India has become the favorite destination for foreign investors. Over 1.2 billion people and 40% middle class, India’s retail sector is a hunting ground for biggies in western world.
FDI, Foreign Direct Investment is a “direct investment into production” or “business in a country by some other country”. It can be a modified business to an existing one or a completely developed technical infrastructure.
In simple words:
An “x” company visits India and opens its own store for capturing local markets or a “y” company takes over an Indian company to boost productivity.It is called “home-host business”. The home country earns millions of dollars by expanding its business though overseas while the host country acquires the technical and managerial skills from it. In engineering language it is called “technology transfer; where technology and skill is transferred from one country to another.
The historical background of FDI in India can be traced back with establishment of East India Company. It was under the guidance of Gandhiji who started boycotting foreign clothes by introducing swadeshi movement.
Soon after independence we saw a lot of changes in Indian market. Foreign players like PepsiCo, kfc, Honda could not widen up their business due to stringent laws and regulations. These laws were meant to keep a balance between domestic market and multi brand retail.
Development is a very time taking phenomena. No matter how organized the union Budget is, it is very impossible to build a world class infrastructure in a poverty stricken country. To remove inflation we require heavy flow of foreign money and technically sound infrastructure.
However Indian government has allowed 51% FDI in retail sector. So giants like Wal-Mart will be selling quality products at cheaper rate.
I have gathered some pros and cons of FDI:
Pros
- With best technologies, excellent packaging and superior manufacturing units wastage of products is minimized.
- Due to non involvement of middle men, farmers will get the right price for their crops.
- Steep competition means frugal engineering; “Better quality at lower price”
- There will be transparency in cash flow. Right Taxes will add revenue to the government.
- Because of “technology transfer” domestic production will get a new shape. Use of updated machinery and assembly line will boost production.
- Huge employment of technicians, engineers and skilled persons.
Cons
- It will destroy the income of local retailers and middle men. Lakhs of people will become jobless.
- Multi brand retain will introduce a variety of Chinese products which may ruin our domestic sales.
Rail, defense and telecom have already shown green signal towards FDI and it is our hope to see how the present government copes up with the modern environment.