Merits And Demerits of FDI Foreign Direct Investment in India

The following article talks about FDI or Foreign Direct Investment in India. Many people are in favour of FDI & many people are against it. But after taking into consideration all the arguments in favour & against FDI one can safely conclude that it has more merits than demerits attached to it & the Indian government must go for it if it wants India to progress further & become a super power.

What is FDI

FDI means foreign direct investment. These days government is taking lot of steps to increase foreign investment in India & that's why the Union cabinet has opened the gates of multi brand retail segment of India to well known foreign chains like Wal-Mart, Carrefour etc.

Size of Indian retail market

Size of Indian retail sector is growing at a very fast rate. The current size of Indian retail market is around 28 billion dollars which is expected to reach the level of around 260 billion dollars in 2020.

Conditions to be fulfilled by foreign countries to enter Indian markets

There are some basic requirements which must be fulfilled by the foreign companies to enter Indian retail market which are as follows –

1) Amount of investment

If any foreign company wants to enter into the Indian market the very first condition which it has to satisfy is that such foreign company must invest at least 100 million dollars or more into the Indian market. No foreign company whose investment is less than 100 million dollars will be allowed to enter Indian retail sector.

2) Places of opening stores

Another condition which these foreign companies have to satisfy is that they can't open their stores at any place in India where they want rather such companies can open their stores only in those cities the population of which is 1 million or more.

3) Other conditions

Apart from this there are certain other conditions which must be satisfied by these foreign companies to enter Indian markets like at least 50 % of their investment should be in back-end infrastructure like warehouses etc. & they have to take permission to the concerned state government where they want to establish their chains.

Merits of FDI

FDI has lot to advantages to its favour which can be summarized as below –

1) More consumer savings

One of the biggest advantage of FDI is that it will increase the savings of Indian consumer as he will get good quality products at much cheaper rates. Consumer savings are likely to increase 5 to 10% from FDI.

2) Higher remuneration for farmers

Another advantage of FDI is that it will help a lot in improving the miserable condition of Indian farmers who are committing suicides on daily basis because of lesser return from their agricultural produce. But FDI will certain help a lot in improving their conditions as the farmers are going to get 10 to 30 %higher remuneration because of FDI.

3) Increase in employment opportunities

FDI is certainly going to increase the employment opportunities in India by providing around 3 to 4 million new jobs. Not only this another 4 to 6 million jobs will be created in logistics, labour etc. because of FDI.

4) Increase in government revenue

Government revenues are certainly going to increase a lot because of FDI. Government revenues will increase by 25 to 30 billion dollars which is a really big amount. This government revenue can help a lot in the development of Indian economy.

Demerits of FDI

Although FDI brings with it lot of advantages but it is not free from disadvantages as well. Following are some of its demerits –

1) Destruction of small entrepreneurs

The biggest fear from FDI is that it is likely to destroy the small entrepreneurs or small kirana shops as they will not be able to withstand the tough competition of big entrepreneurs as these entrepreneurs are going to provide all the goods to the consumers at much lesser prices.

2) Shrinking of jobs

Many critics of FDI are of the view that entry of big foreign chains like Wal-Mart, Carrefour etc. are not going to generate any jobs in reality in India. At best the jobs will move from unorganized sector to organized sector while their number will remain the same or lesser but not more.

3) No real benefit to farmers

Critics of FDI are also of the view that it is a fallacy that the farmers are going to benefit in any way because of the entry of foreign chains in India rather it will make the Indian farmers a slave of these big chains & the farmers will entirely be on their mercy. Thus, FDI is only going to deteriorate the already miserable conditions of Indian farmers.


After taking into consideration both pros & cons of FDI one can safely say that although there are certain apprehensions about FDI in India but all these fears are unfounded. There is hardly any truth in the fact that it would destroy the small entrepreneurs in India rather it will be beneficial for both the consumers & farmers of India. So, the future of India lies in FDI & the government must proceed in that direction if it wants to make the Indian economy a developed economy.

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Guest Author: Aashish19 Dec 2012

Hi Can Anyone Tell Me FDI Percent Old & New in Retail, Insurance, Aviation & Pension.

Author: Ashok Goyal23 Feb 2014 Member Level: Gold   Points : 5

Foreign Direct Investment is not in the interests of our country. Foreign manufacturers and retailers are depleting our natural resources and earning huge profits which are allowed to be repatriated to the countries of foreign direct investors. Let the government put two basic conditions:

1. Not to plough back or repatriate the profits out of country.
2. If the raw materials used by the foreign investors ( Power, fuel, diesel and petrol are also the raw materials to run the show) are being imported by the foreign direct investors then they should either bring foreign exchange to meet the import bills or export the goods to earn equivalent foreign exchange.
3. Be Indian buy India - slogan by Mahatma Gandhi holds good today and will also hold good tomorrow. We could achieve independence by following swadeshi goods and movement.

Author: K Mohan02 Mar 2014 Member Level: Platinum   Points : 4

We all know that India is the country with the huge population and ranking second in the world. Basically our people are very poor and with meager earnings. Therefore they are bound to live with little income they are striving to earn daily. By giving nod to FDI , the government has done wrong thing to open the retail business into the hands of big foreign companies who are going to sell the same groceries and vegetables either too sold by the street vendors. That means they are going to market same varieties at a high price with the inclusion of their profit margin. That is not required at all.

Guest Author: abhishek mohan19 Sep 2016

After reading this article we come to know that FDI is only a purpose to engage foreign investors in Indian market as they can invest a huge amount but it would be more beneficial if the government can make some effort and force investors to invest in projects which directly affect the public daily. If so that a common man can say FDI is good for India but our biggest failure is that even 70% of India including our youth don't even know what is FDI and how it affects our life so from the government point of view yes FDI is better option because it helps in economy growth but as an entrepreneur it is very difficult for survive in the market as Walmart is there. The best part of this article is the point that "jobs are displaced only from unorganised sector to organised sector " I totally agree with the author and thanks to give such a point in discussion of FDI.

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