FDI in Retail – Positives I can see

And with one billion people, it is the second largest population in the world offers tremendous opportunity for retailers. According to A T Kearney’s report, the estimated $350 billion retail market is expected to grow 13% and the top five retailers account for less than 2% of the modern retail market. It is obvious that India holds future of global retailing. The most advantageous side of India is, it is least saturated as compared to the global market and it has a tremendous market size, excellent potential for foreign players.

The opportunity is still under wrap as Indian retailers don’t have sufficient funds and technology to encash the opportunity in totality. The Indian government has to allow FDI into retail market for the growth of the Indian retail sector. The government needs to understand the simple economics of the retail FDI. I believe that the Wal-Mart effect will help business innovation in the Indian retail sector and will also encourage exports. As a result of that, production of the goods and services will increase, which leads to increase in GDP of an economy. The growth of GDP leads to increase in per capita income. The per capita increase in income will also lead to consumers spending more on goods and services. The more income will also lead to more savings and investments which would leads to more employment opportunities and reduction of poverty. Moreover as real income of the population is increasing, the tax-paying population in the country will be increasing. On the other hand, the government will be benefited through lesser incidence of tax evasion.

The FDI will not only help government but will also impact economy of the nation in direct and indirect ways. The benefit of FDI includes:

The entry of retailers like Wal-Mart into India will benefit consumers by providing access to a large variety of products sourced from around the world, all at extremely competitive prices. This will also increase the purchasing capacity of the consumer. The global players will also come with advanced technology which would reduce the cost of production and saving time. Moreover, greater investment in technology will enhance the operations in production cycle and distribution.

In Indian commodity market, a significant portion of the commodity is being wasted due to lack of cold storage facility. But now, after investment in technology the cold storage chains solve this acute problem of wastage.

The Indian products will have greater exposure to the global retailers. The impact will be more in the case of food processing business. The Indian food processing is becoming a promising business, which is able to earn more foreign currency through increase in export. This is possible by increasing investment in the food processing sector.

Foreign direct investment in Indian retail sector will increase food safety, improve farm, and food processing business. FDI would positively impact the rate of investment in retail market which will impact production, create more job opportunities, and satisfied consumers. It will help in developing the small and medium-sized industries as well as modernizing the agricultural sector. It would also be instrumental in investment in education which will helps improve the “human capital”. No wonder it will be beneficial to government in various ways.