Fdi Boon or Bane

Topics: Investment, Foreign direct investment, International economics Pages: 15 (5104 words) Published: March 15, 2013

FDI in Retail –BOON OR BANE???


India is the attractive and profit oriented market for the investment to developed countries. Despite its good surplus and evergreen sector, the Retail-business in India lacks in Capital Investment and lack of transparency. The retailers are just focusing on urban sector and are unable to penetrate in rural sector. FDI can be one solution that will lead to the expected development. If FDI is allowed in Retail-sector, it will help Retailers to gain more profits thus eliminating the flaws in the current system. As per government norms, if FDI is allowed then 50% of the total FDI has to be invested in backend infrastructure. This will improve the processing, distribution, packing & logistics in agro-sector. Thus a huge change in Retail-business is possible. This will have a positive impact on the Indian Economy growth. Increase of FDI in Retail also help full for providing employment. But there are also some drawbacks of FDI such as Flow of money to foreign destination and difficulty for unorganized players to withstand in cut-throat competition. Indian government has to take decision to introduce the FDI in retail along with all does and don’t. This paper focuses on affect of FDI in Retail sector if introduced.

Keywords: Foreign Direct Investment (FDI), Retail-business, Govt. Interventions, Challenges, Recommendations.

Objective of Research-
* To study the FDI (Foreign Direct Investment) in detail.

* To find out the contribution of FDI in Indian market.

* To study the impact of increase in FDI.

* To find out the effects on Indian economy of increase in FDI.

Increase in FDI going to affect positively on Indian market for Short term period.

Data and Methodology-
We use secondary data for this research paper. It is just an Literature Review.The paper attempts a panel exercise for the select major emerging market economies to ascertain determinants of FDI flows. The data set comprises observations for the period from 2003-04 to 2009-10 for 10 major emerging economies, viz., Argentina, Brazil, Chile, India, Malaysia, Mexico, Philippines, Russia, South Africa and Thailand. To ensure the comparability entire dataset has been sourced from the Global Development Finance, published by the World Bank. FDI flows have been measured as FDI inflows to GDP ratio which has been regressed over a range of explanatory variables. Drawing from the literature review presented above, some of the variables that have been chosen and could be significant in determining the FDI flows comprise: market size, openness, currency valuation, growth prospects, macroeconomic sustainability, regulatory regime and proportion of global FDI received by emerging economies. Market size: Larger market size is expected to attract more FDI as it provides greater potential for demand and lower production costs through scale economies. Market size has been proxied by GDP in purchasing power parity (PPP) terms. Openness: Impact of openness or liberalized trade is somewhat ambiguous and depends on relative strength of two effects. First, economy with trade barriers is expected to attract more horizontal FDI so that production sites could be built within the national boundaries of those restricted economies. Second, increasing openness attracts vertical FDI flows in search of cheap intermediate and capital goods (Resmini, 2000). Also, openness in trade is correlated with economic liberalization policy of an economy that may sound favorable to investors. Openness has been proxied by sum of current receipts and payments to GDP ratio.

FDI can be defined as a cross border investment, where foreign assets are invested into the organizations of the domestic market excluding the investment in stock. It brings private funds from overseas into products or services. The domestic company in which foreign currency is invested is usually being...
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