Advantages And Drawbacks Of Fdi In Retail Sector Economics Essay

It normally takes the form of starting a subsidiary, acquiring a stake in enterprise in an existing organization or starting a joint venture in a international country.

Green-field investment, i. e. , establishing an totally new business in the overseas market.

Mergers & Acquisitions, i. e. , merging or acquiring an existing company in the overseas country.

FDI as an investment relating an extended -term relationship and reflecting a enduring interest and control by the resident entity in a single economy(parent entrepreneur) in an enterprise resident within an economy besides that of the international direct investor.


The retail industry is the fact that sector of overall economy which includes stores, commercial complexes, individual, organizations, companies and organizations. Etc. mixed up in business of retailing variety of completed products to the end-user consumers immediately and indirectly. The products in the retail industry will be the finished products of most sectors of business and economy of any country.

The retail sector in india is huge, and has huge prospect of expansion and development, as nearly all its constituents are unorganizrd. The retail sector of india handles about $ 250 billion each year, which is expected by economists to reach to $660 billion by the year 2015.

The administration led by Dr. Manmohan Singh announced new reform in Indian retail sector.

The FDI in sole brand retail which was previously 51% has been increased to 100%.

The FDI up to 51% is allowed in multi-brand retail stores

The retailers will have to source at least 30% of their goods from small and medium sized Indian suppliers.

All shops can start their functions in populace having over 1million. Out of approximately 7935 towns and places in India, 55 suffice such conditions.

Multi- brand vendors have to bring at least US$100million of investment. Out which 50% will be used for infrastructure.

The opening of retail competition should be within the parameters of state regulations.


SWOT Evaluation of Retail Sector:

1. Advantages:

· Major contribution to GDP: the retail sector in India is hovering around 33-35% of GDP as compared to around 20% in USA.

· High Development Rate: the retail sector in India relishes an exceptionally high growth rate of approximately 46%.

· High Potential: since the organised part of retail sector is only 2-3%, in that way creating lot of potential for future players.

· High Job Generator: the retail sector uses 7% of employees in India, which is rite now limited by unorganised sector only. After the reforms get implemented this percentage is likely to increase significantly.

2. Weaknesses (limitation):

· Lack of Opponents: AT Kearney's analysis on global retailing trends discovered that India is least competitive as well as least saturated marketplaces of the world.

· Highly Unorganised: The unorganised part of retail sector is only 97% when compared with US, which is only 20%.

· Low Efficiency: Mckinsey study claims retail output in India is very low as compared to its international peers.

· Lack of Talented Professionals: the retail trade business in

India is not regarded as reputed vocation and is mainly carried out by the members of the family (self-employment and captive business). Such people are not academically and properly qualified.

3. Opportunities (benefits):

· There will be more organization in the sector: Organized retail will need more workers. According to studies of KPMG, in China, the occupation in both retail and inexpensive trade increased from 4% in 1992 to about 7% in 2001, post reforms and ground breaking competition in retail sector for the reason that country.

· Healthy Competition will be boosted and you will see a check up on the prices (inflation): Retail giants such as Walmart, Carrefour, Tesco, Goal and other global retail companies curently have operations far away for over 30 years. As yet, they have never become monopolies alternatively they have managed to keep a check on the food inflation through their healthy competitive techniques.

· Create transparency in the system: the intermediaries working according to mandi norms don't have transparency in their rates. According to some of the accounts, an average Indian farmer realises only one-third of the price, which the final consumer gives.

· Intermediaries and mandi system will be evicted, hence directly benefiting the farmers and providers: the prices of commodities will automatically be examined.

· Quality Control and Control over Leakage and Wastage: anticipated to company of the sector, 40% of the creation will not reach the\ ultimate consumer. Cost conscious and highly competitive suppliers will try to avoid these wastages and losses and it'll be their endeavour to make quality products available at least expensive prices, hence making food available to weakest and poorest portion of Indian population.

· Heavy circulation of capital will help in accumulating the infrastructure for the growing population: India is already working in budgetary deficit. Neither the government of India nor domestic investors can handle satisfying the growing needs (school, private hospitals, travel etc. ) of the ever before growing Indian population. Hence overseas capital inflow will enable us to make a heavy capital bottom.

4. Risks:

· Current Individual Stores will be compelled to close:

This will lead to considerable job reduction as almost all of the functions in big stores like Walmart are highly automated requiring less employees.

· Big players can knock-out competition: they are able to lessen prices in primary periods, become monopoly and then increase prise later.

· India doesn't need foreign sellers: as they can fulfill the whole home demand.

· Keep in mind East India Company it came into India as investor and then required over politically.

In view of the above mentioned analysis, if we make an effort to balance opportunities and leads mounted on the given financial reforms, it'll definitely cause good to Indian market and consequently to public most importantly, if once carried out. Thus the time for which we postpone these reforms will be reduction for authorities only, since most the general public is in favour of reforms. All the above mentioned disadvantages are generally politically created. With all the implementation of the insurance plan all stakeholders will gain whether it's consumer through quality products at low price, farmers through more transparency in trading or Indian corporates with 49% profit share left over with Indian companies only.

Advantages and Drawbacks of FDI in Retail Sector


1. FDI shifts the burden of risk if an investment from home to foreign buyers.

2. Payments are linked to profitability of the underlying investment

3. FDI is the one capital inflow that has been highly associated with higher GDP

growth since 1970.

4. FDI plays a part in economic progress as it increases the ratio of FDI stream to domestic


5. FDI has resulted in potential increases through technology copy.

FDI has made large occupations in a number of countries.

FDI has resulted in the development of the international trade.


Entry of global giants will force the Indian Traditional Kiryana Stores to shut down their business.

Profit will be allocated, investment ratios aren't fixed.

An financially backward category person will suffer from price rise.

Market places will be located too far which will improve the travelling expenditures.

There will be cross-culture conflicts

Exploitation of natural resources by foreign players

Inflation may be increased.

India can be slave due to entry of overseas players


It can be said that the benefits of allowing unrestrained FDI in the retail sector evidently outweigh the negatives attached to it and the same can be deduced from the types of successful tests in countries like Thailand and China where too the problem of allowing FDI in the retail sector was initially satisfied with incessant protests, but later ended up being one of the very most promising politics and economical decisions of their government authorities and led not and then the commendable surge in the amount of work but also resulted in the gigantic development of their country's GDP.

And also, no person can force a consumer to visit a mega shopping complex or a small store/sabji mandi. Consumers will shop in accordance with their utmost convenience, where ever they get the cheapest price, max variety, and a good consumer experience.

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