Foreign Direct Investment In Retail Sector

Introduction:

Retail sector being one of the most important and prominent sectors in India, has solved the problem of unemployment and has served the ultimate consumers to the best. Retailing has been in recent trend with attractive outlooks & impressive human resources. Indian market growing faster with a rapid speed has been the major attraction globally for the investors to take initiative in every sector.

Growing at 9% in value terms and second only to Indonesia's retail value growth, 2006 was a watershed year for retailing in India. Major domestic conglomerate such as Reliance Group, Aditya Birla Group and Bharti Group have all signaled their intentions to succeed in what is seen as the next big business in India.

Statutory Provisions:

The provisions of Section 6 of the FEMA (Foreign Exchange Management Act) 1999, govern foreign Investment in India. The genesis of foreign investments in India can be traced to the Government of India’s Industrial and Investment Policy, liberalization and economic reforms programme initiated in the year 1991.The regulations have been notified vide Notification No. FEMA 20/2000-RB, dated 3^rd May 2000, which have been amended from time to time.

 FDI:

FDI has become a major source of finance in the context of changing global scenario. Trading is permitted under Automatic Route with FDI up to 51 % providing it is primarily export activities, and the undertaking is an export house/trading house/super trading house/star trading house. However, under the FIPB (Foreign Investment Promotion Board) route:-

(i) 100% FDI is permitted in case of trading companies for the following activities:

·         Exports;

·         Bulk imports with export/exbonded warehouse sales;

·         Cash And Carry wholesale trading ;

·         Other import of goods and services provided at least 75% is for procurement and sale of goods and services among the companies of the same group transfer/distribution/sales.

       (ii) FDI up to 100% permitted for E-Commerce activities subject to the condition that such companies would divest 26% of their equity in favor of the Indian public in five years, if these companies are listed in other parts of the world. Such companies would engage only in Business to Business (B2B) e-commerce and not in retail trading.     

Wal-mart In India:

In November 2006, Wal-Mart Stores Inc. (Wal-Mart), the biggest retail chain and the second largest company in the world in terms of revenues (behind Exxon Mobil Corp.), announced that it had tied up with Bharti Enterprises Ltd. (Bharti) to make its long expected foray into the Indian retail sector. Bharti was a diversified company, and one of the biggest mobile telephony service providers in India. Wal-Mart and Bharti announced that they would operate stores under two formats - a joint venture wholesale cash and carry operation^, and a franchised retail operation.

Wal-Mart’s sheer size gives it unrestrained economic power, which allows it to drive down costs in the retail and manufacturing sectors and to enact its own standards. Wal-Mart clearly defines anti-union policy to aim at preventing its work force from gaining any collective bargaining power, which can result in increased wages, cover health benefits and job security.

Impact:

Small retailers feared from the deal as it would create monopoly in the sector. This has been the classic argument. Wal-Mart put forward to the criticism about its negative impact on wages and suppliers and on employment. The owners of Wal-Mart would gain huge profits from this move while India’s economy would rather suffer and workers will face unfair work practices of this Multinational giant.

The major concern is that FDI in the retail sector shall only harm and not help the economic interests of the country. There cannot be any justification of allowing FDI in the retail business in our country. It is a matter of serious concern that the government of India finds advantage in it & gives priority to the giant to enter India over everything else that concerns of interest of country & the people. Retail markets in our country are dominated by small businesses & the entry of Wal-Mart will perish the vast number of retail shops & ruin the life & livelihood of crores of people connected with retail business. Will Wal-Mart help India climb up the ladder of success in this global competition or would it thrash the lives of our citizens is the question of the fact.