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.
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.
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

 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.[4]

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[5].

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[6]. 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.

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