By M H Ahssan
Continuing its policies for economic reforms, the Indian government has been gradually opening up the booming retail sector of the country, for foreign companies.
It was until 2004, Foreign Direct Investment (FDI) norms in retail industry were highly restricted. Only the sectors of hi-tech industry, and medical equipments were open for foreign investments due to their highly-specialized nature of service.
But now the scenario is changing briskly. Cent percent FDI has been allowed in cash and carry segment of retail trading while single brand retailers are also allowed to set up their stores in India with 51 per cent shareholding from abroad.
Nevertheless, the FDI Confidence Index Survey by global consultancy firm AT Kearney observes retail markets of India as one of the most attractive sectors for investments.
Impact on Retail Sector
As we know that Indian retail industry is undergoing a massive restructuring with more and more corporates from within the country and abroad foraying into the sector, FDI will definitely catalyze the growth engine.
At present, the size of the Indian retail market is close to $350 billion. The industry contributes 11 per cent to the Gross Domestic Product (GDP) of the country.
Organized Retail Markets: At present the organized retail markets in India contribute about $7.5 billion to the total market. Though, the trends are going bullish.
Indian corporate mammoths like Reliance, ITC and Bharti have already started to set a strong foothold in the markets and many more like Marks and Spencer, Pantaloon, Big Bazar, Bata, and Archies are creating waves in the consumer markets.
Favorable Policies: Now that the government policies encourage foreign investments in the sector, the share of organized retailing is projected to improve significantly.
According to the FICCI Retail Report, the organized retail industry will increase its share from current 4-per cent to 20 per cent by 2010, posting a staggering CAGR of 50 per cent to $430 billion.
While the markets in the western countries saturate, global retail giants like Walmart, Tesco, Sears and JC Penny are ambitiously looking towards India.
The new FDI policy enables single product brands like Versace, Fendi, Nike, Louis Vuitton, Rolex etc. to directly invest as much as 51 per cent of the total capital as foreign shareholding.
Earlier, many of the international brands had entered in the Indian markets through franchise route with regard to the policy constraints.
Strategic initiatives by foreign players
With respect to the high-growth potential retail market of India, not just private companies but foreign government bodies have also expressed intentions to invest in Indian retail industry.
The 150 member British delegation recently committed investments in the genres of agri-retail, food processing, and manufacturing.
National Food Industry Strategy and Austrade of Australian government has also been running test marketing for its food products in India. About 12 food processing companies from Australia have joined hands with India-based distributor AB Mauri to sell its products in Indian markets.
With this, the future prospects of Indian retail markets are looking pretty bright and investments in the sector bear all the reasons to bring impressive returns.
FDI Pumping Indian Economy
The economists worldwide are predicting a resurgent India riding on the back of renewed thrust on the foreign direct investment. FDI in India is expected to cross $ 12 billion during 2006-07 fiscal! It was $ 8 billion during the same period last year.
The government estimates that out of $ 12 billion, $ 8 billion should come in the form of equity and the balance from re-invested earnings and other capital inflows. Taiwan, Japan and South Korea are the target markets that are expected to pump in major share of FDI in the Indian capital market, in addition to the US, UK, Germany, Netherlands, Germany and France.
Further, to boost the share of FDI in the capital market, the government proposes to introduce e-biz to simplify the procedures. The electronic clearance of official files should enable speedier processing period of applications. In the pipeline is the signing of Comprehensive Economic Cooperation Agreement with Singapore, which would ensure the routing of large FDI through Singapore. Till now, about 35% of FDI flows are routed through Mauritius due to the double taxation avoidance treaty of India with Malaysia.
The FDI in India is expected to get further boost with the stock markets showing maturity after a steep fall recently. The strong economic fundamental ensures that the initial shocks in the stock market are absorbed without much panic. The property investment India also looks rosy with lot of tier II and tier III cities joining IT bandwagon. In this line, Chandigarh is the upcoming hot buzz. Well developed infrastructure, proximity to Delhi and Punjab, combined with the IT talent pool makes commercial property Chandigarh - a favourite hotspot amongst the various companies searching new areas of expansion.
The direct foreign investment in India retail sector continues to draw the attention of government. While opening up the FDI in retail sector, the government is committed to protect the interests of small shopkeepers. The idea is to see where it could meet the incremental needs of the consumers. The bottom line is that the government realizes that in order to meet tough competition from emerging leaders like China, it has to adopt a liberal FDI policy.
Foreign Direct Investment In India – A Valuable Proposition
The great Indian nation seems to have lapped up ‘foreign’ tag to every economic activity. Foreign Direct Investment (FDI) is the latest catch phrase in the big Indian dream.
There were times when the liberal economic policies – that were ushered in the country for the first time in 1991 by the then finance minister Dr. Manmohan Singh (the present day PM of India) – were opposed tooth and nail by conservative and radical political parties of India. FDI was always the focal point during the critical days of Indian economic policy. But times have changed. The very political parties that opposed FDI on the grounds of being ‘another indicator of western hegemony’ have incorporated it in their national manifesto.
For the starters, FDI refers to capital inflows from abroad that invests in the production capacity of the economy. FDI is generally preferred over other forms of external finance due to its non-debt creating nature. Their returns depend upon the performance of the projects. FDI also facilitates international trade and transfer of skills and technology.
Investment in India has become a never before opportunity for the foreign investors, not to forget - NRI. India has opened up its markets for FDI in virtually every sector except defence, atomic energy, railway transport, and mining et al. The vast infrastructure sector is waiting to be explored in terms of foreign investment, especially – property investment. Electricity, road network, steel industry, education, modernization of air transport, retail etc. are some of the vital areas that present a plethora of opportunities to a foreign investor.
The burgeoning IT industry of the country coupled with a massive English speaking population promises an adequate return on investment. The Non Resident Indians (NRIs) who went abroad for greener pastures are returning to their roots with an improved business environment in India. India has suddenly found itself as a potential world leader with even countries like US recognizing its potential in negotiating an exceptional nuclear deal. India is a proverbial Garden of Eden waiting for its Adam and Eve in the form of foreign investors!
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