Economics report writing help on: FDI in Indian retail sector

Executive Summary            The following paper includes the discussion about the topic FDI (Foreign Direct Investment) in retail in India. The paper has been prepared as the policy to be represented to a CEO of a business who is planning to enter India and make investment in some retail business venture. The paper includes clear introduction of the topic under study along with the aims and objectives of the paper. The paper also includes the current trend in FDI retail and the current issues related to the topic. The impact of the FDI on the retail in India has also been discussed in the paper. The paper also includes recommendation and conclusion to the company related after looking at the current trends in the to the Indian retail market.

Introduction

            Indian retail industry is one of the most shining sectors among all having a huge potential. As per the investment commission of India this industry is expected to grow three times from its current level of 660 billion dollar market by the year 2015. Even after the recent developments in this industry and its contribution in the economy this is also one of the least organized and evolved industry and the growth are also slower as compared to the rest of the world. In this context the current paper is related to the influx of the foreign direct investment in the Indian retail industry. Moreover looking at the Indian economy there are recent moves of the Indian government allowing the FDI in the multiband retails[1].            The retail industry is the one which consist of individuals, commercial complexes, stores, agencies which are involved in the buying and selling of merchandise and diverse finished goods to the end consumer in direct and indirect manner. The retail industry of India is very vast having a huge potential for development and growth as the majority of the market participants are unorganized in this industry. Initially there were reservations in the Indian retail market for entering of FDI investments arising from the fear of the job losses, increase in competition, and procurement of international market and loss of the entrepreneur opportunities and so on. However the government has opened up the retail FDI investments slowly for the wholesale or cash and carry market with 100 percent ownership by the government approval route, while 51 % investment has been approved for the single brand retail outlet while he multiband retail was prohibited in India earlier[2].

Aims of the research

            The main aim of the paper is to analyse the current trends in FDI retail in India. The aim of the paper is also to analyse the impact of the FDI on retail in India. This has been done in order to analyse the current issues associated with FDI retail in India and the factors that have an impact on the FDI investments and their regulations.Objectives of the research  

            There are several objectives of the paper this mainly includes:

1. Analyzing the impact of FDI investment in the Indian retail industry
2. Analyse the current trends in this sector
3.  Provide recommendations to the international retail business organizations looking for FDI investment in India
4. Analyze current market trends and policies associated with FDI retail investment.

Current issues and trends in FDI retail in India

           The main purpose of this study is to analyze and evaluate the current trends in FDI retail in India. Retailing business in India has been seen as the pillar of the Indian economy and these accounts for more than 15 % of the country GDP. The Indian retail market is among the top five retail market in the world in terms of the economic value and also accounts for around 450 billion US dollars. As the nation is second highest in terms of population in the world with 1.2 billion populations, it is also one of the fastest growing retail market or industry in the world. Indian retail market generated sales of about $ 27 billion from organized retail such as chain stores, super markets and shops in malls in 2011[3].Source[4]

Source [5]

Multi brand retailing through FDI is prohibited in India. It can be done with Single brand retailing up to extent of 51%. Trade plays an important role in Gross Domestic Product (GDP) of India. Retail sector in India is huge with no big players in the industry thus attracting investment from many foreign companies. This creates huge employment opportunities for people here. Retail sector in India stands at second position after agriculture when it comes to providing employment. Indian giant who has just entered this industry is Reliance. The organized retail real estate stock is expected to grow from 41 million square feet to 95 million square feet and the organized retail sector to grow by 40% by the year 2013. With high growth rate in the country the level of consumer spending power has also been increased and is also expected to increase more in future. Few factors to be named for driving retail industry in India are increasing consumer aspirations, young demographic profile, improving demands from rural markets and growth in income level of middle class. Retail sector is growing with liberalization of Indian economy and with increase in spending per capita income of family[6].
The easy accessibility to internet providing information about domestic and foreign retail chains further adds to its development. The increased popularity of this sector has resulted in growing awareness of brands and quality products. It has made life convenient, easy quick and hassle free. The change in consumer preferences for shopping, the mall management practices and shift of consumer demands towards foreign brands like Sony, McDonalds and Panasonic etc. further contributing towards growth of this sector. Many multinational companies like Metro, Nike, Reebok through direct entrance via brand retail or through joint ventures like Tata with Tesco or Wal-mart with Bharti has come up in India with 51% opening of FDI in single brand retail[7].
India in January 2012 approved for single brand stores with 100% ownership welcoming anyone in the world to enter Indian market just fulfilling the requirement of sourcing 30% of its goods from India. Government of India still holds retailing for multi brand stores. The foreign investors are welcome and free to invest in India. Leaving few specific sectors which need prior approval from RBI or Foreign Investment Promotion Board (FIPB) all other sectors can be chosen for investment[8].

 How FDI will help to boost India’s GDP growth, decrease inflation and sustain fiscal deficit

The economy of India is a developing economy and stands at tenth largest position in the world as measured in terms of nominal GDP and is the third largest economy in terms of purchasing power parity. India has been recording high growth rates and is one of the fastest growing economies of the world. The economy of the country has shown sound growth rate in almost all the sectors ranging from economic development to social development and further. There are many reasons for the development of the country, which includes increase in the income of middle class, growth in technical skills, etc.[9]

The country has shown promising growth rates, which includes GDP growth rate around 8%, lowering the fiscal deficit to 4.8%. The country has been developing on the optimistic note in the context of economic development. India is growing at a faster pace in comparison to other countries, and the country needs to give focus to other reforms, which includes faster infrastructural developments and generation of new economic opportunities. The growth of the country is expected to remain moderate in the coming years and there is a need for substantive policy measures which are undertaken for boosting the investments. The country has been lacking on the aspect of the macro economic development and a sound policy of the government on this aspect can be immensely helpful in getting the Indian economy on a sound, stable and prosperous growth[10].With this move the GDP growth is unlikely seems to exceed 6 % in the current year and growth is not expected to pick in the coming quarters. The reserve bank of India has been trying for over a year trying to increase the trade growth and control inflation. With no signs of relief in the level of inflation the RBI is expected to drop the rate of interests. This shows that the role of RGI is not just to control the level of inflation but also to regain the financial imbalances and take some monetary measures to control and promote growth by dropping the interest rates. With the allowing of the FDI in India, large amount of funds will enter the economy and will boost the unorganized retail sector and likely to offer the consumers with variety of products at cheaper prices and will also likely to reduce the wastage in the Indian farm houses due to the increase in the logistics and storage business which is also highest in the world. The provision under the FDI act and investment in Indian retail sector to sources 30 % from the Indian small and medium enterprises will help in expanding the capacity, get exposure and improve the quality of products and improve international supply chains. But this will also have negative impact on the 12 million unorganized (mom and pop) shops, as they will lack the financial capability ti challenge these international retailers in terms of the quality, variety of products, packaging and offering several offers due to their small purchases.

Retail is one of the most promising sectors of the Indian market. It contributes for around 14% of the Indian GDP. There has been enormous political drama about the entry of FDI in the retail industry. Amidst all these issues, the government has allowed 51% FDI in multi brand retailing and 100% FDI in single brand. The country has been overcoming the policy dilemma and has strengthened to move away from the license raj and is open for more competitive and health environment for work. This policy changes will be extremely helpful in strengthening the India’s FDI regime and will make the retail market open, healthy and competitive in nature. Once the designed policy is implemented it will permit the multi brand retailers to set up their stores in Indian market[11]. As per the Indian government opening up the FDI sector and further liberalization will help in facilitating higher level of flow of FDI which will provide new opportunities, benefits and also lead to quality improvement.

Keynesian Theory- How economy will be stimulated by this policy

            As per the Keynesian Theory in the short run the productivity activities in the economy is affected by the aggregate demand i.e. the total spending in the economy and this demand is not equal to the aggregate supply, so it can be said that there are several host of factors that affects the production, level of employment and inflation within the economy, so FDI is also one of those factors which is related to the policy responses of the public sector mainly the fiscal and monetary policies. With the increase in FDI spending in retail initially there will be a gap in the demand and supply factors at aggregate levels. This will lead to increase in the level of spending and investments in the retail sectors providing the consumers with cheaper gods and products. With this the level of spending and income due to the increase in the level of employment in retail sector will promote the economy at large. With the increase in the FDI funds in the economy the rate of interests will be decreased by the RBI due to the excessive flow of the loan able funds and thus will promote productive and economic activities.Impact of FDI on retail in India

            Liberalization of trade policies has made India an investment hub today. India has witnessed a major retail boom in recent years with change in income levels, taste and habits of consumers, their lifestyle, their preferences for branded and quality products etc. Many multinational companies are planning to enter India’s retail industry after getting encouraged by India’s retail boom. Government has also taken various measures to promote growth in retail sector. The impact of FDI on retail in India is explained below.

            Recently announced policy of Indian government to allow 51 percent FDI in multi-brand retail sector can cast both positive as well as negative impact over the Indian economy. In the context economic growth of the country, this decision of the country will be played an intensive and positive impact. It will attract large multinational retailing giants such Wal-Mart, Tesco, Marks & Spencer, and ASDA to make more investments within the country. This leads to enhance the supply of foreign money within the country, which is one of the major determinants of the success of the economy. In addition to this, from the perspective of employment also, the FDIs in the retailing sector will be proved quite effective. As per the Economist survey report, 2010, the retails sector is the second largest employer after agriculture within the country. In that year it has provided employment to 35 million people. In this context, it has also been estimated that in next three year, the retail sector will generate, about 4 million more jobs in SME sector, and about 5-6 million jobs in large logistic retailing sector. In the way, in the country like India in which, unemployment is the major economic issues for the country; enhancing FDI in retailing can be proved as one of the most effective economic initiatives[12].

            However, there are some negative consequences of this decision of the government. The encouragement of FDIs within the retail sector will cast a negative impact over development of small and unorganized retail sector within the country. For small shopkeepers, and local vendors, this decision is quite hampering. The FDI in retail sector will force the small-scale entrepreneurs to exit the industry, which is not in the favour of the long term sustainability and success of economy of the country[13].

How loanable funds theory can work with FDI and interests rates

            As per this theory both the investments and savings are responsible for the interpretation and determination of the interest rates in the long run, while the short term interest rates are judged based on the economic condition of the particular economy. The determination of the interest rates as per this theory is based on the availability of the loan able funds. The availability of the loanable funds depends on the several factors like the increase in the currency deposits, new FDI investments, and increase in savings and so on. With the increase in the FDI investments in retail there will be an increase in the supply of loanable funds. As per this theory the nominal rate of interest will be determined by the interaction of the supply and demand of the loanable funds. With the increase in the FDI the supply for the loanable funds will increase and thus will decrease the interest rates, so this shows that with the increase and decrease in the amount of loanable funds the resultant interest rates will depend on the movement and direction of the supply and demand of loanable funds[14].Recommendations

After analyzing the present situation of India, it is recommended that the country actively seeks for foreign investors, which will participate in making the economic development of the country sound and effective in nature. This will also facilitate and provide the country with necessary resources, which will help in fastening the pace of economic development. The involvement of foreign companies in the economy of India will prove to be particularly helpful in meeting the needs of the Indian people and also contribute for faster economic development of the country. It is hugely significant that the country keeps its reform on track, which will also be extraordinarily helpful in improving the present situation of the economic development of the country. The country needs to upgrade its reforms in education, healthcare and financial sector in order to provide a strong backbone to its economic development[15].

Along with this company can also broaden its base and boost the developments of rural market, which will help the country in focusing on its strengths. India needs to tap and get hold of the technological developments otherwise it may lag behind those countries, which are focusing on technology and innovations for faster development. The country needs to redesign its policies and provide a platform to the foreign direct investors, which are willing to enter the market. The liberalization in the policies of the country will prove to be particularly helpful in fastening the pace of economic development[16]. The economic development of the country will become a significant contributor in helping the country to emerge as one of the developed nations of the world.

The above discussed are the few of key recommendations, which can be followed in order to fasten the pace of economic development of the country.

Conclusion

The above paper has explained the role of FDI in Indian retail industry. On the basis, of the discussion that has been made it can be summarized that the Indian retail industry is one of the most promising industry and high potentials for the investor all over the world. The country has been showing signs of faster development, which has been able to gain the attention of the investors from all over the world. The retail industry of the country is strong and has immense potential. The opening up of opportunities after adoption of de-liberalization in the country the level of FDI has been increased in the retail industry.Along with this, paper has also discussed in detail the current trends, which have been shown of FDI in the retail industry of India.  The foreign sectors have been welcomed in the country to make investment. Though the government still imposes some strict regulation yet the situation has changed a lot from the initial time and the liberalization policy as proved to be helpful or country for raising the level of FDI. Also, the paper includes details about Current Economic condition and Dilemma Related to FDI Retail. The paper also offers some concrete recommendations, which can be followed for the purpose of improving the situation of FDI in the country. Finally, it can be concluded that the present economic condition of the country is strong, and there are ample opportunities for foreign investors who are willing to enter the Indian market, especially in the retail sector of the country.