December 04, 2011

Foreign Direct Investment in Indian Retail Sector

Anything critical that has to be done must and will be done with enough thought and precaution. But, whatever be the case, one is definitely going to face new challenges regarding the decision that’s being taken. The decision can be anything ranging from personal to the highest order in our Nation. So is the case with the FDI, or for that matter any policy being implemented by the government.

To put out a basic fact, the biggest issue in our Nation does not hit the front page of the news paper or the news headline whereas it is simply the news that’s in the front page of a news paper and running in the headline that becomes the issue. First and foremost reason for this is the lack of awareness that people have. Analyzing the reactions from the public it is well understood that the resolution taken for any problem is to terminate the problem rather than finding a prompt solution which would lead to the betterment of the ones involved.

As per the government’s decision ‘Multi-brand’ retailers are allowed 51% FDI. 30% of procurement of their goods must come from the Indian backend. The problem or the issue raised is basically that the small retailers would suffer. True, but only if the bill is passed without any consideration for these retailers. Why then is the government so keen to implement this policy? Is it just a ‘rock’, ‘paper’, ‘scissors’, decision taken by a panel of members and the advisory committee.

Consumers only want their goods at affordable prices and they want the goods to have ‘good quality’, is this not going to increase the competition also within the domestic market to maintain, rather improve the quality of the goods sold. Of course the bill might not entirely be within the best interests of the small retailers but it seems to be in the best interests of the nation. Obviously a resolution can be found for this one problem. The policy should just have provisions ensuring the interests of these retailers. Nothing is impossible, given the resources. It is the Indian government that’s creating the bill and it’s obviously not impossible to draft it in our favor and suite our needs.

The FDI in multi-brand retailing is just going to be a new path of exploration, as was the IT field which took India to new levels. The FDI would curb inflation, and would also add a whole new sea of opportunities for Indians. With the retailers having to buy 30% of their procurement from the domestic market, the farmers would definitely benefit. This could possibly end the middle-man era that has eroded and misplaced the wealth from the place it’s supposed to be in. The increase in competition means better quality for the consumers. With FDI also comes technology and innovation transfer which would further aid our nation in development. For example, better storage facilities for goods would put out a huge margin of loss which has been resulting from improper storage.

The only and most important thing to be serious about is the invasion of Chinese products on the Indian market. Discussions and debates mostly surround only the impact on the small retailers and not the the long term impact this decision is going to make. ‘FDI worked in China, then why not in India?’ is a popular question. Well, the Chinese, unlike Indians, are one of the largest exporters in the world and earn their income mostly on exports. For a matter of fact, 70% of Walmart’s goods come from China, which is why we need to be careful of the ‘Chinese invasion’. If Walmart was an individual investor, it would stand 8th largest investor in China just ahead of Russia. This is how big the impact is going to be.

Everything good comes with a price and we have the responsibility to regulate policies well which would prevent unnecessary trouble later. A regulatory body for this particular sector, if set up, would definitely add to the benefits of the host nation as this body would be committed to that particular sector. Policies are the back bone to any standing decision and to have it framed and implemented for the betterment of the people is the most vital part. India is very well known for bringing up fantastic plans, but ends up favoring the wrong side due to lack of commitment into the policy. This is one reason that every issue in our nation has to be hyped.

To those who say ‘They don’t allow us, then why allow them?’, there’s just one thing to say. People prefer the better, and if the Indian retailer is better than its foreign counterpart, the Indian is going to be the ideal choice. FDI will bring brighter dreams in the future for our nation. The final verdict is that implementing FDI is one of the best choices made by the government; the difference is only going to be a matter of how it is going to be implemented and what steps are taken to have it play for us. It is pre-mature to predict how this would end up, as one can only wait and watch into whose hands the policy plays in the long run.

The writer of this article, Anshu Katiyar is a PGP student of Indian Institute of Management, Raipur. He has done his B.Tech in Information Technology from Dr. M.G.R. University, Chennai and can be reached at


  1. All Assumptions.. No facts..
    Hope to see some good stuff next time.

  2. Before going ahaead with FDI in retail, we also need to consider this fact as well that more than 80% of the people employed in retail is in unorganized retail which could be anywhere between 2-4 crore. These are also not accounted in any official records. Retail in our country is kind of a forced profession because retail is a best option for any one to get in with little ammount of invetment. These people will be severly affected with increased cap in FDI.

  3. Dear Harman,

    You would appreciate the fact that at times due to the limitation of space on the blog, we are unable to do justice to issues such as "FDI in Retail". But still, if you are keen to read more on the topic, we advise you to chech out the Special Issue of Strive on Retail.