April 04, 2017 @ 01:15 PM

FDI in multi brand retail sector of India and its Effects

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The major chunk of Indian retail market is unorganised retail which is about 98%. Although few big local players have tried to enter this segment in order to expand their business and one such player is Reliance. But still to make the retail sector more defined and organised, government has now planned to allow FDI’s from various big players in this segment. One of the major global players is Walmart. 

A well known international management consultant A.T. Kearney once said “India is the second most attractive retail designation globally, among thirty emergent markets.” The landscape and infrastructure of Indian retail has changed dramatically as the there has been a great rise in the number of middle class. Both the upper and lower income groups in India prefer to buy branded goods from standard showrooms. 
 
The reality is that both the organised retailers and kiriana stores exist together, in fact the organised retailers compete with the other organised retailers. Most of the organised retailers have become better than before due to the competition and their expenses have gone up especially the amount spend on advertising.
 
The entire nation as well as the political parties were not expecting the Indian government to permit 51%  FDI by foreign multi brand retailers. India however, took safer and slower steps towards FDI. As per few of the facts, the organised retail sector has grown from 10% to 40% in Brazil and 20% in china, while India is at only 2% in the past decade. This is also the prime reason why the two fastest developing and growing economies in the world in last decade have been Brazil and China.
 
When the government of India allowed FDI in retail the entire country was stunned. Opposition parties and few chief ministers have stood firm against this decision because they feel that if this is implemented then the small retailers will lose their market especially the unorganised retail sector which comprise of the local kirana stores. 90% of the small retailers do not even pay tax to the government of India. These stores work on a small margin of 4-7 % and these kirana stores have been serving the Indian consumer since decades. Some of these stores even provide credit to their regular customers, and now the trend of home delivery has taken apace so these stores even provide home delivery services as well. These small retail stores serve as a great medium of promotion for FMCG companies as they can reach the ultimate consumer through such retailers. Since the year 2000 when the organised retail entered India, it has come a long way. It involved lot of investment and creativity but it has managed to reach newer heights.
 
If we talk about the pros and cons of FDI in retail business sector in India then the first and the foremost advantage is that it serves as an aid to make investments which would yield long-term profits. Once the FDI is allowed then the home country would obtain financial assistance from much richer countries like USA.
 
The positives of allowing 51% FDI in multi brand retail has lot of advantages but because the opposition parties have halted the parliament and they have forced the Government of India to hold this till the time they manage to get the consensus of the various chief ministers of the states and the opposition party. 
 
FDI apart from its capital benefits also helps in reducing unemployment as it increases job opportunities for the people. When companies from other countries will start operating in India then it would lead to an exchange of skill sets and much better production levels. Not only tha,t there is an exchange of technologies as well whenever any two countries come together to work, for eg : if wal-mart comes to India in collaboration with Bharti, then they will use the strong distribution network of Bharti in India which will help them in achieving the economies of scale. Along with that wal-mart will also bring its retail expertise to India so that they can attract consumers. 
 
FDI will also benefit the farmers in India as the multi brand retailers who will operate here will be purchasing the goods directly from the farmers which means that the demand will rise and farmers will be able to sell their products at better and fairer price. Looking at the present scenario in India it’s the farmers who are suffering the most as they are being exploited by the middlemen who pay them very less price for their products. The foreign retailers will be purchasing directly from the farmers as they will eliminate the middlemen which will give them more margins to play with.
 
The ultimate consumer will also be benefitted as they will have more options to choose from, they will be able to buy better quality and variety of products at much more reasonable price. This is the reason why many politicians believe that the local kirana stores will lose their business but reality is different. 
 
The argument which has been put across by the opposition parties that the kirana stores will run out of business once the FDI is permitted is a big myth. Together they have to feed one billion people, dress and house them apart from that there is a huge potential at the bottom of pyramid.
 
The biggest benefit which the Indian economy will gain if this FDI is completed is that of cash infusion. The FDI norms suggest that 50% of the 100 million capitals will go back to the back end infrastructure which means a FDI of 2.5 billion. Not only this, it would also provide lot of employment, once the foreign stores are operational here in India then the workforce will also be hired from here. 
 
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