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, 2012, 1(1), 248-252



Vineeta Agrawal1

D.D.U.University Gorakhpur (U.P.)

Retail sector in India has been hailed as one of the sunrise sectors of the Indian economy. India has been recognized as leading Retail destination and whole world is eyeing on it. On 24th November 2011 union cabinet stipulated that FDI in multi-brand retail will be allowed up to 51% foreign equity through the government approval route, subject to adequate safeguards for domestic stakeholders. Currently, FDI is permitted up to 26 per cent under the automatic route in wholesale or so-called cash-and-carry operations and 100% per cent with government approval in single-brand stores. Foreign retailers have welcomed this step and have also shown interest in entering Indian market. There has been a lot of debate around the industrial and political circles, although for now this proposal has been postponed. Given the WTO regime India is party to, it is inevitable to prevent foreign players from entering in the Indian market, although the timing of entry has yet to be decided. The present study aims to understand and analyze the challenges and opportunities faced by FDI in Multi Brand Retail Sector. It concludes that allowing FDI can enhance competition and accelerate the process of development of Indian economy.

KEYWORDS: Foreign Direct Investment, Multi Brand Retail, Investment and Productivity

Foreign Direct Investment (FDI) is seen to complement scarce domestic financial resources. It is also expected to modernize production by transferring know-how and technology while increasing domestic productivity and competition and inprint international competitiveness. Till now each sector that has been opened to private investment, such as insurance, banking, civil aviation etc. has grown and the consumer has benefited every time. A study by Luis Guasch (2002), Clive Harris (2003), and the McKinsey Global Institute (2003) have shown that inalmost all cases FDI had a largely positive impact on productivity (the key criterion for assessing long-term economic performance) and on the coverage of services. A study of India by the McKinsey Global Institute (2001) showed that the removal of FDI restrictions in the automotive sector unleashed competition and investments, resulting in a threefold increase in productivity that translated into a threefold increase in output due to falling prices. Employment also rose. So, once adjusted for the one-time events and government shortcomings, the fundamental picture of FDI is quite positive. The benefit to the Indian economy through FDI 248

has been quite positive. Indias economy has more than doubled in real terms since reforms began in 1991, and shows no signs of cooling. The commitment to the new policy of Liberalization, Privatization and Globalization has demonstrated unprecedented growth and opportunity both for local companion and for foreign ones thinking about entering the subcontinent for the first time. Till now all the sectors that have been opened for foreign players such as Insurance, Telecom, Banking and Automobile have contributed in the growth of GDP and given employment to millions of people. Domestic players are doing well along with foreign players are competitive enough. There has been a lot of debate around the industrial and political circles regarding the FDI issue. The Government decision is an outcome of well thought plan to lead India on the path of growth and the issue was in waiting line for quite some time. We need to be very cautious while analyzing the implication attached with the issue of course we have the example of many developed and developing countries that have gained and implemented the policies successfully.

International Journal of New Innovations