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Fdi In Indian Retail Trade Economics Essay

With the wake of globalization and liberalization of Indian economy, transformation of different industries, industrial policies, service sector etc. has gained momentum. The economic policy-1991 of India first proposed retail reforms by allowing Foreign Direct Investment (FDI), with the hope that FDI in Indian retail may provide benefit through development of backend infrastructure like cold chain, enhanced supply chain with minimal wastage and minimization of the middle man concept, and larger employment opportunities. 100% FDI was already been allowed both in wholesale ‘cash and carry’ and single brand retail in India after several attempt to open up the sector to FDI, and abruptly on 14th September 2012, the previous indefinitely suspended 51% FDI decision in multi-brand retail is finally endorsed with a historic decision towards retail sector reform, despite strong opposition from government’s key-ally, opposition and left parties, and also finally cleared the Parliament hurdle (both Lok Sabha & Rajya Sabha) by means of debate & voting in the Winter Session-2012 of Parliament. However, Indian government should take care of its decision regarding this transformation and revolution along with safeguarding the health of the great Indian retail sector.

Here the question arises whether the verdict on FDI in India’s retail sector will be problematic or will open the door of opportunities? Yet there is no clear answer for this quandary, there are views that have been expressed both in favour and against FDI in Indian retail trade. An effort has been made in this paper to highlight the stipulated regulations for allowing FDI, as well as arguments in favour and against permitting FDI in Indian retail trade. The study is conducted during the months of August to December of 2012 with the help of secondary sources.

Key Words: FDI, Indian retail, Single brand retail, Multi-brand retail trade (MBRT), Organized retail, India

Introduction

Its 1980s, when Indian economy started open-up, some of the textile manufacturers emerged with retail chains. But the late 1990s witnessed a fresh wave of new entrants in retail chains. It was the period when retailers without manufacturing bases started entering into this sector bringing the concept of pure retailing.

Now India is witnessing significant transformation in its retail sector. The concept of traditional small unorganized retail is now transforming into huge organized retail formats such as Hypermarket, Supermarket, Convenience store etc. .

In spite of recent developments in retailing and its immense contribution to the economy, growth of retailing in India has been much slower as compared to the rest of the world. The cause of this slower rate of growth stems from the absence of an FDI encouraging policy in the Indian retail sector.

The Indian retail sector as one of the largest [5th largest (Gupta-2010)] and fastest growing sector in the world is now wearing new clothes. Retail market is the largest industry in India accounting for ̴ 35% of GDP, estimated US $470 billion in 2011 and is expected to grow US $675 billion by 2016 with a CAGR [1] of 7.5% (Nangia, Technopack Research-2011).As per international management consultancy AT Kearney, recently India is identified as the “Second most attractive retail destination” globally among 30 emergent markets (Guruswami et al). This is the reason that Indian retail market has became the hottest deal for many foreign players like IKEA [2] , Inditex [3] , Walmart [4] , TESCO [5] , Carrefour [6] & Metro [7] etc. .

Indian retail industry is divided into organized and unorganized sectors. Needless to say, the Indian retail sector is dominated by the unorganized retailing with a share of approximately 96% as compared to a share of mere 4% (approx.) of organized retailing in the total Indian retail pie.

According to analysts, there is a lucrative opportunity for foreign players to enter the attractive Indian retail market. However, the government policies towards FDI (retail) were the only factor hindering the foreign players to flourish in the highly emerging Indian retail landscape. But now with the consolidated and amended FDI policy for retail sector, interested foreign retailers can open stores with their own brand in India (subject to certain conditions).

History & Current Status Of FDI In Indian Retail

FDI as defined in Dictionary of Economics is – “investment in a foreign country through the acquisition of a local company or the establishment thereof and operation on a new site”. In simple words, FDI refers to capital inflows from abroad that is invested in or to enhance the production capacity of the economy.

Till 2006, FDI in both single and multi-brand retail trading was not allowed as per the policies of Indian government.

It’s for the first time in Feb 2006, the Indian government decided to open up its retail sector to FDI. Subject to certain conditions, Indian government permitted up to 51% FDI in single brand retailing. This policy was made effective by a press note dated 10th Feb 2006, issued by the Department of Industrial Policy and Promotion (DIPP) of Government of India.

As per the consolidated FDI policy, the Cabinet of India, in November 2011 decided to permit up to 100% FDI in single brand retail and up to 51% FDI in multi-brand retail trading which produced a considerable political backlash in India. Consequently the Indian government (UPA) indefinitely suspended plans to reform the Indian retail sector.

But when it was found that the political backlash was due to the issue of 51% FDI in multi-brand retail trade only, the Cabinet decided to bring in force the 100% FDI decision in single brand retail trade. On 10th January 2012, by a press note the Department of Industrial Policy and Promotion (DIPP) of Government of India notified the Cabinet’s decision to permit up to 100% FDI in single brand retail, subject to prior approval of Foreign Investment Promotion Board (FIPB) of India and certain other conditions.

After a long political turbulence the Cabinet on 14th September 2012 (Friday) decided to operationalise 51 percent FDI in multi-brand retail but left it to the state governments to allow setting up of such stores.

Regarding the political consensus, though it was not been made mandatory for all states to accept the 51% FDI in multi-brand retail, some of the states were given their consent, but some other were opposing and stood strong against the decision. The Chief Ministers of Delhi, Assam, Maharashtra, Andhra Pradesh, Rajasthan, Uttarakhand, Haryana and Governments of the State of Manipur and the Union Territory of Daman & Diu and Dadra and Nagar Haveli, had expressed support for the policy in writing. The Chief Minister of Jammu & Kashmir, through his press statements, had publicly endorsed the policy and asked for its implementation. The State Governments of Bihar, Karnataka, Kerala, Madhya Pradesh, Tripura and Odisha had expressed reservations (PIB [8] Release, RCJ/SC/SKS- ID: 87767). Mamata Banerjee [9] , the Trinamool Congress leader was strongly opposing the decision on 51% FDI in multi-brand retail trade.

The reason behind the UPA government was unable to implement the decision is , along with the key UPA-ally Trinamool Congress, the Samajwadi party and JD-U with the left parties were opposing FDI in multi-brand retail.

Opening up of doors for the foreign players to India’s multi-brand retail trade was uncertain because of the Indian political catastrophe but finally been green-signalled.

Amid all these discrepancies the contentious issue of FDI in multi-brand retail, which was simmering for over a year, has finally cleared the Parliament hurdle and got endorsement from both house of Parliament (Lok Sabha & Rajya Sabha on Dt. 05-12-2012 and Dt. 07-12-2012 respectively) for a policy after two days of heated debate between the treasury benches and the opposition and by means of voting.

Current FDI Rules In Indian Retail Trade

Recently 51% FDI in multi-brand retail is permitted by Indian Government.

FDI in single brand retailing up to 100% is permitted with prior government approval and subject to certain conditions.

FDI in ‘Cash & Carry’ wholesale trading is permitted up to 100% under government approval route in 1997 and brought under automatic route in 2006.

FDI in storage and warehousing services including agricultural products (Cold storage) is permitted up to 100%.

FDI In Single Brand Retail

Though the clear-cut denotation of single-brand retail has not been clearly defined in any Indian government circular or notification, single-brand retail generally refers to the selling of goods under a single brand name such as Nike, Adidas, Apple etc. . FDI in single-brand retailing was permitted in 2006, up to 51 per cent of ownership. Between then and May 2010, a total of 57 proposals have been approved. An FDI inflow of US$196.46 million under the category of single brand retailing was received between April 2006 and September 2010, comprising 0.16 per cent of the total FDI inflows.

In most recent proceedings of Indian government, investment proposals of single brand retail giants like IKEA and Inditex are rejected due to one or more reasons.

Spain's Inditex S.A., the world's largest clothing retailer, hit an investment roadblock in India as the government gave the thumbs-down to its plan to sell Massimo Dutti apparel following the success with its flagship Zara brand. An application by Inditex unit Zara Holdings BV to sell a more upscale brand through a joint venture with Tata Group's retail arm, Trent Ltd, was rejected by the Foreign Investment Promotion Board (FIPB). The board didn't explain its decision. (Reuters-Mumbai, Dt. 25-07- 2012)

Indian government has also partially rejected a proposal of Swedish houseware giant IKEA as it shown its inability to meet the 30% local sourcing clause stipulated by the government for FDI in single brand retail. (Reuters-New Delhi/Stockholm, 07-07-2012)

The recent decision of Indian government on the 2G issue and rejection of licence of foreign Telcos like Telenor (Norway), Sistema (Russia), Etisalat (UAE) etc. might put an adverse effect on the foreign retailers towards their investment decision in India’s retail trade.

However, up to 100 percent FDI is allowed in single-brand retail, subject to the Foreign Investment Promotion Board (FIPB) sanctions and conditions mentioned in Press Note 1(2012 series).

The conditions stipulated are as follows:

Products to be sold should be of a 'Single Brand' only.

Products should be sold under the same brand internationally i.e. products should be sold under the same brand in one or more countries other than India.

'Single Brand' product-retail trading would cover only products which are branded during manufacturing.

The foreign investor should be the owner of the brand.

In respect of proposals involving FDI beyond 51%, mandatory sourcing of at least 30% of the value of products sold would have to be done from Indian 'small industries/ village and cottage industries, artisans and craftsmen'. 'Small industries' would be defined as industries which have a total investment in plant & machinery not exceeding US $ 1.00 million. This valuation refers to the value at the time of installation, without providing for depreciation. Further, if at any point in time, this valuation is exceeded, the industry shall not qualify as a 'small industry' for this purpose. The compliance of this condition will be ensured through self-certification by the company, to be subsequently checked, by statutory auditors, from the duly certified accounts, which the company will be required to maintain.

Source : Press Note No. 1(2012 series), Department of industrial Policy & Promotion, Ministry of Commerce & Industry, Govt. of India. Available at www.dipp.nic.in

However, the brand ownership and mandatory 30% local sourcing clause has been amended by the Cabinet Committee on Economic Affairs (CCEA) in its recent verdict on the issue as follows:

Only one non-resident entity, whether owner of the brand or otherwise, shall be permitted to undertake single brand product retail trading in the country, for the specific brand, through a legally tenable agreement, with the brand owner for undertaking single brand product retail trading in respect of the specific brand for which approval is being sought. The onus for ensuring compliance with this condition shall rest with the Indian entity carrying out single-brand product retail trading in India. The investing entity shall provide evidence to this effect at the time of seeking approval, including a copy of the licensing/ franchise/sub-licence agreement, specifically indicating compliance with the above condition.

In respect of proposals involving FDI beyond 51%, sourcing of 30%, of the value of goods purchased, will be done from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors, where it is feasible. The quantum of domestic sourcing will be self-certified by the company, to be subsequently checked, by statutory auditors, from the duly certified accounts which the company will be required to maintain. For the purpose of ascertaining the sourcing requirement, the relevant entity would be the company, incorporated in India, which is the recipient of FDI for the purpose of carrying out single-brand product retail trading. 

Source: http://pib.nic.in/newsite/erelease.aspx, PIB [10] Release, RCJ/SC/SKS - Release ID: 87766, Dt. 14-09-2012

FDI In Multi-Brand Retail Trade (MBRT)

Although the government of India has also not clearly defined the term “multi-brand retail,” FDI in multi-brand retail generally refers to selling multiple brands under one roof. Currently, the 51% FDI allowed in multi-brand retail and foreign retailers now can open stores in India of their own provided certain specified conditions and concerned state government approval. Though, global hypermarket and supermarket chains such as Wal-Mart, Carrefour and Tesco are already operating in some form or other, now they can open stores with their own brand names.

Foreign players have been allowed to operate wholesale stores in partnership with local companies (Walmart-Bharti, Tesco-Tata joint ventures). Bharti-Walmart is a 50-50 joint venture formed in 2007, and it operates ‘cash and carry’ or wholesale outlets in India. Walmart was eagerly waiting to open supermarket stores across India once FDI rules of the country permit multi-brand retailing. Currently, Bharti-Walmart runs 17 cash-and-carry stores in India, where 100 per cent FDI is permitted.

The proposed pre-conditions for allowing 51% FDI (on Dt. 24.11.2011) in multi-brand retail were stipulated as follows:

(a) Minimum investment of $100 million.

(b) 50% of the investment is to be in backend infrastructure development.

(c) 30% of all raw materials have to be procured from India's small and medium industries.

(d) Permission to set up malls only in cities with a minimum population of 10 lakh.

(e) Government has the first right to procure material from the farmers.

(f) Products should be sold under the same brand internationally.

(g) Foreign investor should be the owner of the brand.

Source : http://www.legallyindia.com/Blogs/Entry/what-does-51-fdi-in-multi-brand-retail-mean

The Cabinet Committee on Economic Affairs (CCEA) in its recent verdict on 14th September 2012 has approved the following proposals.

Retail sales outlets may be set up in those States which have agreed or agree in future to allow FDI in multi-brand retail trade (MBRT) under this policy. The establishment of the retail sales outlets will be in compliance of applicable State laws/ regulations, such as the Shops and Establishments Act etc.

Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per 2011 Census and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities; retail locations will be restricted to conforming areas as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking; In States/ Union Territories not having cities with population of more than 10 lakh as per 2011 Census, retail sales outlets may be set up in the cities of their choice, preferably the largest city and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities. The locations of such outlets will be restricted to conforming areas, as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking. 

At least 50% of total FDI brought in shall be invested in `backend infrastructure` within three years of the induction of FDI, where ‘back-end infrastructure’ will include capital expenditure on all activities, excluding that on front-end units; for instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if any, will not be counted for purposes of backend infrastructure.

A high-level group under the Minister of Consumer Affairs may be constituted to examine various issues concerning internal trade and make recommendations for internal trade reforms.  

Other conditions/safeguards, approved by the Cabinet on Dt. 24.11.2011, would remain unchanged.

Source: http://pib.nic.in/newsite/erelease.aspx, PIB [11] Release, RCJ/SC/SKS Release ID: 87767, Dt. 14-09-2012

The respective State Governments administer the Shops & Establishment Act within their territorial jurisdiction. “Trade & Commerce within the State” is a subject allocated to the State Governments, under the Constitution of India. State Governments are also responsible for aspects ancillary to MBRT, such as zoning regulations, warehousing requirements, access, traffic, parking and other logistics. As such, the policy provides that it would be the prerogative of the State Governments to decide whether and where a multi-brand retailer, with FDI, is permitted to establish its sales outlets within the State. Therefore, implementation of the policy is not a mandatory requirement for all States.  

Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per 2011 Census (including an area of 10 kms around the municipal/urban agglomeration limits of such cities). On the other hand, States/ Union Terrritories, which do not have any city with a population exceeding 10 lakhs, but are desirous of implementing the policy, would have the flexibility to do so. 

Arguments In Favour Of FDI In Indian Retailing

FDI would help in modernization of Indian retail sector.

The entry of foreign players is likely to promote India’s manufacturing and export sectors leading bonus for Indian economy.

Because of the huge investment of foreign companies, job opportunities in areas like marketing, agro-processing, packaging, transportation, etc. will be created. According to the Government, 10 million new jobs will be created

FDI can assure better product quality, better shopping experience and customer services and hence consumers will reap higher benefit.

Countries like China, Indonesia, and Thailand already have 100% FDI in retail. After allowing FDI in retail, these countries have experienced tremendous growth in the agro processing industry, refrigeration technology and infrastructure.

Entry of large low cost retailers and adoption of integrated supply chain management is likely to lower the price of commodities. The consumers will be benefited from the potential lower price due to enhanced and possibly tough competition in the market.

Advanced know how in merchandising, inventory management and technical expertise of the global retailers can significantly improve productivity and efficiency in Indian retailing.

FDI will encourage the investment and employment in supply chain management.

Promotion of linkage of local suppliers, farmers and manufacturers will ensure a reliable and profitable market to local players.

Joint ventures would solve the problem of capital constraints of existing organized retailers.

Small retailers will evolve with additional product lines and brands, better display, renovation of the stores, introduction of self services, enhanced home delivery etc.

Allowing FDI has the potential to positively impact and promote tourism, systemization, government’s ability to influence trade when required, address issues as inflation (since data available becomes more reliable/accurate and trade would be highly organized), reduction of black economy, control over food hygiene, better food quality, increased direct and indirect employment, ascendant push to real estate etc. .

FDI has the potential to drive efficiencies in the agricultural supply chain through adding value to it by;

Increasing price realisation for farmers by 10-30% through sourcing directly or closer to the firm.

Reducing handling and wastage by 25-50% with better transportation and storage facilities.

Cutting down intermediaries which in turn will provide direct benefit to farmers.

Improved technology in processing, grading, handling and packaging of goods (Maintaining International Standard), electronic weighing, billing, barcode scanning could be a direct corollary of FDI. Transportation facilities can also get a boost in the form of increased number of refrigerated vans and pre-cooling chambers which can help bring down wastage.

Organized retailers require substantial space for opening stores. Real estate in India can refurbish and receive more investment due to the opening of high-end retail malls with the opening up of FDI in multi brand retail.

According to the Indian Government’s conditions, foreign companies have to source a minimum of 30% of their goods from Indian micro and small industries. This will provide the scales to encourage domestic manufacturing, by creating a big effect for employment and to upgrade the technology.

The 50% mandatory investment in backend infrastructure out of a minimum $100 million investment in case of multi-brand retail is a huge amount that can revamp the Indian retail infrastructure.

Arguments Against FDI In Indian Retailing

The existing large number of fragmented family owned business which is yet to acquire a strong position would not be able to survive the competition from global players.

Although, our country had made a condition that they must source a minimum of 30% of their goods from Indian micro and small industries, we can’t stop them from purchasing goods from international markets as per WTO law. So after coming to India, they can reduce this 30% by litigating at the WTO.

FDI in retailing can upset the import balance. As per the conditions led down by Indian government, 30% products/materials have to be purchased locally. The remaining requirement of a massive 70% they may import and consequently the export-import balance may be upset.

The foreign retailers may initially source 30% locally but there may not be guaranty of regularity on local sourcing.

Global retailers might resort predatory pricing.

As compared to foreign retailers having access to international funds at lower interest rates, the Indian small retailers suffering from high lending rates may not be able to compete with them in maintaining lower prices and will be wiped out.

As sales will be affected in the unorganized sector due to the organized players, employment provided by the unorganized sector will be affected.

FDI resulted organized retailing will kill small jobs and is not going to provide large employment opportunities to the large number of semi-literate Indian mass. It will only provide employment to the educated ones.

International retailers may exercise superior market control and dominance over small local retailers due to their large economies of scale and the currently stipulated FDI norms are not adequate to regulate them.

Opening the retailing sector to FDI means dislocating millions from their occupation, and pushing a lot of families under the poverty line. One must not forget that the western concept of efficiency is maximizing output while minimizing the number of workers involved.

Loss of cultural values due to more influence of the other cultures.

There is no established correlation between advent of FDI and improvement of a country’s infrastructure.

Views Of Erudite Folks On FDI In Indian Retail

Many trading associations, political party leaders, entrepreneurs and intellectuals have opined on the massive debating issue of FDI in Indian retailing.

Amartya Sen, the Indian born Nobel Prize winning economist, in a December 2011 interview claims foreign direct investment in multi brand retail can be good thing or bad thing depending on the nature of the investment. Quite often, claims Professor Sen, FDI is a good thing for India.(NDTV)

According to Adi Godrej (CII President) – “Fast tracking implementation of reform measures can help India achieve the 9% growth target. Reform measures such as opening up of FDI in sector like multi-brand retail and aviation and implementation of Goods & Service Tax (GST) will help put growth back on track.” (TOI-New Delhi, Dt. 06-09-2012)

In the words of Dr. Kaushik Basu [12] , Chief Economic Advisor of the Ministry of Finance, Govt. of India – “ A couple of big bang reform moves like allowing FDI in multi-brand retail could lift the mood of investors even if the economy is slowing down.” (The Hindu-Bangalore, Dt. 13-06-2012)

The former President, A.P.J. Abdul Kalam, said in a function in Kolkata that aggressive marketing and competitiveness were the only factors that separated the developed and developing world. He indicated that he was in favour of allowing foreign direct investment (FDI) in the retail sector. “It looks to me that as long as we can build the capacity of aggressiveness in marketing and competitiveness, FDI is not a dangerous thing.” He noted that in the globalised world, there was need to “collaborate” as far as the retail sector was concerned.(The Hindu-Kolkata, Dt. 26-08-2012)

A prominent face in Indian industry, Tata Group chairman Ratan Tata has expressed his support in welcoming FDI in retail through a twitter comment. He tweeted, "Political differences and vested interests should never be allowed to stand in the way of India's economic progress." 

Future group founder & CEO, Kishore Biyani has said implementation of FDI in multi-brand retail will be a welcome step as it would provide much needed capital (The Economic Times, Dt. 03-09-2012). Bharti Enterprises Vice Chairman and Managing Director Rajan Bharti Mittal has expressed his views as: "This is a landmark decision in India's economic reforms process. Development of organised retail in India will bring immense benefits to stakeholders across the value chain - from farmers to small manufacturers and above all to consumer".

Although there is strong favouritism towards FDI in Indian retail trade among eminent personalities, industrialists and analysts, the other side of this massive issue cannot be ignored. Farmers’ representatives, political leaders and some other are not in favour of this move and some also have shown neutral views.

In a joint statement, Navdanya, Alliance for Sustainable and Holistic Agriculture, Organic Farming Association of India and Jagriti Agrotech asserted that their views were ‘contrary’ to what the government had attributed to them. The farmers’ group pointed out that the monopolistic buying power of the large retailers would further weaken the marginal farmers’ position, resulting in lower share of value to them, dictating the production techniques and output by the larger retailers and destruction of diversity in Indian agriculture. It was also highlighted that this would result in loss of employment, increased risk to farmers, increased risk of price manipulation and total lack of level playing field.(The Hindu, Dt. 15-01-2012)

A working paper by Indian Institute of Management, Ahmedabad’s Prof. Piyush Sinha & Srikant Gokhale says, “As retailing is a very local industry (over 90%), FDI in multi-brand retailing will only benefit existing organized players in terms of attracting foreign capital. It will not change the retail landscape significantly in terms of formats, proliferations, benefiting customers, generating huge employment or investment in supply chain or backend investment as has been envisaged in the policy (FDI).

Future Scope

With up to 100% FDI permission in single brand retail, the UPA government’s most recent decision of allowing 51% FDI in multi-brand retail shows a strong intention of the government to reform India’s economy. The current FDI norms will open up strategic investment opportunities for foreign retail giants. Because of which technology and management skill sharing may result in noteworthy improvement in the Indian retail scenario. High investments on supply chain and storage, strengthening of the backend infrastructure by foreign players will reduce the wastage/post-harvest losses significantly and definitely will have positive impact on Indian economic growth.

The decision would benefit stakeholders across the entire span of the supply chain. Small manufacturers will benefit from the conditionality requiring at least 30% procurement from Indian small industries, as this would enable them to get integrated with global retail chains.

Conclusion

In this era of globalization and liberalization each and every nation is trying to liberalize its economic policies in order to attract investments not only from its domestic players, but also from all across the globe and India is not out of this space. As a country progresses, its retail sector akin to all other sectors has to modernize too. The urbanisation and better earning have changed the life style of the consumers. The influence of literacy level and media explosion is anchoring tool to motivate the consumers towards better shopping habits. Modern customer indeed looks for better and wider choice place viz. super market or shopping mall etc. In this context the inflow of Foreign Direct Investment (FDI) can be proved very momentous. It is widely believed that foreign investment is a key component in the growth process of any developing country. But it is not the only factor that could help for the sustained growth. It must be supported by well-planned micro and macroeconomic policies. In India retail is the sector which provides second highest employment after agriculture. The opening up of India’s retail trade to FDI should be monitored and taken proper care over years such that many sectors - including agriculture, food processing, manufacturing, packaging and logistics will garner benefits. In order to counter the adverse effects of corporate organized retail, there should be a legal and regulatory framework along with an enforcement mechanism that would ensure that the large retailers are not able to displace the small ones by unfair means.

With arguments to support both sides of the debate, it is widely acknowledged that FDI can have some positive results on the economy, triggering a series of reactions that in the long run can lead to greater efficiency and improvement of living standards, apart from greater integration into the global economy. The advantages of allowing unrestrained FDI in the retail sector evidently outweigh the disadvantages attached to it and the same can be deduced from the examples of successful experiments in countries like Thailand and China. India’s local enterprises will potentially receive an up gradation with the import of advanced technological and logistics management expertise from the foreign entities. Indian retail chains would get integrated with global supply chains since FDI will bring in technology, quality standards and marketing. FDI would lead to a more comprehensive integration of India into the worldwide market.

To summarize, with up to 100% FDI permitted in single brand retail, opening up of multi-brand retail up to 51% FDI is a welcome step. However, the path of liberalizing the Indian retail sector should be treaded cautiously and the entry norms should clearly state the approval requirements, conditions / restrictions if any imposed, etc., there should be a good policy and continuous monitoring so that it could serve the purpose envisaged in the reform process. FDI in the buzzing Indian retail sector should not just be freely allowed but should be extensively encouraged.

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