FDI in Indian Retail Sector: Strategic Issues and Implications

Abstract

The spectacular and unprecedented growth of FDI in the global economic landscape over the last two decades has made it an integral part of the development strategy of both the developed and developing nations. It acts as major catalyst in the development of a country through up-gradation of technology, managerial skills and capabilities in various sectors. Indian retail industry is one of the sunrise sectors with huge growth potential. According to the Investment Commission of India, the retail sector is expected to grow almost three times its current levels to $660 billion by 2015. However, in spite of the recent developments in retail sector and its immense contribution to the economy, it continues to be the least evolved industries in India when compared to the rest of the world. This dismal situation of the retail sector despite the ongoing wave of incessant liberalization and globalization stems from the absence of an FDI encouraging policy in the Indian retail sector. Until 2011, Indian government denied FDI in multi-brand retail, forbidding foreign groups from any retail outlets. In November 2011, India’s central government announced retail reforms. FDI in the retail can expand markets by reducing transaction and transformation costs of business through adoption of advanced supply chain and benefit consumers and suppliers. Oppositions have raised concerns about employment losses, promotion of unhealthy competition among organized domestic retailers resulting in exist of small domestic retailers from the market and distortion of urban cultural development. This paper captures the existing retail scenario in India and presents the limitations of the current set-up. The paper discusses about opening up of the retail sector to FDI by the government and tracks the efforts taken by the government with regard to foreign direct investment in retail sector. The paper also analyzes the reason why foreign retailers are interested in India, the strategies they are adopting to enter India and their prospects in India. The present paper also focuses on the strategic issues and implications of FDI retail in India and the major challenges that it faces.