ROLE OF FDI IN INDIAN ECONOMY

CONTENTS

INTRODUCTION

OVERVIEW OF THE FDI POLICY FRAMEWORK

THE KEY BENEFITS OF FDI

FDI IN SOME EMERGING MARKETS ACROSS THE GLOBE

STEPS FOR THE ACTUAL ESTABLISHMENTS OF FDI

CONCLUSION

INTRODUCTION

• INDIAN ECONOMY • FDI (under 2 cases)1. Cases falling under the automatic route ie not

requiring prior government approval. DIPP Ministry of commerce and industry RBI2. Cases falling under the government route ie

approval is granted by FIPB,which also includes representatives of various central government ministries.

RULES AND DECISIONS OF FDI • The foreign retailers will have to invest a minimum of $100

million and atleast 50% of the total FDI brought in will have to be invested in the back end infrastructures.

• They will have to source 30% of products from small industry within five years of operation and every year subsequently.

• If a small industry crosses the $1-million investment mark in plant and machinery ,the purchases from it will not be counted towards the 30% mandatory sourcing requirement.

• Coming to the aviation sector Foreign carriers can pick up 49% stake in the Indian Airlines but this policy does not apply to Air India.

• 49% investment allowed in power exchanges and 74% in teleports,DTH ,mobile TV,headend-in-the-sky broadcasting.

OVERVIEW/SALIENT FEATURES• Wholesale trading• E-commerce activities• Test marketing• Retail trading• Recent developments (possibility of FDI in multi brand retail)

KEY BENEFITS OF FDI1) CONSUMERS Avail rationalised prices that better reflect market value due to

competition. Access better quality food products resulting from knowledge transfer

regarding best practices.

2) GOVERNMENT EXCHEQUER The logistics,transportation,warehousing etc will contribute to the

exchequer through payment of indirect taxes primarily the service tax.

3) FARMERS/PRODUCERS Establish an efficient supply chain that will link the farmers and small

manufacturers directly with the retailers.

4) UNORGANISED TRADE Kirana shops can exist alongside the modern trade players and explore

partnership models in a rapidly changing retail environment.

FDI ACROSS THE GLOBE CHINA

• FDI allowed - 100% (up from 49% in 1992)• Population - 1,343m• GDP per capita -$16100• 20% share of organized

retail• Top retailer – BAILIAN

GROUP CO. LTD

INDONESIA

• FDI allowed - 100% in 1998• Population - 242.3m• GDP per capita - $4,700• 30 % share of organized

retail.• Top retailer – MATAHARI

PUTRA PRIMA

FDI ACROSS THE GLOBE (contd.)

BRAZIL• FDI allowed – 100%• Population - 205.7m• GDP per capita - $11,600• 36% share of organized

retail• Top retailer - PAO DE

ACUCAR

RUSSIA• FDI allowed - 100%• Population - 143.1m• GDP per capita - $17000• 33% share of organized

retail• Top retailer – X5 RETAIL

GROUP

“In mostly all the emerging markets ,FDI in retail is 100% and no country makes a distinction between multibrand and single brand retail.”

FDI IN INDIA• FDI allowed 51% in multibrand100% in single brand• Population – 1,210m• GDP per capita - $3,700• Only 5-6 % of organized retail.• Top retailer – FUTURE GROUP.

STEPS BEFORE THE FOREIGN RETAILERS CAN GET THEIR STORES STARTED

1) Find a joint venture partner.2) Draw up a geographical plan3) Seek approval from states4) Approach centre for final nod.5) Go to states for final license to open a store.6) Find a retail space to open a store and build supply

chain. Total opportunity of $500billion market. Total estimated time it will take is 18-25 months.

CONCLUSION• FDI in the retail sector is going to benefit

several constituencies and stake holders.• FDI in retail will generate employment since

new entrants will need to hire staff.• FDI will help in the reduced wastage in the food

supply chain.• FDI will create more products at better prices.In a nutshell it can be said that FDI creates

better retail infrastructure which helps india to support the overall sector growth of the country.