ASHUTOSH

MBA-IB

CORRUPTION

Defined as the abuse of entrusted power for private gain by Transparency International. Transparency International is an agency who provides an index to all the countries in the world called Corruption Perception Index (CPI). It varies from 0 to 10. Higher the value of corruption perception index, less corrupt the country is. CPI of India is 3.1 in 2011 and it fell from 3.3 in 2010. This shows increase in corruption in India at all levels.

FDI RELATED FACTS:

UNCTAD every year publishes World Investment Report which tells about FDI inflows and outflows of a country. According to World Investment Report 2011, the FDI inflow in India dropped from $36 billion to $25billion in 2010. India slipped six notches to the 14th spot in global rankings of countries that attracted highest foreign direct investment.

EFFECTS OF CORRUPTION ON FDI

Reduced Investment Reduced and Distorted Public Expenditures

Macroeconomic Weakness and Instability Squandered entrepreneurial talent

Weak

Infrastructure

Socio-Economic Failure

HISTORY OF FDI IN RETAIL IN INDIA:

1995
WTO's General Agreement on Trade in Services which include both wholesale and retailing services, came into effect.
FDI in cash and carry(wholesale) with 100% rights allowed under government approval route FDI under the cash and carry(wholesale) brought under the automatic route Upto 51% investment in single brand retail outlet

1997

2006

2011

100% retail in single brand FDI permitted

ADVANTAGES OF FDI IN RETAIL:

Growth in economy:
Arrival of foreign investment will promote infrastructure development in the country. Money required to build infrastructure will be provided by banks. Thus real estate sector growth will promote growth in banking sector. This in turn will boost economy. FDI will benefit society at large

ADVANTAGES OF FDI IN RETAIL:

Job opportunities:
FDI will create lots of job opportunities Indian companies can access global best management practices, designs and technological knowhow and on that basis will train people. This will open up new job opportunities in marketing, distribution of retail goods and also opportunities in other sectors benefitted by this step.

ADVANTAGES OF FDI IN RETAIL:

Benefits to farmers:
FDI will bring contract farming in practice. By contract farming, farmers will supply to the retailer directly based on demand and will good money for that. This will reduce need of intermediaries and will help farmers get lions share of their produce. This will improve livelihood of lots of farmers in India. It will also bring down food prices which will benefit consumers

ADVANTAGES OF FDI IN RETAIL:

Benefits to consumers:
Consumer will get variety of products at low prices compared to market rates. Consumers will have more choice to get international brands at one place. India will significantly flourish in terms of quality standards and consumer expectations, since the inflow of FDI in retail sector is bound to pull up the quality standards and costcompetitiveness of Indian producers in all the segments. Due to inflow of capital and improvement in production of goods, it will assist in lowering consumer prices inflation.

ADVANTAGES OF FDI IN RETAIL:

Infrastructure improvement and reduced food wastage:

FDI ,especially in food retail segment, will help in development of integrated cold-chain infrastructure. This will help in preserving abundant agriculture produce across seasons. This will in turn reduce food wastage.

INHIBITIONS FOR FDI IN RETAIL:

FDI in retail may cause unfair competition and large scale exit of domestic retailers, especially small family managed outlets. Manufacturing sector currently not strong enough to employ persons displaced from retail sector. Organized retail still under nascent stage and hence first domestic sector should first allow to grow and consolidate itself first, before allowing foreign players. Global players could monopolize market and raise prices for consumers and force suppliers to ask for less price.

EXAMPLES OF SUCCESSFUL FDI IN RETAIL:

Allowing FDI in retail led to GDP growth and a rise in the level of employment in countries like China and Thailand. China first allowed FDI in retail in 1992, capping it at 26 percent In 2004 ,China finally permitted 100 percent FDI and local Chinese grocery stores have since grown from 1.9 million to more than 2.5 million. Organized retail has just 20 percent market penetration in China, despite a 20 year lapse since the initial introduction of FDI.

SIGNIFICANCE OF FDI IN RETAIL IN INDIA FOR INVESTORS:

India is second most populous country in the world after China and hence has very large consumer base for different retail products. Retail industry is one of the pillars of Indian economy and accounts for 14-15% of its GDP. The Indian retail market is estimated to be US$ 450 billion and one of the top five retail markets in the world by economic value. India is one of the fastest growing retail market in the world, with 1.2 billion people.

SIGNIFICANCE OF FDI IN RETAIL IN INDIA FOR INVESTORS:

Corruption is high in India but it has never prevented FDI in same way as in China and Russia. The Gravity model of trade tells that FDI inflows depend on GDP of the countries. India already is fast developing country so FDI will definitely reap benefits for everyone. The Indian retail market is estimated to be US$ 450 billion and one of the top five retail markets in the world by economic value. India is one of the fastest growing retail market in the world, with 1.2 billion people.