All over the world, FDI is seen as an imperative source of non-debt inflows, and is increasingly being hunted as a vehicle for technology flows, and as a means of building inter-firm associations in a world in which multinational corporations (MNCs) are predominantly operating on the basis of a network of global interconnections. In the current global scenario, it is possible for India to realize very dynamic growth constructed upon labor- intensive manufacturing, which syndicates the massive supply of Indian labor, including skilled managerial and engineering labor, with foreign capital, technology, and markets Bajpai and Sachs (1997). On this basis, the East Asian economies have attained growth rates consistently above 6 percent per year, and China has achieved growth in excess of 10 percent per year in the 1990s. Malaysia, to cite another instance, has loosened from being a raw-material exporter in the 1970s (with merchandises accounting for 80 percent of exports) to a manufacturing exporter (with manufactures, mainly electronics, accounting for 70 percent of exports), and with GDP growth of 8 percent per year. MNCs offer the capital, international market access, and technology that India lacks, and are therefore vivacious to remolding India as a strong and rapidly growing economy. Foreign Direct Investment take place when an investor based in one country procures asset in another country in this process, the company investing in the swarm country also transfers assets such as technology, management and marketing. In addition to this the investing company also get chances of power to exercise rheostat over decision making in a foreign land enterprise to the extent of which it held equity control such investment could also be in the form of reinvestment of earning in the shape of retained earnings by the swarm country's enterprises that also strengthen the control of foreign investors FDI can also be in the form of equity debenture or bond in the Indian companies by foreign investors, it is channelized in the arrangement of direct foreign contribution to the equity capital of company and is akin to domestic equity invested by the Indian shareholders of the companies the government of India has customary high powered foreign investment promotion board to provide for single window approval channels for the inflow of FDI and many restrictions on the inflow of foreign capital have been withdrawn during the recent past which is the sign of reassurance for foreign investors. Before 1991, the Indian financial system was inaccessible from the international financial markets. Indian companies could only access the Indian capital market that is their sources of finance were restricted with in India.
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After the economic liberalization, the openness was familiarized in the Indian financial system and option of global market was opened for Indian business entrepreneur they can tap international sources for both debt and equity the main market instruments used by the Indian companies are global depository receipts(GDR) and American Depository Receipts (ADR) .International finance also comes in the form of foreign direct investment (FDI) under this source direct equity contribution by MNC,s are made to expand their operation yonder their national boundaries in the form of new enterprises as a branch or as subsidiary, expansion of overseas branch or subsidiary and acquisition of an overseas business and tremendous change has occurred in the Indian financial system with regard to its integration with the global financial markets.
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There is a cumulative trend towards global capital markets and similar efforts were made to invite international investment to India. Since the inception of economic and financial reforms of 1991, the FDI inflow in India is increasing, however India has enormous potential for absorbing greater flow in the coming years. Many efforts are being made to attract greater in flow of FDI in the country by taking several whereabouts both on policy and implementation front FIPB has been shifted to the department of economic affairs under the ministry of finance and company affairs with more power and sovereignty more over the matters relating to FDI policy and its promotion and facilitation as also ICOQM-10 June 28-30, 2011 235 promotion and facilitation of investment by NRI and overseas corporate bodies will continue to be handled by this department as the application form for carrying on business (COB) licenses has been revised, liberal promotion on the merit and proper monitoring scheme has been gear up by the concern ministry the basic requirement of foreign investing community in making their investment decision is accessibility of timely and reliable information about policies and procedures governing FDI in India time and again has habitually provided to them. The different factors like Rate of interest, speculation, profitability, cost of production, government policies economic conditions, political stability, resources, preference of investors, cross border M&A, portfolio investment, FII, security of life and property and market sentimentalities are to be looked in order to attract FDI into country. Portfolio equity flows to developing countries was rising abruptly from last two decade which is point of focus and fact is this that it is very small share of total international portfolio investment flows but small share of total investment by the developed countries portfolio investment would amount to large portion of investment in the developing country markets like India has high sensitivity and volatility of investment. In fact foreign investing community have been accurately attracted and positive result are curving in the investment market, to know the exact impact of FDI on the overall development of India on sector wise this research is plunge upon for which the researcher will review existing literature and facts and figures of concern ministry/dept. and institutions to draw the exact conclusion.
FDI Equity Inflows from 2000-2012
S. No
Financial Year
(April - March)
Amount of FDI Inflows
%age growth over previous year (in terms of US $)
In Rs, crores
In US$ million
1
2000-01
10733
2463
-
2
2001-02
18654
4065
( + ) 65 %
3
2002-03
12871
2705
( - ) 33 %
4
2003-04
10064
2188
( - ) 19 %
5
2004-05
14653
3219
( + ) 47 %
6
2005-06
24584
5540
( + ) 72 %
7
2006-07
56390
12492
(+ )125 %
8
2007-08
98642
24575
( + ) 97 %
9
2008-09 '*'
142829
31396
( + ) 28 %
10
2009-10 #
123120
25834
( - ) 18 %
11
2010-11 #
88520
19427
( - ) 25 %
12
2011-12 # (April - January 2012)
122307
26192
-
CUMULATIVE TOTAL (from April 2000 to January 2012)
723367
160096
-
NOTE: Including amount remitted through RBI‟s-NRI Schemes (2000-2002).
(ii) FEDAI (Foreign Exchange Dealers Association of India) conversion rate from rupees to US dollar applied, on the basis of monthly average rate provided by RBI (DEAP), Mumbai.
(iii) Variation in equity inflows reported in above Table II-A & II-B for 2006-07, 2007-08, 2008-09, 2009-10 & 2010-11 is due to difference in reporting of inflows by RBI in their monthly report to DIPP & monthly RBI bulletin.
(IV) # Figures for the years 2009-10, 2010-11 & 2011-12 are provisional subject to reconciliation with RBI.
(V) „*‟ An additional amount of US$ 4,035 million pertaining to the year 2008-09, since reported by RBI, has been included in FDI data base from February 2012.
Top 5 Countries for FDI:
Country
Inflow in % age terms
Inflows in absolute Terms (million US dollars)
Mauritius
42%
50164
Singapore
9
11275
USA
7
8914
UK
5
6158
Netherlands
4
4968
Majority of the foreign direct investment comes through Mauritius as it enjoys several tax advantages, which works well for the international investors.
Foremost impairments to larger FDI inflows in India:
In addition to India's poor recital in terms of competitiveness, quality of infrastructure, and skills and productivity of labor, there are numerous other factors that make India a far less attractive ground for direct investment than the potential she has. Given that India has a huge domestic market and a fast mounting one, there is every cause to believe that with continuous reforms that improve institutions and economic policies, and thereby generate an environment conducive for private investment and economic growth that substantially large capacities of FDI will flow to India. We list some of the major deterrents below:
1. Restraining FDI regime
The FDI regime in India is still quite restrictive. As a consequence, with regard to cross- border ventures, India ranks 57th in the GCR 1999. Foreign proprietorship of between 51 and 100 percent of equity still requires a long procedure of governmental agreement. In our view, there does not seem to be any justification for enduring with this rule. This rule should be scrapped in errand of automatic approval for 100-percent foreign ownership except on a small list of sectors that may continue to necessitate government authorization. The banking sector, for example, would be an zone where India would like to negotiate reciprocal investment rights. Besides, the government also needs to ease the restrictions on FDI leakages by non-financial Indian enterprises so as to allow these enterprises to enter into joint ventures and FDI provisions in other countries. Further deregulation of FDI in industry and generalization of FDI procedures in infrastructure is called for.
2. Nonexistence of clear cut and translucent sectorial policies for FDI
Expeditious translation of appropriate FDI into actual investment would require more transparent sectorial policies, and an extreme reduction in time-consuming red-tapism.
3. High tariff rates by international standards
India's tariff rates are still among the highest in the world, and continue to block India's attractiveness as an export podium for labor-intensive manufacturing production. On tariffs and quotas, India is ranked 52nd in the 1999 GCR, and on average tariff rate, India is ranked 59th out of 59 countries being ranked. Much greater openness is required which among other things would comprise further decreases of tariff rates to averages in East Asia (between zero and 20 percent). Most prominently, tariff rates on imported capital goods used for export, and on imported inputs into export production, should be duty free, as has been true for decades in the efficacious exporting countries of East Asia.
4. Lack of decision-making authority with the state governments
The reform progression so far has mainly concerted at the central level. India has yet to free up its state governments satisfactorily so that they can add much superior dynamism to the reforms. In most key infrastructure areas, the central government remains in rheostat or at least with veto over state actions. Greater freedom to the states will help foster greater rivalry among themselves. The state governments in India need to be observed as potential agents of rapid and salutary change. Brazil, China, and Russia are examples where regional governments take the lead in pushing reforms and prompting further whereabouts by the central government. In Brazil, it is São Paulo and Minais Gerais which are the reform leaders at the regional level; in China, it is the coastal provinces, and the provinces farthest from Beijing, in the lead; in Russia, reform leaders in Nizhny Novgorod and in the Russian Far East have been major spurs to reforms at the central level.
5. Partial scale of export processing zones
The very diffident assistances of India's export processing zones to fascinating FDI and overall export development call for a revision of policy. India's export processing zones have lacked dynamism because of numerous reasons, such as their relatively partial scale.
6. No liberalization in exodus barriers
While the reforms instigated so far have helped remove the entry barriers, the liberalization of exit barriers has yet to take place. In our view, this is a major deterrent to large volumes of FDI flowing to India. An exit policy needs to be articulated such that firms can enter and exit freely from the market. While it would be inappropriate to ignore the need and potential merit of certain safeguards, it is also significant to recognize that safeguards if erroneously designed and/or ailing enforced would turn into barriers that may adversely affect the health of the firm. The regulatory framework, which is in place, does not permit the firms to undertake restructuring.
7. Stringent labor laws
Large firms in India are not endorsed to retrench or layoff any workers, or close down the unit without the authorization of the state government. While the law was enacted with a view to monitor unfair retrenchment and layoff, in consequence it has turned out to be a provision for job security in privately owned large firms. This is very much in line with the job security provided to public sector employees. Most importantly, the unending barrier to the dismissal of unsolicited workers in Indian establishments with 100 or more employees paralyzes firms in hiring new workers. With regard to labor regulations and hiring and firing practices, India is ranked 55th and 56th respectively in the GCR 1999. Labor-intensive manufacturing exports require competitive and flexible enterprises that can vary their employment according to deviations in market demand and changes in technology, so India remains an unattractive base for such production in part because of the continuing hindrances to flexible management of the labor force.
8. High corporate tax rates
Corporate tax rates in East Asia are normally in the range of 15 to 30 percent, associated with a rate of 48 percent for foreign companies in India. High corporate tax rate is definitely a major disincentive to foreign corporate investment in India. With respect to tax fudging, India is ranked 48th in the GCR 1999.
9. Vacillating Government and Political Instability
There was to many anomalies on the government side during past two decade which is still disturbing the direct inflow of FDI in India such as mismanagement and oppression by the different company, which affect the image of the country and also disparage the prospective investor, who are very much cognizant about safety and persistent return on their investment.
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Main proposal of government's FDI push:
Will enable Walmart, Tesco and Carrefour to set up deep discount stores in India.
At least half of the FDI should be made in back-end infrastructure like warehousing.
The minimum FDI in any multi brand retail project should be $100 million.
State government can prohibit FDI in retail if they wish to.
Stores can be setup in those cities with a population of at least one million.
At least one-third of the sales should be made to small retailers.
At least 30% of the sales should be made to small retailer, directly or through wholesalers unit set up for this purpose.
States will be empowered to put conditions for integrating small retailers and kirana merchants in value chain.
What are the major benefits of FDI:
(a) Improves of position of the country;
(b) Employment cohort and increase in production;
(c) Help in capital formation by fetching fresh capital;
(d) Helps in transferal of new technologies, management skills, intellectual property
(e) Increases competition within the local market and this fetches higher efficiencies
(f) Assistances in increasing exports;
(g) Increases tax revenues
Why FDI is opposed by Indigenous People or Disadvantages of FDI:
(a) Domestic companies fear that they may lose their ownership to overseas company
(b) Small enterprises fright that they may not be able to compete with world class large companies and may ultimately is trimmed out of business;
(c) Large giants of the world try to monopolies and take over the highly profitable sectors;
(d) Such foreign companies invest more in machinery and intellectual property than in wages of the local people;
(e) Government has less control over the functioning of such companies as they usually work as wholly owned subsidiary of an overseas company;
Brief Latest Enlargements on FDI (all sectors including retail):-
2012 - October: In the second round of economic reforms, the government cleared amendments to advance the FDI cap
(a) In the insurance sector from 26% to 49%;
(b) In the pension sector it approved a 26 percent FDI;
Now, Indian Parliament will have to give its approval for the final shape,"
2012 - September: The government approved the
(a) Allowed 51% foreign investment in multi-brand retail,
(b) Relaxed FDI norms for civil aviation and broadcasting sectors. - FDI cap in Broadcasting was raised to 74% from 49%;
(c) Allowed foreign investment in power exchanges
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SWOT Analysis:
A) Strengths of FDI Policy
1) Fast emergent economy.
2) Fledgling and dynamic manpower.
3) Highest shop compactness in the world.
4) High growth rate in retail & wholesale trade.
5) Manifestation of big industry houses which can absorb losses.
B) Weaknesses of FDI Policy
1) Low capital investment in retail sector.
2) Lack of trained & educated force.
3) Lack of competition.
4) Additional prices as compared to specialized shops.
C) Opportunities of FDI Policy
1) Major employment cohort in the future.
2) It will augment the financial condition of farmers.
3) Increase in lifecycle changes and status consciousness.
4) Improve the competition.
5) Increase in disposable income.
6) Result in increasing retailer's proficiency.
7) Foreign capital inflows.
8) Big market along with enhanced technology and branding with latest managerial skills.
9) Quality enhancement with cost reduction.
10) Increasing the export capacity.
D) Threats of FDI Policy.
1) Threat to the survival of small retailers like 'pantapri', 'local kirana'.
2) Jobs in the manufacturing sector will be vanished.
3) Started roadside bargains.
4) Work will be done by Indians and profits will go to foreigners.
Conclusion and suggestions
In view of some of short coming pragmatic in the SWOT analysis, FDI in retailing is going to attract retail players by Indian Government, but India should welcome them with an endowed pool of human resources by promoting institution imparting knowledge in retailing. Fortification must be given to Indian small and medium retailers as retailing is their source of live hood. The Government must be properly discuss the pros and cons of allowing 51% FDI and have a law in place to control prejudicial competition. Then the FDI Bill will be given definitely a positive influence on the retail industry and the country by enticing more foreign investment. Otherwise we lost our freedom in past when British East India Company was came in.
How FDI in retail will affect different segments:
Small manufacturers
Kirana stores
Impact limited
Why
Retailers across the world like to work with
Small group of select vendors for economies
Of scale. Nevertheless the supplier base will be
Larger in number and smaller in turnover then
Elsewhere, because of the regional diversity in
Consumption pattern.
Impact very little
Why
They operate in small towns and rural India and serve the lower social class customers as well.
Modern retail will target top income layers in urban India. In bigger cities many kirana shops will morph and specialize , offering phone-in home delivery, e-commerce and the like.
Infrastructure, cold chains
Jobs
Impact very little
Why
Each investor will invest only for what his own business requires.
Impact big
Why
A new skill category called "retail jobs" will be created. The birth of modern retail could improve wage rates in traditional retail
