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Foreign direct investment (FDI) in Indian Retail sector
The recent development in our country to allow FDI for retail sector has erupted difference between various sections of people. This article will give an insight of the core issue whether it will benefit our economy or it will have an impact on local market. The discussions include the impact of FDI, empowering the local market from economic perspective.
Attracting FDI in retail sector will add to the inflow of dollar for our country which will save the depreciation of rupee. But whether the inflow of dollar will sustain the economy in the long run! lets look at the facts and figures of it.
As our country has a huge fiscal deficit for dollar due to growing consumption of petroleum products, importing of huge quantities of Gold, less growth in economy leading to down grade status, decline of exports, huge import from China, heavy corruption, rise in fuel cost etc., all this has a major impact of economy leading to depreciation of rupee. To overcome the above said deficit, India requires more inflow of dollar to maintain the balance between import and export.
Inflow of Dollar due to FDI:
The inflow of dollar can be classified based on export and attraction of investment. For a healthy export, the government policy and reform should be in place to boost the local production. Since we face enormous pressure in the area of energy shortage(say both petroleum and electricity), boosting of manufacturing is less in the anvil. Hence the government is moving forward to attract foreign stake holders to invest in our country thereby increasing dollar inflow. But I also emphasis the need for the government to bring in the reforms which will boost our export. The Indian export can be increased only by providing energy at minimum cost and transparent government. When internal market develops automatically there will be no requirement for the govt to go in for FDI. Similarly when the government provides the same packages like uninterpreted power, water and the same infrastructure as that given for foreign companies, I am sure the Indian citizens will take the economy to a new high.
Impact of FDI:
FDI is the abbreviation for Foreign direct investment. When foreign investment flow from outside to our country (domestic) in the organized sectors, the local industry gets a boost. These will lead to the boosting of our economy. But it also should be ensured whether the local citizens are taken into consideration. The FDI impact will bring a competitiveness thus bringing down the cost of a product and increase the quality of the same. But the FDI should be in the form of developing the local market rather than dumping external product as done in United States and European Union.
Investor partiality in FDI:
There are more difference between domestic investor and foreign investor. More perks and allowance are provide for foreign investor. The allowances include like concession towards tax, uninterpreted power supply, land at low price and providing basic infrastructure like good roads, unlimited water supply etc. If the same facility is provide to an Indian investor, the citizens will take the development to a higher state. Take an example of FDI in Share market. Investors from outside are assessed with very minimum tax compared with our Indian share holders. Indians are paying 30% as tax for the income generated from share trading. The government should realize that, the investor from outside will take away his money one day with his profit, where our government will have less returns from them. The government should not show partiality between local investor and external investor.
FDI in Indian Retail:
If the government plans for a FDI in retail, the government should have a clear plan chalked out taking into account the following aspects.
1. The majority (say 75%) goods that are bought/produced for retailing should be from the local market
2. The employees should be governed under International labor law for Retailing as their counterparts in Europe and US enjoy. All benefits and salary should be on par with it
3. Government should not allow those foreign companies to dump their Chinese goods which they get it cheaply. Hence the government should fix the goods purchased/ produced locally to nearly 75 - 80%.
4. The concern retail can produce in the local market thereby increasing economy with in the country
5. The retailer should get tie up with local production company for manufacture of goods
6. About 75% of total revenue earned should be invested within India itself(see below case study)
Suppose a company ABC ltd setups a retail chain bringing 20 rupees (say) investment. After one or two seasons, the company will be in huge profit (due to cheap goods they are importing from china), where it will take out its money (70 rupees profit) out from our economy to its parent company. So if the government feels that the investment is necessary, it is only for short while. To safe guard the interest of working population and to boost the manufacturing, it is necessary to consider the above listed points to develop the local market as well.
Empowering and developing Local market:
Investment in our economy is necessary not in the way of dumping outside goods, but in the way of empowering the local market in the long run. It should develop business within the country and must be able to deliver goods and service to other parts of the world. For developing goods and service, more structured reforms and policy should be transparently developed with no partiality.
All FDI's should be framed taking local interest and development. FDI in retail can be implemented but with more structured reforms, taking Indian stake holders like producers, working people, small shops, end user into account.
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