Thursday, November 1, 2012

FDI in Retail in India- effects of 100% allowance.

FDI in retail - common man's analysis

There is a repetitive intonation to policy paralysis. The relaxation of the FDI in the country to 100% is in the least a Pro-urban policy and more pampering of the same is in place by more subsidies framed.
The FDI jingle is offering a mix of the problems and solutions. But the thing stays that sooner or later this was imminent to befall and it did at the right turn of time. This is the time when the world is searching for market and India is churning to open up to new avenues in the times when markets in rich European countries are not as positively tilted.
According to Global Retail Development Index, by American consulting firm A T Kearney, India ranks 4th most attractive market amongst top 30 emerging markets in the world. India has been a global hub for marketing and the trend has been rising since a decade now. The onus has been on the fact that a country cannot progress in isolation, and India has done away with it by making herself most suitable and eligible for Global market ever since Mr. Manmohan Singh liberalized the nation and Mr. P Chidambram catered to the dependency ratio of the world to streamlining India in same orders.
Following are some of the pros and cons discussed about the FDI in retail in India.
  • The middleman between the farmer and market will lose ground with stronger players in the market whose demand will be catered by supplies.
  • The 50% must have supplies (back end infrastructure) from domestic levels will offer better prices to providers of supplies.
  • The better and world class commodities will be available at hands to the people in here which was otherwise missing.
  • The quality of the products will turn out better owing to sustenance against the stiff competition in the league.
  •  The competition will lead to better technology inclusion and also innovative methods to drive the market change so as to compete with the foreign players.
  • Despite the World players not playing in smaller cities, the modus operandi will be followed down by them which can overhaul the persisting anomalies whatsoever.
The fear of obsolescence for Kirana stores is also not as valid as people with new trend of DINK (Double Income No Kids) will not trouble themselves with long queue in marts and Hypermarkets. The proximity and ease of availing facilities is the prime motor of the retail shop and demand, Kirana stores have also geared them with practices which appeal to the lax of consumers. For those not complying with the same will have to do so, to survive.

The policy for 100 percent allowance poses a serious question about the beneficiaries of the transition phase between the 51 to 100 percent FDI provisions. There are Indian joint ventures who are cash starved and will be more than ready to sell off their equity amounting to 49%. So the benefit is laid in the hands of these cash deficit companies.

The FDI opening up is not manna dropped from heaven and it won’t dampen the food inflation pervading in country or lead to heavy cash inflows as obvious.

  • Monopolizing and the formation of the cartel by the financially strong foreign players can be a primal fear.
  • Now that the FDI has come in with 100% investment capacity the tax jurisdiction will be dealt stringently minding the profit encashment and cost allocation via unverifiable means. Besides the RTI act will also be enforced upon the retailers for all the products and ingredients.

  • Empirically consumers prefer to purchase from retail stores nearest to their places of residence in as much as proximity of the stores that makes it convenient for the stores to make home delivery and for the consumers to carry the purchased articles home, besides credit system being allowed by the retail stores when necessary eases the process in more than one ways.  There will be very few retail stores which are located within close distance of the large-sized stores. Therefore the loss of self-employment by means of close of small-sized retail stores may be negligible. 
  • The retail markets opening only in One million plus cities restriction is actually a discrimination that puts off the color from the policy. 
  • Another major point of conflict is that the profits reaped from the country will be savored by the foreign players.
  • The selective or segmented freedom to freely invest is directly a retort against across the board plan of action for FDI policy.
  • If you don't go to a Wal-Mart, that is outside of the city, with a car to lug all your stuff back home, it doesn't make economic sense, and you'd rather pay up a small premium for the convenience of shopping near your home.

Economic (of PESTEL) change has actually turned the tables against domestic retail beating on the Porter Five forces theory’s Threat of New Entrants. Government having relaxed the norm has directly affected the retail business of the country and in best guesses I can say that the economic decisions are better left with wisdoms of those who run the business.


  1. Nice Analysis..Change should always be there for the better..And choice is voluntary!

  2. gud analysis.... wud have been better if more stats and figures were inputted in pros and cons... Also more research work should have been done more....else it is well compiled and written.. expecting few more on recent topics...

  3. Thanks Madhu and Atit for feedback. Atit- I realize the pitfalls now that you have brought forward, i will cover up in the forthcoming articles.

  4. Nicely compiled and facts well layed out for easy perception ! Will agree with Atit that more stats would have provided a profound basis and acceptability to the topics discussed !

  5. Nice article,explains FDI in a nutshell!