“An analysis on the impact of FDI in India’s Retail sector” Abstract
India is one of the largest emerging markets, with a approximated population of 1.22 billion. India is one of the largest economies in the world in terms of purchasing power and has a strong middle class base of 320 million. Around 72 per cent of the total households in India reside in the rural areas, where mostly traditional retail outlets, commonly called kirana stores exist. These are unorganized, operated by single person and runs on the basis of consumer familiarity with the owner. However, recently organized retailing has become more popular in big cities in India and most of the metropolitan cities and other big cities are flooded by modern organized retail stores. Many semirural areas also witnesses entry of such organized retail outlets. FDI is a tool for economic growth through its strengthening of domestic capital, productivity and employment. FDI also plays a vital role in the up gradation of technology, skills and managerial capabilities in various sectors of the economy. Despite encouraging signs, India’s retail market remains largely off-limits to large international retailers like Wal-Mart and Carrefour. Opposition to liberalizing FDI in this sector raises concerns about employment losses, unfair competition resulting in large-scale exit of incumbent domestic retailers and infant industry arguments to protect the organized domestic retail sector that is at a growing stage. The present paper attempts to analyze impact of the FDI in Indian service sector in terms of Gowth, employment and unfair competition among organised & unorganised sectors. Keywords: Foreign Direct Investment, Liberalization, Retail, India 1. INTRODUCTION
India is now the last major frontier for globalized retail. In the twenty years since the economic liberalization of 1991, India’s middle class has greatly expanded, and so has its purchasing power. But over the years, unlike other major emerging economies, India has been slow to open its retail sector to foreign investment. Recent signals from the government however suggest that this may be about to change: global supermarket chain stores such as Wal-Mart (United States), Carrefour (France), Marks & Spencer and Tesco (United Kingdom), and Shoprite (South Africa) may finally be allowed to set up shop in India. Foreign direct investment (FDI) in the retail sector in India is restricted. In 2006, the government eased retail policy for the first time, allowing up to 51 per cent FDI through the single brand retail route. Since then, there has been a steady increase in FDI in the retail sector, and the cumulative FDI in single-brand retail stood at $195 million by the middle of 2010 (DIPP, 2010). In January 2012, India approved reforms for single-brand stores welcoming anyone in the world to innovate in Indian retail market with 100% ownership.
2. NEED AND IMPORTANCE OF THE STUDY
The flow of FDI in Indian service sector is boosting the growth of Indian economy, this sector contributing the large share in the growing GDP of India. This sector attracting a significant portion of total FDI in Indian economy and it has shown especially in the second decade (2000 - 2010) of economic reforms in India. Is this contribution of FDI this sector is stimulating the economic growth or FDI will raises concerns on employment losses and unfair competition between organised and unorganised sector, this knowledge thrust of research scholars create the interest in conducting this study.
3. OBJECTIVES OF STUDY
The purpose of this study is to analyze the economic growth in retail sector through FDI. For this purpose the paper discusses three motivating factors underlying these initiatives: To study the FDI inflows in Indian Service Sector from 1991-2011. To study the pros and cons of the FDI in India economy. To study the impact of FDI on Unorganised Sector in the economy.