FDI in Indian retail :The pros and cons

    One thing that has been doing the rounds the past few days on the news is about Government allowing Foreign Direct Investment in retailing sector and the political storm it has sparked in the opposition parties.So what is the hoopla all about?

The decision:
   After a decade long debate , the Govt has allowed the foreign retailers to hold upto 51% stakes in multibrand retail and has raised the investment in single-brand from 51% to 100%

What does that mean??
   Lets put is this way. 10 years ago a wealthy foreigner saw India as a booming market for investment in retail shop for his brand "X". But he was allowed to hold only 51% stake in the retail shop.He had to partner up with an Indian for the remaining.5 years after that ,he thought that now that his retail shop for brand X is doing well,why not team up with his other friends with brands "Y" and "Z" and open a multi-brand retail store.But the Indian FDI policy didn't allow him to do that.
    But now,after the govt's move to encourage FDI in retail , he can hold 100% stake in his retail shop for brand "X". Not only that he can also go ahead with his idea of a multi-brand store with at max 51% stakes.

The restrictive clauses:
1.)Companies can open up the stores only in towns with population more than 1 milion.
2.)At least 50% investment has to be in back-end infrastructure like storages and warehouses.

What do these clauses mean?
- By means of the first clause , the companies will be allowed to target only those consumers who are already into "mall shopping culture" in urban cities . The small retailers in the towns with population less than a million will be kept
at bay from suffering.

- India is the second largest producer of fruits and vegetables . But lack of storage facilities , lack of adequate post harvest steps and cold chain infrastructure causes heavy losses to farmers . By the second restrictive clause,the government aims at trying to bring a world class back-end infrastructure which would reduce the losses.

The pros:

  1. Consumers can get quality goods at a cheaper price.

  2. Inflow of foriegn investment and hence growth opportunities.

  3. It would fuel competition in local retail markets to survive . Healthy competition would mean improved quality and is in customer's benefit.

  4. Increased labour force in back-end infrastructure services.

  5. Increased employment in the front-end services

  6. Prosperity of the small and medium scale enterprises as the retailers have been told to source 30 % of their requirement from small and medium enterprises.

  7. Increased export as the retailers would want to export local goods to their outlets outside country

  8. The retailers can resort to contract farming programmes along with measures like direct buying from the farmers which will dilute the role of profit siphoning intermediaries.This can enhance the income of the farmers and give them direct access to markets.

The cons:

  1. Huge losses to unorganized retailing in the urban areas

  2. In order to create monopoly ,the markets would resort to selling the goods at a very low price.
    This would continue till the competition is eliminated.(predatory pricing)

  3. Increase in real estate prices

  4. Add to the already increasing muddle in the urban areas


  1. article by Hemant Batra
  2. Article at mbaknol
  3. An article in TOI

Reviews and opinions, please??


   "3 balls to go,3 runs to win and 2 wickets remaining!!" Does it not seem like the perfect script for a climax of a one-day or a 20-20 match.But the cricketing world witnessed this plot today on the final day of the final test match between W.I and India. The match which at one point seemed to close in India's favour went on to become a thriller of a game finally ending in a draw . Given the comfortable position that India was once at while chasing a total of 242,we must say,the windies snatched a draw from the Indians.

     This match, on the 3rd day was predicted to end in a draw.Darren Bravo even went on to say that if this match has a result he would tattoo Dhoni's face on his back.This has probably been only the second time that a Test has been drawn with scores level.( Bulawayo-test between Zimbabwe and England being the first one).The last 30 minutes of the game were a spectacular display of the batsmen and the bowlers outwitting each other every alternate ball.

  The windies seemed contented having deprived India a whitewash and the Indians had to sing their victory song with a choked voice.Whatever,like Ravi Shastri put it, the final session of the match was a great Advert for the game!!