Foreign Direct Investment (FDI): An Introspection

Foreign Direct Investment (FDI) is a mode of direct investment into production or business in a country by a company in another country, either by procuring a company in the target country or by expanding existing business operations in that country. Multi- brand retailers like Wal-Mart and Tesco aim to start operations in India through the FDI. Already single-brand companies like Nike, Bose and Apple have been allowed to open their own retail shops. It is certain that India’s retail business sector will undergo a severe change once all these players are in full form. However, the multi–retail brands will not be able to acquire an easy entry into the Indian market because the government has imposed a tighter set of norms that seeks to ensure that they build chains right from start. The policy ensures that the foreign investors to bring in at least a $100 million of investment split equally between the front and back end. The implication of this policy is that this amount has to be a new investment. In other words, a foreign multi-brand retailer will have to invest $ 50 million in setting up new stores to meet the front end requirement.

However, the debatable point is what will happen to the small retailers of the Indian market when these multi-brand giants like Wal-Mart and Tesco come into operation?

Considering all possibilities, the announcement of FDI does not show a light of hope. The Indian retail market is diverse and very large in its composition. Only 4% of the retail trade in India is organized. FDI’s aim is the rest 96% of the unorganized retail sector which is not a homogeneous category, consisting of peddlers, street vendors, kiosks, pushcart vendors, and weekly traders. The majority of those in involved retailing depend on small and medium enterprises for their supplies.

Since the multi-brand stores have the liberty to buy products from anywhere in the world and they have enough resources to conduct market research, they would explore the world market and invest wherever they would be able to maximize their profit through the final sale. Small vendors and traders would continue to have access to the products produced by the small-scale industries but at the same time these enterprises would face severe competition from cheap commodities imported from elsewhere. It is a simple speculation that sooner or later the prices of the commodities of these domestic small enterprises will fall in the markets and they will be forced to quit.

It is argued that FDI in retail would create employment opportunities. But it would create employment for those who are educated and have professional experience. But those engaged in business in the unorganized retail sector have minimal education, no professional degree apart from their marketing knowledge. Now, if FDI in multi-brand retail comes, it is not in any way going to benefit these traders if they lose their sole means of survival.

Farmers also are not going to be benefited in any way as they would continue to be exploited by the multi-brand retail giants in the long run. Such destruction of the small scale and self employed lower middle class will lead to large scale poverty and destitution because the unorganized retail sector is actually absorbing the shocks of migration and rural distress.

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