The cabinet said OK for 51% FDI in multi-brand retail sector & 100% FDI in single brand. On one hand farmers will benefit

from it but on the other hand small traders feel they will not be able to withstand the competition. Will India in general benefit

from this step?

INTRODUCTIONForeign Direct Investment, or FDI, is a type of

investment that involves the injection of foreign funds into an enterprise that operates in a different country of origin from the investor.

It usually involves participation in management, joint venture, transfer of technology and expertise.

FDI can be classified: Inward FDI and Outward FDI

FDI in IndiaIndia ranks third in the list of most attractive FDI destinations as per Ernst &Young's 2012 European attractiveness survey

India is fast gaining importance world-wide as the country has become an investment hub over the last decade. Global investors have retained their faith in the resilient Indian economy even during the toughest of the times. As a result, India enjoyed high foreign inflows and investments when rest of the world was struggling to even survive.

According to a UN report, foreign investments in India could increase by more than 20 per cent in 2012-13.

TOP INVESTING COUNTRIES

53%11%

9%

7%

5%4% 4% 3%

2% 2% Mauritius

Singapore

USA

UK

Netherlands

Japan

Cyprus

Germany

UAE

France

SECTOR WISE DISTRIBUTION

31%

13%

12%

11%

10%

6%

6%4% 4%

3%

Services Sector

Computer Software & hardware

Telecommunications

Housing & real Estate

Construction Activities

Power

Automobile Industry

Metallurgical Industries

Petroleum & Natural Gas

Chemicals

FDI AND ECONOMIC DEVELOPMENT

FDI has an important impact on country’s trade balance, increasing labour standards and skills, transfer of technology, skills and the general business climate.

FDI also provides an opportunity for technological transfer and up gradation, access to global managerial skills and practices ,optimal utilization of human capabilities and natural resources, making industry internationally competitive,opening up export markets,access to international quality goods and services and augmenting employment opportunities.

India’s share in global FDI has increased considerably, but the pace of FDI inflows has been slower than China, Singapore, Brazil, and Russia.

Indian economy is largely agriculture based andt here is plenty of scope in food processing, agriculture services and agriculture machinery. FDI in this sector should be encouraged.

Research and Development expenditure shows unexpected negative sign. This could be attributed to the fact that R&D sector is not receiving enough FDI as per its requirement. but this sector is gaining more attention in recent years.

MODESForeign Direct Investment (FDI) is permitted as under the following forms of investments-

• Through financial collaborations.

• Through joint ventures and technical collaborations.

• Through capital markets via Euro issues.

• Through private placements or preferential allotments.

WHY FDI ?

1. Gain a foothold in a new geographic market. 2. Increase a firm’s global competitiveness and

positioning. 3. Fill gaps in a company’s product lines in a global

industry. 4. Reduce costs in areas such as R&D, production, and

distribution. 5. Competition :

-Catalysts to spur competition & innovation in retail industry -Ensure highly efficient-low margin business model

WHY FDI ?...6. Consumers:

-Improved product availability, quality & reduce wastages

-Consumers to get best products and services at reasonable price

7. Back End & Supply Chain Improvement : - Inadequate storage facilities cause heavy

losses to farmers - 25%-30% of F&V and 5%-7% of food grain in

India are wasted - Food inflation and fluctuation in food prices can

be controlled

WHY FDI ?...• Back End & Supply Chain Improvement : • Inadequate storage facilities cause heavy losses to

farmers • 25%-30% of F&V and 5%-7% of food grain in India are

wasted • Food inflation and fluctuation in food prices can be

controlled

FACTORS REQUIRED TO ATTRACT FDI

• Low cost BUT Qualified, Educated/Skilled Labor Pool. • Long-term Market Potential OR Yields greater than can

be achieved Domestically.• Access to Natural Resources.• Geography• Stability of the economic and Political Environment.• Size of the Market• Legal and Regulatory Framework • Access to Basic Inputs

CONTINUE…• Cost factors• Labor costs • Transpiration/ logistic cost • Low cost of raw materials • Return on investment

• Market factor• Large size of host markets • Demand in host country • Level of competition in host market • Economic stability

• Infrastructure and technological factors

CONTINUE…• Level of infrastructure • High industrial concentration (Clustering) • Availability of well qualify of work force • Access to reliable and corporative suppliers

• Political and legal factors• Political stability • International trade agreements • Tax reduction in host country • Benign environmental legislation towards FDI

• Social & Cultural factors• Cultural distance • Attitude of the local community toward the firm

Disadvantage of FDIMultinational companies and Chinese goods will flood the

market at cheaper rates and there will be no takers for local products

Entry of MNC supermarket and hypermarket chains would cause severe displacement of small and unorganised shopkeepers and traders

MNC retailers will push prices paid to farmers and manufacturers down rather than raising them, and producers unable to accept such concessions would simply go out of business

Advantages of FDI

Improvement in the supply chain: FDI allows end-to-end integration in the farm to folk supply chain. With that investment wastage levels can go down significantly

The technology transfer that will happen because of the integration between the retail chain and the farmer will ultimately lead to a productivity improvement

Employment creation

Conclusion• After considering all the aspects related to FDI, we can conclude that, though there are slight disadvantages of it, but it is very important or we can say life blood for a developing country for there economic growth and stability and for developed country, to continue their stability.