FDI in Retail – Pros and Cons

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Lets understand… what is Retail means in INDIA..

Retail industry is divided in two parts:

1. Organized Retail: These are licensed retailed who are registered for sales tax, income tax, etc. E.g. Retail-chain, Hypermarkets, Supermarkets. Privately owned large retail businesses. This account for only 3-4% of total retail.

2. Unorganized Retail: These are the traditional formats of low-cost retailing like Kirana stores. Owner runs the shop with the help of family. Nearly 97% of total retail.

What is FDI?

FDI is Foreign Direct Investment. It is an investment by a foreign company into other country than origin. This investment can be done through acquisition of local company or establishing a new business operation. That means it is the money inflow from foreign entities invested in allowed segments/sectors.

Positives of  implementing FDI in Retail Sector :

– Big retail chains will invest in supply chains which will cut wastage, estimated at 40% in case of fruits and vegetables.

– SMEs will have bigger market, along with better technology.

– It will cut the middleman and help farmers get more price and consumers less cost.

– Prices will be brought down at retail level to tame inflation.

– It will create more employment in areas like marketing, agro-processing, packaging, transportation than displacing people of small stores.

– Franchising opportunities for local entrepreneurs.

– It will increase Govt Revenue through TAX which will increase govt Income   and Govt can spend more on social /development area’s.

Negatives

– It may tame inflation initially but will fuel the inflation once MNC companies get a stronghold in retail. (Healthy competition should be there so that there is no Monopoly)

— Farmers may be given good prices initially, but eventually they will be at the mercy of big retailers.

– It might lead to closure of tens of thousands of small retail stores.(They can’t compete in Prices but yes Services they can do better, so they have to change)

–As Indian government’s condition, companies will buy 30% from small industries of India, but what about the other 70%?

Walmart and all these big giants import their majority goods from China.
-Government is saying the cities which have a population of more than 1 million are open for these foreign companies. One must enforce to limit them to 1 million population only.

My Views:

– Govt should be doing close watch on Big Retailer operations after these being implemented.

– Any mal-practices or  unethical doing by big retailer can harm the whole scenario’s

– Regulator required to monitor.

– New Technologies/Practices should help and can stay for long and increase efficiencies

So , In my views we should go a head with it but more regulation required.

Your views are welcome!!

Regards

Finance Doctor

 

 

5 COMMENTS

  1. You failed to mention one critical point that there’s no level playing field here. Foreign companies’ cost of capital will be around 4prcnt whereas the ‘unorganised’ sectors’ cost of capital is anywhere OVER 12 prcnt. After FDI, it will go even higher.

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