Impact of opening up of Indian retail to FDI

Abstract

Executive Summary The Retail sector is India’s largest employer after agriculture and generates almost 10% of the country’s GDP. Yet, it also happens to be one of India’s least evolved industries and in fact, it has not even been accorded an industry status as yet. There is thus a pressing need for reforms in the Indian retailing sector. In recent times, the issue of allowing Foreign Direct Investment into retailing has become a much-debated issue in the political and industry circles. While the benefits that will come to the consumers, suppliers and the economy in general as a result of this measure are being projected as the main reasons as to why FDI should be allowed in retailing. It is primarily being opposed on the grounds that it will lead to the global retail giants dominating India’s retail scene, thus driving millions of small retailers jobless. These and many other arguments and counter arguments are analyzed in this report in the light of the impact that FDI in retailing has had on other countries such as China and Brazil where it has been implemented in the past. Emphases has been laid on the Food & Grocery sector and the Textile & Apparel sector, as these two form the bulk of retailing in India, and would benefit the most due to their strong backward linkages and are also the most controversial due to the fact that they provide employment to millions. The analysis showed that FDI in retailing would have an overall positive impact on the various stakeholders and the negative effects can be minimized to a certain extent through reforms and by having better regulations and monitoring of this sector. 5 The study finally recommends that FDI should be allowed in retailing in India, though in a phased manner and it should be accompanied by reforms in this sector starting with granting industry status to retail. A roadmap has also been suggested that would help in rolling out the policy of FDI in retailing thus minimizing the impact on the groups that will be adversely affected by this move.