FDI IN RETAIL

FDI-How The World Define:

      An investment made by a company or entity based in one country, into a company or entity based in another country.

The investing company may make its overseas investment in a number of ways either by setting up a subsidiary or associate company in the foreign country, by acquiring shares of an overseas company, or through a merger or joint venture.

FDI in India:-
         The fast and steadily growing economy of India in majority of its sectors, has made India one of the most famous and popular destinations in the whole world, for Foreign Direct Investment. India's ever-expanding markets, liberalization of trade policies, development in technology and telecommunication, and loosening of diverse foreign investment restrictions, have further collectively made India, the apple of investors'eye, for most productive, profitable, and secure foreign investment. India has conspicuously emerged out as the second most popular and preferable destination in the entire world, after China, for highly profitable foreign direct investment.

   At present, the most lucrative business sectors for FDI in India are, Infrastructure (Power, Steel, Railways, etc.); Telecommunications; Hospitality sector; Education; Retail; Real Estate; Retail sector, Petroleum and Petroleum Products; Biotechnology; Alternative Energy, etc.

Moreover, according to the Asian Investment Intentions survey released by the Asia Pacific Foundation in Canada, more and more Canadian firms are now focusing on India as an investment destination. From 8 per cent in 2005, the percentage of Canadian companies showing interest in India has gone up to 13.4 per cent in 2010.

India attracted FDI equity inflows of US$ 2,214 million in December 2012. The cumulative amount of FDI equity inflows from April 2000 to December 2012 stood  at US$ 202.79 billion, according to the data released by the Department of Industrial Policy and Promotion (DIPP).

What Ruling Party Says:-

A day after winning Parliament’s approval to allowing FDI in retail, Prime Minister said the move will benefit farmers and consumers and help introduce new technologies in agri marketing. He also said the decision to allow FDI was “supported” by farmers’ organizations. he said FDI in retail will help introduce new technologies in agri marketing, and will “benefit farmers and consumers”.

Government had won the approval of Parliament to its controversial decision of allowing FDI in multi-brand retail with a motion against it being defeated convincingly in Rajya Sabha, as BSP voted in favour of UPA. 123 members had voted against the motion while 109 voted in favour after a debate during which the opposition had attacked the proposal to allow 51 per cent FDI in multi-brand retail, while the government had strongly justified it saying it was in the best interest of the country.He said agriculture supply chains in India are fragmented and stressed the need for development of efficient and vertically integrated supply chains.Stressing that investments in backend infrastructure can help cut down loss of perishable crops, he asked the states “to take the lead in best practices of crop management”.Singh also hoped that Punjab will fare better as 12th five-year plan has for the country as a whole “targeted 8.2 growth in the GDP and 4 per cent in agriculture”.

What Opposition Says:-

BJP opposes the proposal for opening the multi-brand retail for several reasons, some of which are stated below:

1. In the first instance, manufacturing sector jobs will be lost in India. Domestic retail primarily sources locally. International structured retail sources internationally, leading to a drop in domestic manufacturing. This is all the more significant since India has not carried out significant manufacturing sector reforms.

2. International structured retail doesn't create additional retail jobs, it merely displaces existing jobs.

3. Only 18 per cent of the Indians are in structured jobs, 51 per cent of India's working population is self-employed. Along with agriculture, retail trade constitutes the largest fountain of self employed jobs. Structured international retail will be harmful to job creation in India.

4. Fragmented markets serve maximum interest much more than the consolidated markets. FDI in retail will consolidate the retail market and restrict only to end consumer interests.

5. The oft' quoted example of China is misconceived. China as a low cost economy is the predominant & the largest supplier to the big retailers. It can't be argued that goods manufactured in China will not be sold only in China.

6. International retailers proceed on the principle of 'buy cheap and sell costlier'. The initial low prices facilitated by the deep pockets result in eliminating competition and then raising prices.

7. It is a myth that the middlemen will be eliminated & the benefits will go to the producer/farmers. The benefits of elimination of middlemen goes to the retailer and not the farmers/producers.

8. The argument that back-end operation such as cold chains and transport facility will benefit from international retailers is baseless. Building cold chain is not rocket science; why can't building cold chains, rural farm roads co-exist with Mahatma Gandhi National Rural Employment Guarantee Act.

9. Basic principals of trade negotiations have been ignored while making concessions to the US and the EU by agreeing to their proposal without any corresponding quid pro quo.

10. That an option has been given to the states to implement FDI policies is a myth being spread to mislead people. 'FDI investment' is a central subject and not a state subject.

International treaties on investment to which India is a party, require a 'national treatment'.

The deception is a trap for future litigations for the FDI to spread to the rest of the country

How veeriyam sees FDI in retail:-

When FDI started flowing in India in 2000’s.The flows of finds are seeing its peak since 2007.As investment were made in many sectors including Defence,Engineering etc.,were able to absorb the money spent on them and could very well reflect back to those Foreign investors making them to invest more.So,India started its Reign “Millennium of Asia”.

India proved herself as a major player in global front in economies.The amount of money invested in india also promised for her development in all-round development from basic Medical to infrastructure. It also paved way for healthy growth in service sectors. So.Veeriyam Supports FDI as a whole.

But,FDI in retail is objectionable.FDI in retail is not needed in India as the profits earned by Foreign institution is never reflected in the wealth of the nation.Profits earned by those institution are profitable only for their individual firm.FDI in retail may very well develop Agriculture,Employablity only when Concrete steps are taken to ensure that the products developed by the firm is only through the raw materials generated from India. As no such conditions are burdened on the Foreign institutions it does not ensure the security of farming sector as well as employability. When raw materials are imported from other countries for the production of a particular product it may result in Imbalance in Trade balance.

The International Farm Companies Network data shows that in the US a milk producer gets 38% of every consumer dollar spend.

In the United Kingdom, this figure is 36 per cent. In India, riding on the strength of the cooperative movement, milk producers get 70 per cent of every rupee spent by the consumer. If farmers in the United States and UK have become prosperous due to retailers, why does the USor the European Union subsidise their farmers to the extent of US $400 billion annually? This is a staggering Rs 5,000-6,000 crore daily.

Many small scale may retailers may be loose their jobs as the Foreign institution may acquire products from china, which in nature has “High productivity,Low cost”.Let the western powers realise that the biggest reforms required are in:

• Elimination of agricultural subsidy

• Removal of restrains on outsourcing

• Removal of unreasonable restriction on visas

• Dismantling of unfair trade barriers on products of smaller economies.

The government had an option of large numbers of domestic economic reforms which are pending. There is a broad consensus on these reforms. The government has chosen to ignore these reforms but implemented a decision which will hurt national interest.