Foreign direct investment Foreign direct investment (FDI) is direct investment into production in a country by a company located in another

country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is done for many reasons including to take advantage of cheaper wages in the country, special investment privileges such as tax exemptions offered by the country as an incentive to gain tariff-free access to the markets of the country or the region. Foreign direct investment is in contrast to portfolio investmentwhich is a passive investment in the securities of another country such as stocks and bonds. Methods The foreign direct investor may acquire voting power of an enterprise in an economy through any of the following methods: by incorporating a wholly owned subsidiary or company by acquiring shares in an associated enterprise through a merger or an acquisition of an unrelated enterprise participating in an equity joint venture with another investor or enterprise...

Foreign direct investment incentives may take the following forms:

[citation needed]

low corporate tax and individual income tax rates tax holidays other types of tax concessions preferential tariffs special economic zones EPZ Export Processing Zones

Bonded Warehouses Maquiladoras investment financial subsidies soft loan or loan guarantees free land or land subsidies relocation & expatriation infrastructure subsidies R&D support derogation from regulations (usually for very large projects)

Foreign direct investment in India Starting from a baseline of less than $1 billion in 1990, a recent UNCTAD survey projected India as the second most important FDI destination (after China) for transnational corporations during 20102012. As per the data, the sectors which attracted higher inflows were services, telecommunication, construction activities and computer software and hardware. Mauritius, Singapore, US and UK were among the leading sources of FDI. According to Ernst and Young, foreign direct investment in India in 2010 was $44.8 billion, and in 2011 experienced an increase of 13% to $50.8 billion.[9] India has seen an eightfold increase in its FDI in March 2012.[10] India disallowed OCB's i.e. Overseas Corporate Bodies to invest in India .[11] On 14 September 2012, Government of India allowed FDI; in aviation upto 49%, in Broadcast sector upto 74%, in multi-brand retail upto 51% and in single-brand retail upto 100%.[12]

FDI is the investment of the firm directly in the foreign market and there is a complete development of facilities and production facilities. There are some pros and cons which are as follows: ADVANTAGES Employment opportunities in foreign market are increased In the long run the aggregate supply shift outward It also makes the incentive for the domestic producers Government income is also increased

DISADVANTAGES

Inflation is increased Local market is affected badly

The role of foreign direct investment (FDI) in promoting growth and sustainabledevelopment has never been substantiated. There isn't even an agreed definition of the beast. In most developing countries, other capital flows - such as remittances -are larger and more predictable than FDI and ODA (Official DevelopmentAssistance).Several studies indicate that domestic investment projects have more beneficialtrickle-down effects on local economies. Be that as it may, close to two-thirds of FDI is among rich countries and in the form of mergers and acquisitions (M&A).All said and done, FDI constitutes a mere 2% of global GDP. FDI does not automatically translate to net foreign exchange inflows. To start with,many multinational and transnational "investors" borrow money locally at

favorable interest rates and thus finance their projects. This constitutes unfaircompetition with local firms and crowds the domestic private sector out of thecredit markets, displacing its investments in the process.Many transnational corporations are net consumers of savings, draining the localpool and leaving other entrepreneurs high and dry. Foreign banks tend to collude inthis reallocation of financial wherewithal by exclusively catering to the needs of the less risky segments of the business scene (read: foreign investors).Additionally, the more profitable the project, the smaller the net inflow of foreignfunds. In some developing countries, profits repatriated by multinationals exceedtotal FDI. This untoward outcome is exacerbated by principal and interestrepayments where investments are financed with debt and by the outflow of royalties, dividends, and fees. This is not to mention the sucking sound producedby quasi-legal and outright illegal practices such as transfer pricing and othermutations of creative accounting. Moreover, most developing countries are no longer in need of foreign exchange."Third and fourth world" countries control three quarters of the global pool of foreign exchange reserves. The "poor" (the South) now lend to the rich (the North)and are in the enviable position of net creditors. The West drains the bulk of thesavings of the South and East, mostly in order to finance the insatiableconsumption of its denizens and to prop up a variety of indigenous asset bubbles. Still, as any first year student of orthodox economics would tell you, FDI is notabout foreign exchange. FDI encourages the transfer of management skills,intellectual property, and technology. It creates jobs and improves the quality of goods and services produced in the economy. Above all, it gives a boost to theexport sector.All more or less true. Yet, the proponents of FDI get their causes and effects in atangle. FDI does not foster growth and stability. It follows both. Foreign investorsare attracted to success stories, they are drawn to countries already growing,politically stable, and with a sizable purchasing power.Foreign investors of all stripes jump ship with the first sign of contagion, unrest,and declining fortunes. In this respect, FDI and portfolio investment are equallyunreliable. Studies have demonstrated

how multinationals hurry to repatriateearnings and repay inter-firm loans with the early harbingers of trouble. FDI is,therefore, partly procyclical.What about employment? Is FDI the panacea it is made out to be? Far from it. Foreign-owned projects are capital-intensive and labor-efficient. Theyinvest in machinery and intellectual property, not in wages. Skilled workers get

Cabinet allows 49% FDI in insurance, 26% in pension ET 6 hrs ago Continuing with the reforms momentum, the Cabinet on Thursday cleared all amendments of the insurance bill. In a major move the cabinet approved allowing 49% Foreign Direct Investment (FDI) in insurance. NEW DELHI: Continuing with the reforms momentum, t Fdi disadvantages : if the fdi in insurance is so important for well being of the nation then why congress govt under the leadership of nehru opted for nationalisation of the foreign insurance companies. just allowing foreign companies in india is not the solution of all evils. the national & state govt ministers, bueracrats, babus has to change

themselves for well being of we the people. all so called intlectuals who work to get plum post in world bank etc. works as termite. the capitalist singing the swan songs are not for we the people but for bringing the more money to their coffers. the congress govt is working for capitalist and fooling the aam adami. it is matter of surprise that we the people is not raising the voice against the anti people policies. Then why we as Indians are not investing into market. We are born with madness for real estate and gold investment only. Great that atleast they understand our market.

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FDI in India

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Overview

First of all, FDI means Foreign Direct Investment which is

mainly dealings with monetary matters and using this way they

acquires standalone position in the Indian economy. Their policy is

very simple to remove rivals. In beginning days they sell products

at low price so other competitor shut down in few months. And

then companies like Wall-Mart will increase prices than actual

product price.

They are focusing on national and international economic

concerns. There are four main working pillars of FDI. They are

financial collaborations, technical collaborations and joint

ventures, capital markets via Euro issues, and private placements

or preferential allotments.

There are two types of FDI, one is inward FDI and second

is outward FDI. Ongoing news suggests that largest retailer Wal-

Mart has demanded for 51% of international dealings in FDI in

Indian markets which had called nationwide strike. From positive

and negative aspects FDI has its own advantages and

disadvantages. Advantages

Increase economic growth by dealing with different

international products

1 million (10 lakh) employment will create in three years -

UPA Government

Billion dollars will be invested in Indian market

Spread import and export business in different countries

Agriculture related people will get good price of their goods

Disadvantages

Will affect 50 million merchants in India

Profit distribution, investment ratios are not fixed

An economically backward class person suffers from price

raise

Retailer faces loss in business

Market places are situated too far which increases traveling

expenses

Workers safety and policies are not mentioned clearly

Inflation may be increased

Again India become slaves because of FDI in retail sector

10 REASONS WHY FDI IN RETAIL IS A BAD IDEA. The explosion of opinion on the issue of Foreign Direct Investment in the retail sector in India has confounded most of us with dubious data, incorrect analysis and obfuscatory lobbying. Time to set the record straight. 10 good reasons why it is a bad idea. 1. FDI in retail is a non-critical area of intervention. Nobody in urban India is suffering for lack of access to food or grocery items. If at all it is the public distribution system that is diseased with corruption and needs to be replaced or removed. Access to food is an issue in the remote and rural impoverished areas of the country, where as the fine print tells you, FDI in retail will not be implemented. Comparative examples that try and portray an opposition to FDI in retail as regressive are not only misplaced, they are patently suspect. [Montek Singh Ahluwalia of the Planning Commission included, who suggested that arguing against FDI in retail was like complaining that the taxis would dislodge theTonga]. To imagine that FDI in retail exemplifies a progressive mindset shames us into thinking that an ability to buy in the comfort of a twenty thousand square feet air conditioned space is more indicative of progress than providing similar quality housing for its citizen or schools for

our children. The taxi took over theTonga for reasons of speed and protection from the elements. FDI in retail projects no such benefit. We already get what we need for our daily needs through local general stores and local big format stores. The gloss of a shiny international brand name atop a store is not enough of a differential. 2. Middlemen are key to distribution. The myth about farm-to-store supply chain should end with the simple fact that middlemen will not be removed from the operation but that existing middle men will be replaced by bigger, more organized, more prosperous middlemen. Anyone who knows the business of distribution knows that there is nothing called a direct sale from farmer to retail, unless it is self-owned farm by the retailer. The process requires a minimum of three transactions. From the farmer to the transporter, to the distributor and to the end supplier. There are middlemen even if you make a direct purchase and underwrite the farmers produce and each point of contact costs something to keep his or her services going. The middleman is not an enemy of the state. The middleman is being paid for services rendered, his is not a free lunch. He is the conduit that makes delivery possible. Removing middle men, as is being claimed by votaries of FDI in Retail does nothing for the families of those who will be obliterated by the new model that will take over: the retailer will have his own middle men in the system, and that is all the difference there will be. The argument advanced by many including some farmer lobby groups that there are 4 to 10 layers of middle men between producer and retail are not only humbugging they are undermining free market movements where nobody can get in line unless he performs a function. The other charge, that a policy failure produced such layers of middlemen can be countered with a simple answer FDI in Retail cannot remedy a policy failure. It is the governments job to fix that, not Walmarts.

Farmers will not get better prices. The idea that the farmer will get a better price for his produce if FDI in Retail is allowed is a baseless suggestion. The open market does not work on altruism and social service. It negotiates the best for itself so it can corner the most for itself. Farmer suicides are not because they cannot sell, as is being written about by irresponsible columnists and business leaders but because they are unable to get remunerative prices for their produce qwing to poor quality produce due to lack of proper crop management or crop failure, an inability to pay back their loans or make ends meet and lose their land. To suggest that foreign retailers would be so teary eyed at the plight of farmers that they would offer a premium on produce which is available at less is plain childish. Fact is that the markets, if allowed to function without controls, will take their own route to price discovery. And remember, the more clout a buyer has, the lesser the seller gets per capita. That is a law of the free market. FDI in retail cannot do any more than local big format retailers are already doing. Those that argue that FDI in retail will bring succor to farmers and reduce prices for consumers need to explain why, when there are home grown large format retailers, that is not already the case. How can you expand on a theme when you admit that it is not working? The farmer is only an emotional hook in the pro FDI lobbyists scheme. The truth is that more than 70% of revenues of large format stores come from non-food items where the farmer does not even figure. All the stories in media about farmer unions supporting the move are motivated through two straight facts: lobbying with a generous dose of cash infusion into these unions by food majors and retail chains and the other more important fact they are right about some farmers in their areas, specially Punjab getting a better deal. But the cost of that is this: big retail and food processors alter crop selection to have farmers produce to order. So, because Pepsi needs potatoes for their chips, farmers skip the Dal season and other such
3.

produce in favour of extensive cultivation and specialization towards potato cultivation. Now they are right that particular farmer is doing well contract farming is profitable, but in effect an entire range of products are now in short supply. Precisely why Dal and cereals and vegetables are becoming costlier by the day. This is apart from the other real problem corporates do not like dealing with a dozen small producers. So they focus on one or two large producers and create conditions for the rest to either submit to a larger contractor or just sell the land and move out of business. 4. Brands compete to secure market share. Market share can only be secured at the cost of another existing competitor. It is equally naive to imagine that the anomalies of predatory pricing will be taken care of once the sector is open to competition. Let us understand the idea of competition. All competition starts from a baseline price point. The base line price already exists with the current prices the farmer gets. All competition is normally over and above that base line. Nobody sells below his purchase price. But what is being debated here is the ability of the big retailer to sustain losses for a long period of time by selling under cost to dismantle competition owing to deep pockets. Brands will go on a losing spree to corner market share. That is an old principle. Walmart will sustain losses to counter Carrefour and a Carrefour will do the same to contain another competitor. In a fight of such giants, the small retailer and the kirana shop owner of today stand no chance. As a caveat, one should be wondering what the local large format stores would face and why they are supporting a policy shift that could hurt them. After all, Spencer and a number of smaller retailers hardly stand a chance in the face of a Walmart. Well the reason is simple: The only reason you hear some of them support the idea is because [a] some want to raise money from markets abroad to run their unprofitable enterprises for a little longer until they hope to break even [b] access cheaper funds

which the Government and its fiscal laws have made almost non remunerative or [c] hope to be taken over and bought out. Note that the retail business is cut throat and many largeformat or branded stores have already folded. Subhiksha inSouth India and Vishal and Sabka Bazaar in the North come to mind immediately. Most of the existing local large format retailers who support the idea are folks who are looking for a bail out or hoping to sell their operations on the back of decent valuations. 5. Big Retail cannot co-exist with small retail. That big retail can coexist with kirana is a flat impossibility. It cant because big retail alters the playing field permanently. The instruments of small retail are redundant in the schema of big retail. The grammar of big format selling influences the buying habits of people. The kirana sells on the basis of daily consumables of a middle class. The big-format pushes for bulk sales, weekly big purchases where you buy four when you need one simply because it is priced in an attractive deal for the day. The kirana and the small retailer cannot bundle promo packs because it cant deal directly with producers. Big retail is habit altering. It is not an alternate, not an expansion of choice but a modification of the manner of consumption and sale. Big retail does not encourage balanced consumption but exists on the principle of overuse, and excess. Big retail altered the psyche of an entire generation of Americans consumers, producers and manufacturers alike. The idea that shopping can be a weekend activity, where you load up on supplies for a week comes from a country where joint families are not known, buying fresh vegetables daily is unknown, where women dont cook and burgers are staple diet. Weekend buying leads to storage. Which leads to oversized freezers; which leads to more frozen food, and to more heatand-eat dishes, and the spiral of the other problems of plenty. Indians dont consume like that and there is much to be said about buying fresh and local, as the world is now discovering.

Big Retail is one big cause of food inflation. That food inflation will be curtailed with FDI in Retail is a plain lie. Food inflation has to do with supply side shortages and distribution bottlenecks that have mostly to do with government policy in each case. The advent of big retail will not induce any farmer to grow more food or make any dent in the fossilized mechanisms of food procurement and distribution policies of Government. The truth remains that agriculture has suffered for long, that farmers do not get remunerative prices and that they are unable to pay back whet they have borrowed. Food inflation is a derivative of the paralysis of government and states and nothing to do with FDI in retail. Were talking about FDI in retail for Gods sake, not FDI in agriculture. The other startling aspect of FDI in retail is that it is being sold as the answer toIndias farming woes. Congress MP Jyoti Mirdha has pointed out that the FDI introduced in the agriculture sector in 2006 is yet to show any progress, so where is the basis for moving on to FDI in retail. What FDI could not do for agriculture directly, it will do through FDI in retail is a bit of a big joke. 7. Consumers do not get better prices. Consumers will get lower prices is another figment of the lobbyists fertile imagination. Prices never come down. Big bazaar or Walmart, prices never come down. The argument is a facetious assault on the principle of growth and inflation. Big retail can at best sell you cheaper potatoes or five such items carefully selected on seasonal variations or bulk deals with producers cheap for only a week and no more. For everything else you buy from them, you will pay more. That is how big retail works. To qualify this, read this comment from a KPMG expert who was arguing for FDI in retail: To draw consumers, [big] retailers squeeze suppliers and ensure efficiencies in categories that drive foot falls. They balance it out by enjoying higher margins in categories where impulse buying is high [Anand Ramanathan quoted in Economic
6.

Times,1st Dec 2011] The reason there is no data on this is because it is not in the interest of big retail or big media to support the idea. Think about infrastructure and overheads. A large format retailer, if it is not within an existing mall and aims to be the size of Walmart stores will have to put up its own air-conditioning plant, parking, galleys, staff, vans, transport, machinery and processes that simply cannot offset any purchasing bulk deals to support the idea of cheaper prices. That prices of food items are cheaper at big retail outlets is also not without a serious caveat. Comparing prices is not the only criterion: you have to compare quality as well. Has anyone ever bought fresh vegetable produce from a big retailer nobody will accept that quality from a local vendor. The jargon about cereals and selected stuff being cheaper is sketchy at best and the reason there is no data on this is because nobody wants to reveal the modus operandi of selective discounting by big retailers as a marketing tool rather than any real principle of lower pricing. The survey published in a newspaper is an in-house attempt which does not answer to the most fundamental discrepancy why does every survey attempt at comparing prices of chosen commodities at kirana stores with big retail outlets: how about comparing one big retail outlet with another and explain why they do not conform to the same price principle across the board? 8. Big Retail kills small jobs. More jobs will be created when big retail comes in is a fallacy and a purposeful falsehood. For an economy where 80% of the population engaged in trade and local retailing is self employed, how do the numbers stack up if you dislodge even 20% of that population. Does any math support the theory that any number of big retailers in a city likeDelhi will be able to support 5 lakh people who will progressively be thrown out of business due to their advent? For a government that is unable to provide employment in big cities with reasonable opportunities, the impact in smaller ones will be

unmanageable. The 30% caveat that is being bandied about as a bulwark against large scale displacement of local producers is also a charade because it does not concern itself with produce but infrastructure investments that big retailers must make, [as a safeguard, in the Governments weak words] without explaining that these could be the plywood and the roofing they use to set up their retail stores or the marble tiling and the bathroom fixtures or even the trucks they buy. So what protection is this worth? Then again, even if this were to be reworded to ensure that the 30% limit pertained to produce and not infrastructure, which gigantic micro management agency would pore over their account books to determine this on a daily or monthly basis? 9. Big Retail is relative to Real Estate. Retail is a first cousin of the real estate industry. Already the calculators are out fantasizing about the acreage these new big format retail marts will need and the newer malls that will be coming by design around such anchor stores. Big Retail loves Big Development and vice versa. The upshot is that the already skewed real estate market will only get more out of control and housing for middle classes and the ordinary folks that much farther. Big retail creates the grounds for large scale property price hike throwing up a new spiral of inflation in real estate space a totally unregulated, unbridled, black money haven. Another reason why the smaller retailer will have to pack up and move cant afford the real estate. 10. FDI in Retail is a political hot-potato and a nonissue. The political expediency attributed to the opposition on the issue of FDI in Retail is actually misdirected and it is the government of the day which should be under a cloud of suspicion for the timing of this move. If this is about proving that there is no paralysis in governance, it is plainly a bravura act which should be set aside for the moment. On the other hand, if this passes for reform, how about we discuss instead FDI in education, a sector that holds the key to prosperity for

this country and its future generations. If this is a sop for theUS and the rest of the west, let us learn from their mistakes profligacy in consumer spend and consolidation of business are dangerous instruments in the economic life of a country. Let us not bail out those who would take us down the precise route that landed them in hell. India must decide if it wishes to trade its cultural, dietary and social habits for the old western paradigm of conspicuous consumption and whether it can stave off the easy charm of easy money and draw a new plan where the farmers are attended to immediately, incentives woven into their crop cultivation habits, offer remunerative prices which keep him engaged and allows him to prosper. This pandering to the urban consumer with the idea that he will have more choice and better pricing is a charade and its bluff must be called. The urban consumer they are talking about probably earns Rs 5 Lacs annually on average and is already spoiled for choice. If it is all about saving a few rupees per kilo on a packet of Ariel detergent, is it worth sending a man out of work for that? Can a Government which cannot provide jobs afford to argue with that? All the media support for FDI in retail is connected to their advertising potential and business cross holdings. Media houses are naturally not saddled with the responsibility of finding employment for the burgeoning population of the country and they must be excused their fit of greed. The best way to test their integrity is to ask if they are okay with FDI in media. Foreign Direct Investment (FDI) is a very sensitive topic, more so if it is in retails. I would put forward my ideas under two broad point1. FDI in general 2. FDI in retail

Why does a country seek FDI? Primarily for two reasons1. Technological advances brought by the Multi National Companies (MNCs) 2. Capital brought by the MNCs What is the final aim to seek FDI? Development, if I am not wrong. First we would understand the term Development. 1. Development is not just growth of GDP/GNP. As Mahboob-ulHaq and Amartya Sen have identified Development must mean development in nutrition, education and health in addition to economic development. 2. In the current situation development has been defined as consisting of three conceptsa. Economic Vitality b. Ecological Sustainability c. Social equity Utsa Patnaik has shown that since 1993-94 (that is after liberalization) poverty has grown in India from 59% to 76%. Why should FDI not be allowed in India1. Our regulatory regime is very weak and buckles under pressure too easily for example GAAR has been postponed, even though it was known that it was a necessary measure to curb abuse of various provisions, just because it was sending a wrong signal to Foreign Investors. Here one would like to ask whether FDI is for India or India is for FDI. 2. Now it is well documented that Multi National Companies just like Companies of yore have not changed their technique of

bribing politicians to gain access to vital re-sources. In such situation Citizen just becomes a pawn in the hand of PoliticianMNC nexus. 3. Money Drain: Off-course it is nobody's concern but it is also a fact that hefty amount of profit and salary etc. will go outside India. 4. FDI should be for our purpose and not because sentiments of Foreign Investors are negative or because rating agencies are giving low ranking to India or that Prime Minister is being called under-achiever. 5. Economy is under strain, accepted but any development pattern with focus on only 3-4% of the population will ultimately remain flimsy. India has huge capability to grow with internal resources. We have to educate people, provide dwellings to them and provide employment opportunities to them. If we try to focus on these aspects we would not need FDI for growth. 6. The aim is not just economy in operations but also peace in the society. What happened in the Manesar. Such kind of employment will only create problem in the society. (Labourers were being paid peanuts in the name of salary-Rs. 5000/- while they had to spend Rs. 2000/- as rent only for a single room). 7. MNCs have the dubious nature of capturing the whole market and thereby discouraging local entrepreneurship. For example government was under strain when Ranbaxy was acquired by an MNC. 8. We remember Posco and Niyamgiri tribals. We also remember threatened beautiful Olive Ridley Turtles. Can we be oblivious to what future we are going to leave for our coming generations? Why should FDI not be allowed in retail? 1. In India farmer who is 52% of the population is also a consumer. If Farmer is paid more and then also charged more it will serve no purpose for example during 2nd world war farmers were getting very good price for crop so they, most of them, sold their produce

to get better price. After some times price of grains sky-rocketted and they had to purchase same grain at much higher price. 2. Organised retail does not decrease the prices. For example a branded shirt, produced in India can be bought for lets say Rs. 600/- in local shop, will be sold for Rs. 2000/- in organised retail shop after giving it a brand name. 3. MNCs, by virtue of their prowess in purchasing in bulk often dictate terms to local manufacturers. They buy cheap and sale at high cost. The resulting profit is not shared by various middlemen as happens in traditional system, rather it is devoured by Corporate. 4. MNCs create wide gulf in the society. Ratio of the compensation being given to CEO and that being given to a shop-floor employee will tell everything. Actually what they are doing is to re-distribute the income in such a way that maximum profit accumulates with a limited number of people. 5. Experience of shopping. Yes, they give very good shopping experience because of their trained marketing personnels. Are we ready to sacrifice interest of so many of our fellow citizens just for the sake of this experience. Think it otherwise. (If you have seen Matrix, movie) would you like to live in an artificial environment which gives you kicks of pleasure, thereby losing your humanness, your individuality. Accepted there is a capital crunch in the Country but that crunch is not because of lack of capital formation but because of lack of trust on the market. People keep investing in dead assets like Gold and Land. Reliance on the speculative FIIs has hurt the market most in the long-term. 2ndly even if we need FDI it is not needed in retail. There is no crisis in the retail sector. We have already allowed FDI in sectors where investment is needed and situation calls for urgent action for example in infrastructure, manufacturing etc. Last but not the least, decisions such as these can change the future from where there is no returning back. Such decisions must not be

taken by executive fiat. Parliament represent people and parliament should be the decision maker in all such cases. Issued on the occasion of press conference addressed by Dr. Ashwani Mahajan, Spokesperson & Member, National Steering Committee FDI in Retail - Eagerness of the government with baseless arguments SJM in deeply concerned with the government going fast track on opening up of retail sector for FDI on baseless arguments, without giving a heed to the recommendations of the parliamentary committee on the issue. On July 6th, 2010, government issued a discussion paper, stating its intention to open retail for FDI conceding itself that Parliamentary committee and many others have opposed the same. Most of the respondents from different walks of life argued against the FDI in retail. Affected groups have been agitating since the government had started taking steps in this direction. A sector which provides employment to 3.5 crore people directly and to another 1.5 crores indirectly, contributes 14% to GDP and has a market size of 20 lakh crores of rupees is simply being handed over to giant global firms like Walmart & others. It seem that the government of India run by UPA led by Sh.Manmohan Singh is listening to Wal Mart, other big retail companies and United States of America authorities more than common masses of this country. Recently, Mr. Kaushik Basu, advisor to finance minister- GOI, has spoken about the recommendations of IMG on inflation. A few days back committee of secretaries have also used the same argument to recommend 51 percent FDI in retail. If one carefully follows the recommendations, it becomes clear where from the command has come. It is completely cut and paste from the reports prepared independently long back by the hired

consultants of Wal Mart and other big retail corporate, IMF and American establishment. There is no difference in the recommendations given by IMG from the suggestions emanated from American establishment whose business interests are evident. Misleading Arguments Govt. failure on inflation front is being used as a shield for decision on FDI in retail stating that FDI in retail would help in combating inflation. There is no evidence in this regard except in the reports prepared by hired consultants of Walmart and other corporate. On the contrary Indian retail market estimated to be more than $400 billion and which is growing propelled by the ever-increasing savings from the middle class. This is a precious asset of our economy. Instead of protecting and effectively utilizing the same to promote Indian entrepreneurship and effectively leveraging in the future negotiations in the process of emerging as an important player in international politics, the government is putting it for sale. The decentralized retail market is best serving the consumers and producers. If big players are allowed to operate, over the years consolidation of market in the hands of few will become the reality. Once it happens, then they will dictate terms for both consumers and small producers including farmers. Today the channel cost unlike in other countries of the west is least and very efficiently managed by resource conscious retailers of India. The argument that the farmer would be getting better price is with out any ground and forwarded with dubious intention. Very same argument was given in the context of commodity trading which has not worked. It may be kept in mind that Any disturbance in the present model with out preparing the grounds as suggested by Standing committee of Parliament will have devastating impact on the overall employment and economy. There are studies conducted by experts, ay which s"The agriculture sector in India is already overburdened as it employs nearly 60 per cent of the total workforce, so it cannot absorb any more. The manufacturing

sector, which absorbs only 21 per cent of the workforce, cannot accommodate more because there has been no capacity addition to it in recent years, so services sector is the only alternative and in this sector too, retail is the biggest employment provider," the study says. They are already under heavy stress due to nonavailability of capital including working capital from formal banking institutions. Heavy dependence on moneylenders for capital needs is creating a non-level playing field with the big domestic organized retailers. Argument of World Class Supply Chain, Warehousing and Storage Infrastructure: Misplaced It is unfortunate that to legitimize the entry of the multinationals in Retail Sector, the department is taking the shield of lack of storage facilities for agriculture produce. The government could have created this storage capacity either on its own or encourage private sector to create this by providing subsidies, fiscal concessions or other incentives. The paper circulated by government department gives an argument that creation of this infrastructure requires an investment of rupees 7687 crores, therefore we need FDI in retail sector. The money required to create this infrastructure would be infused by TNC is the belief of the present establishments. This argument is hardly convincing. In a country where the size of annual budget is more than 12 lakh crores, for this small investment of merely 7687 crores we cannot legitimize the death warrant for small retailers, especially when they are not at fault. The argument given in the report that in the new format existing retailers could be rehabilitated is ridiculous, as everybody knows that the existing small retailers cannot be employed in the malls in any respectable manner. The government will be considered insensitive to problems of poor retailers like rehri, patri, khomcha and small shopkeepers if it opens up retail sector for multi brand retailing by foreigners.

The BJP seems to have realised that its relentless campaign against foreign direct investment (FDI) in retail and other such reform measures may not be entirely to the liking of its middle class constituency or at least a section of it. It is not yielding an inch to the UPA government on the subject, but its top leaders are making a conscious effort at its ongoing National Council meet to differentiate between economic reforms and change. The party wants to claim that, unlike the Left, it was committed to reform even FDI in areas that were in the national interest. BJP president Nitin Gandkari talked of the reform measures undertaken by the Vajpayee government and criticised the UPA government for taking up the recent spate of measures as part of a political manoeuvre. Leader of the Opposition in the Rajya Sabha Arun Jaitley went to some lengths to explain why the party was opposed to FDI in retail. The BJP is committed to economic reforms which are in national interest. Every change in not a reform. Some changes may end up hurting national economic interests, he said.

BJP president Nitin Gadkari. PTI

He presented a point-by-point rebuttal of the governments arguments in favour of opening up multi-brand retail. Jaitleys counter-arguments are as follows: 1. In the first instance, manufacturing sector jobs will be lost in India. Domestic retail primarily sources locally. International structured retail sources internationally, leading to a drop in domestic manufacturing. This is all the more significant since India has not carried out significant manufacturing sector reforms. 2. International structured retail doesnt create additional retail jobs, it merely displaces existing jobs. 3. Only 18 percent of the Indians are in structured jobs; 51 percent of Indias working population is self-employed. Along with agriculture, retail trade constitutes the largest fountain of selfemployed jobs. Structured international retail will be harmful to job creation in India. 4. Fragmented markets serve the public interest much more than consolidated markets. In the first 12 years of opening up retail for FDI, Thailand saw 38 percent of its consumer market consolidate in favour of three large retailers. 5. The oft-quoted example of China is misconceived. China as a low-cost economy is the predominant and largest supplier to the big retailers. It cant be argued that goods manufactured in China will not be sold only in China. 6. International retailers proceed on the principle of buy cheap and sell costlier. The initial low prices facilitated by the deep pockets of retailers results in eliminating competition and then raising prices. 7. It is a myth that middlemen will be eliminated and the benefits will go to producers/farmers. The benefits of eliminating middlemen goes to the retailer and not substantially to

farmers/producers. International Farm Companies Network (IFCN) data shows that in the US a milk producer gets 38 percent of every consumer dollar spent. In the UK this figure is 36 percent. In India, riding on the strength of the cooperative movement, milk producers get 70 percent of every rupee spent by the consumer. 8. The argument that back-end operations such as cold chains and transport infrastructure will benefit from international retailers is baseless. Building a cold chain is not rocket science; why cant building cold chains, or rural farm roads coexist with MNREGA? 9. The basic principles of trade negotiations have been ignored while making concessions to the US and EU by agreeing to their proposal on big retail without any corresponding quid pro quo. 10. That an option has been given to the states to implement FDI is a myth being spread to mislead people. FDI is a central subject and not a state subject. International treaties on investment, to which India is a party, require a national treatment. The deception is a trap for future litigation which may force all states to accept FDI in retail. Beyond FDI in retail, the BJP is open to reforms in the national interest. The party had earlier agreed to support the government on insurance and pension reforms along with certain amendments in the current draft, but the government developed cold feet due to opposition from within the UPA. While moving its economic resolution, the party leader said the government had the option to proceed with a large number of domestic economic reforms which are pending. There is a broad consensus on these reforms but the government has chosen to ignore these and implement those that hurt national interest. The BJP will have to make greater efforts to convince a section of the middle class of its position and at the same time emerge as a champion of farmers and the trading class.

http://www.slideshare.net/guptaparul88/fdi-and-indian-economy12139859 advantages - causes a flow of money into the economy which stimulates economic activity - employment will increase - long run aggregate supply will shift outwards - aggregate demand will also shift outwards as investment is a component of aggregate demand - it may give domestic producers an incentive to become more efficient - the government of the country experiencing increasing levels of FDI will have a greater voice at international summits as their country will have more stakeholders in it Disadvantages - inflation may increase slightly - domestic firms may suffer if they are relatively uncompetitive - if there is a lot of FDI into one industry e.g. the automotive industry then a country can become too dependent on it and it may turn into a risk that is why countries like the Czech Republic are "seeking to attract high value-added services such as research and development (e.g.) biotechnology)" "FDI in retail is a big step forward and the opposition to it is from persons out of sync with the reality of present day economy. It is definitely going to create lakhs of jobs at all levels and that is what is badly needed in the present times. We have the young generation to look after and they have to be provided with jobs. Also it will help a competitive environment which will ensure fair price and good quality which is presently lacking. All those opposing are votaries for the dalals who at the cost of the producer and the

consumer are minting money and promoting inflation. It is a tragedy that political parties are not at all interested in the overall economic development of the country and are only looking for votes to come to power at all costs." Jayant G "Good for our politicians but not too good for our India and worst for middle class people like us." Surajit "FDI in retail is necessary to keep inflation in check, large international stores will give a better

paid well above the local norm, all others languish. Most multinationals employsubcontractors and these, to do their job, frequently haul entire workforces acrosscontinents. The natives rarely benefit and when they do find employment it isshort-term and badly paid. M&A, which, as you may recall, constitute 60-70% of all FDI are notorious for inexorably generating job losses. FDI buttresses the government's budgetary bottom line but developing countriesinvariably being governed by kleptocracies, most of the money tends to vanish indeep pockets, greased palms, and Swiss or Cypriot bank accounts. Such"contributions" to the hitherto impoverished economy tend to inflate asset bubbles(mainly in real estate) and prolong unsustainable and pernicious consumptionbooms followed by painful busts. \ As the Indian government hopes for millions in investment from international retail chains that will take advantage of the policy permitting FDI in multi-brand retail, should they be looking closer at the experience China had? The experience of China and India in multi-brand retail will be very different. Chinas large manufacturing base has cushioned the ill effects of FDI to a large extent, Praveen Khandelwal, General Secretary of the Confederation of All India Traders, said onCNN IBN He said that India did not have a low-cost manufacturing base and Indian suppliers would not stand a chance against the low-cost business model of Chinese suppliers and manufacturers.

Will the agrarian sector benefit from FDI in multi-brand retail? Reuters However, it was countered by Vice President of the CII, Ajay S Shriram who argued that FDI in multi-brand retail will be beneficial to the larger population of India. 50 percent of the investment will have to go into improving the infrastructure at the back end, something that will also halt the increased migration from villages to the cities by creating employment, he said. But all are not in agreement that merely bringing in international retail chains will eliminate problems with the agricultural and manufacturing sectors in India. Professor at JNU Kamal Mitra Chinoi pointed out that Chinas experience with FDI in retail has not been without bottlenecks. There have been major demonstrations by farmers in China against FDI. It is therefore not the best way to energise the rural sector, he said.

History of FDI in India

BY BFM TEAM ON MAY 12, 2012 IN CASE STUDIES HISTORY OF FDI IN INDIA. At the time of independence, the attitude towards foreign capital was one of fear and suspicion. This was natural on account of the previous exploitative role played by it in draining away resources from this country. The suspicion and hostility found expression in the Industrial Policy of 1948 which, though recognizing the role of private foreign investment in the country, emphasized that its regulation was necessary in the national interest. Because of this attitude expressed in the 1948 resolution, foreign capitalists got dissatisfied and as a result, the flow of imports of ca[ital goods got obstructed. As a result, the prime minister had to give following assurances to the foreign capitalists in 1949:
1.

2.

No discrimination between foreign and Indian capital. The government o India will not differentiate between the foreign and Indian capital. The implication was that the government would not place any restrictions or impose any conditions on foreign enterprise which were not applicable to similar Indian enterprises. Full opportunities to earn profits. The foreign interests operating in India would be permitted to earn profits without subjecting them to undue controls. Only

3.

such restrictions would be imposed which also apply to the Indian enterprises. Gurantee of compensation. If and when foreign enterprises are compulsorily acquired, compensation will be paid on a fair and equitable basis as already announced in governments statement of policy.

Though the Prime Minister stated that the major interest in ownership and effective control of an undertaking should be in Indian hands, he gave assurance that there would be no hard and fast rule in this matter.

By a declaration issued on June 2, 1950, the government assured the foreign capitalists that they can remit the he foreign investments made by them in the country after January 1, 1950. in addition, they were also allowed to remit whatever investment of profit and taken place.

Despite the above assurances, foreign capital in the requisite quantity did now flow into India during the period of the First plan. The atmosphere of suspicion had not changed substantially. However, the policy statement of the Prime Minister issued in 1949 and continued practically unchanged in the 1956 Industrial Policy Resolution, had opened up immense fields to foreign participation. In addition, the trends towards liberalization grew slowly and gradually more strong and the role of foreign investment grew more and more important. The government relaxed its policy concerning majority ownership in several cases and granted several tax concessions for foreign personnel. Substantial liberalization was announced in the New

Industrial Policy declared by the government on 24th July 1991 and doors of several industries have been opened up for foreign investment. Prior to this policy, foreign capital was generally permitted only in the those industries where Indian capital was scarce and was not normally permitted in those industries which had received government protection or which are of basic and/or strategic importance to the country. The declared policy of the government was to discourage foreign capital in certain inessential consumer goods and service industries. However, this provision was frequently violated as a number of foreign collaborations even in respect of cosmetics, toothpaste, lipstick etc. were allowed by the government. It was also stated that foreign capital should help in promoting experts or substituting imports. The government also laid down that in al those industries where foreign capital investment is allowed, the major interest in ownership and effective control should always be in Indian hands (this condition was also often relaxed). The foreign capital investments and technical collaborations were required to be so regulated as to fit into the overall framework of the plans. In those industries where foreign technicians and managers were allowed to operate as Indians with requisite skills and experience were not available, vital importance was to be accorded to the training and employment of Indians in the quickest possible manner.