the retail sector will kill retail shops in India, i.e. kirana shops. This can’t be true, considering the fact that when big bazaar, reliance, etc. came in then, they did not affect the retail shops. Another thing worth mentioning is that kirana shops have their own customer bases, which are not easily affected by these big market players.
In terms of product quality, one can be sure that internationally acclaimed companies will help improve the quality of products on the Indian market. The introduction of foreign companies will increase competition, which will in turn help with the reduction of prices. This will be a good opportunity for the farmers as well, as farmers will directly trade with the industry (for instance, wall mart). This will help remove the middlemen, who have often survived at the expense of peasant farmers. With direct trade between farmers and the multinational companies, farmers will get right prices directly, and it will improve the condition of framers, as in some cases, it will help them to acquire new technologies, which will help in improving production.
Moreover, FDI will help in strengthening the Indian currency. Currently, the rupee is falling and has reached its all-time low. With the help of FDI in the retail sector, an inflow of foreign currency will take place, which will help the rupee appreciate against other currencies. Although the impact of FDI will not be visible as soon as it is implemented, a period of 4-6 years will be sufficient in letting us to see its impact on the Indian economy.