Foreign Direct Investment in Indian Retail Sector: Misplaced Or Justified?

Abstract

As per the current regulatory regime, retail trading ( except under single-brand product retailing - FDI up to 1 oo per cent, under the Government route REVISED VIDE Press Note1/2012 dt. 10.1.2012) is prohibited in India. Simply put, for a company to be able to get foreign funding, products sold by it to the general public should only be of a 'single-brand'; this condition being in addition to a few other conditions to be adhered to. India being a signatory to World Trade Organization's General Agreement on Trade in Services, which include wholesale and retailing services, had to open up the retail trade sector to foreign investment. There were initial reservations towards opening up of retail sector arising from fear of job losses, procurement from international market, competition and loss of entrepreneurial opportunities. However, the government in a series of moves has opened up the retail sector slowly to Foreign Direct Investment ("FDI"). In 1997, FDI in cash and carry (wholesale) with 100 per cent ownership was allowed under the Government approval route. It was brought under the automatic route in 2006. 51 per cent investment in a single brand retail outlet was also permitted in 2006 and recently revised to 100 per cent under Government route.FD! in Multi-Brand retailing is still prohibited in India. At the moment there is a trade of 28 billion dollars in India which is expected to grow up to 260 billion dollars by 2020. This means that trade in retail sector would grow by 9 percent and it would also push the GDP rate.