Foreign Direct Investment in India in Multi Brand Retail

What is Foreign Direct Investment?

Foreign Direct Investment or FDI means to allow foreign companies to enter in to Indian market and open and control their own companies. Foreign companies will come, invest money, and work independently without any joint venture in India.

What is Multi-Brand Retail?

Multi-Brand retail means selling many products under one roof by a single company. The best examples of Multi Brand stores in India are Reliance Fresh, Big Bazar, Value Bazar, Vishal Mega Mart and many more such stores. In these stores many different products are sold but under their banner.

Advantages of allowing 100% FDI in Multi brand retail:

1.       The biggest companies operating in this sector are Walmart, Tesco, and Carrefour. These companies deal directly with farmers and buy fruits, grains and vegetable grown by farmers. This will eliminate the middle men operating between farmers and consumers, thus benefitting both. Farmers will get much higher price for their yield and customers will get goods at cheaper price. It is estimated that farmers are paid half the total value which a final consumer pays.

2.        At present, approximately 35% of food grains are wasted due to lack of storage facilities. Since these companies have ample amount of financial resources, they will open their own warehouses for the purpose of storing goods and thus reducing the wastage drastically.

3.       Approximately, 5-7% of total fruits and vegetables are wasted daily during transportation. With the advent of these companies, there will be huge investment in infrastructure and transportation facilities, thereby reducing transportation wastage.

4.       These stores will provide employment to large number of educated youth which will improve the economic condition of our society.

5.       There will be large amount of tax collection by government from these firms and employees working in these firms.

6.      With the coming of these firms, these will be huge investment in infrastructure in rural areas. These firms will bring new technologies with them and train farmers to use them and provide them requisite technical know how.  This will improve the working condition of farmers and improve the yield of crops.

7.      There will huge dip in inflation. As the cost price of consumable good will decrease, inflation will reduce to a considerable level.

If allowing 100% FDI is so good, then why Non-UPA parties and small retailers are opposing government’s decision?

They feel that with the coming of these companies, the sales of small neighborhood retailers will plummet. It will lead to closing of these small shops and thereby making them unemployed.

When the Indian multi brand stores started, people had same fear that these stores will lead to closing of small shops. Shop keepers opposed the government’s decision at that time but the truth is, now both these retail giants and small shops co-exist and are flourishing. Rather they have improved the economy of the nation and provided employment to large number of people.  

Similarly, I feel that there will be no major negative consequence of allowing 100% FDI in multi brand retail. All the opposition is just a political move to increase the vote bank of crores of retailers.

Some facts related to this topic:

·         $450 billion: Size of India’s retail sector

·         $35 billion: Expected investment in modern retail in India over the next five years

·         Rs 70,000 crores: Investment expected from foreign retailers in India in next five years