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FDI In Retailing - The Road Ahead

BY: raghu yadaganti | Category: Finance | Submitted: 2012-03-08 00:30:12
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Article Summary: "Foreign direct investment (FDI) is no longer questionable as it is recognized as an imperative driver of growth in the country. With its huge population, growing market, short supply of products and services, India requires external capital to accelerate economic development. However, policy makers are asked to show restraint i.."

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India remains one of the hottest retail destinations on the planet occupying the fourth spot in consulting major A.T. Kearney's global retail development index. India has been rated as the 2nd most attractive FDI destinations in the world after china2. India has become a favored destination for many MNCs to invest for various reasons.

(i) Huge market -India is targeted for FDI is as India is the 7th largest country with 7 billion population,with over one billion a growing middle class.
(ii) Growing nation -The government of India is keen on promoting economic development and the progress is significant t with gross domestic product (GDP) growth rate of over 8-10%. Measures to contain inflation and sustain demand are initiated from time to time.
(iii) Demand larger than supply - India is also attractive to business as demand for many products and services out strip supply. The vast nation is characterized by unorganized retailing, which offers convenience shopping , is not suitable to the emergent fashion life style shoppers in the country. There is a wide gap to bridge, by developing retail business that offers hygienic, expansive space for shopping a variety of goods and services under one roof.
(iv) Favorable public policy - FDI is promoted by the Indian Government which see its benefits as a comprising transfer of technology and skill shared access to the research and development, employment generation, access to the global market, export growth and increased foreign exchange earnings.

Services sector with US $ 28 billion inflow of capital is the higher beneficiary. The next beneficiaries are computer and telecom with $11 billion followed by real estate and construction with $ 10 billion. The industrial sector is less benefited, with automobiles, power and metallurgical, petroleum and chemicals getting FDI in the range of $6 to 3 billion. When it comes to retailing, FDI is totally prohibited in multi brand retailing along with the other sectors like atomic energy, lateness, gambling and betting, chit funds, Niche companies , agricultural and plantation, housing and real estate business, trading the transferable development right manufacturing of cigarettes, tobacco and tobacco substitutes.

FDI in single brand retail trading was allowed up to 51% under the govt. route subject the fulfillment of the following condition (paragraph of the consolidated FDI policy dated is to October 2011 issued by ......................(DIPP)3

• Products to be sold should be of single brand only
• Products should be sold under the same brand internationally i.e. in one (or) more countries other than India.
• Only products which are branded during manufacturing would be covered
• Foreign investors should be the owner of the brand.

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