I have collected information from internet and news papers. There are 2 exactly opposite views for allowing FDI in retail sector although it has been accepted in other sectors like insurance, banking etc. Opposition puts forth disadvantages of FDI in retail as under:-
1. This is exactly like permitting East
India Company from UK to trade in India during 19th century. This
means the FDI investors would make India a slave country.
Ideal FDI investors and Retailers |
4. Country would became slave to
western powers especially USA.
5. FDI investors would dump foreign
goods and indigenous product won't find place in the market.
6. FDI investors can wait for making
profit because of their large capacity. They can also sustain losses easily.
Once they find the opponents have given up they would change their strategy and
sale products at high rate.
7. FDI investors would not give
facilities like medical insurance etc.
Fear expressed by retailers is true
to great extent. However, the government can take precaution to avoid all the
disadvantages. Point by point these are given below.
1. There is a great difference between old
East India Company of Briton and FDI investors of today. East India Company was
totally a foreign company. What government has proposed that fdi would be limited
to 51%. This percentage could be reduced to 49% to be on safer side. There
should be laws to suit Indian condition. For example facilities like health
insurance, pension etc. should be added in the interests of the employees. Present
retailers could have 25% of shares (stocks) and those who are not in retail
business should have 26% or more shares in the company. In management 50%
directors should be resident Indians who could safeguard interests of Indian
public. There would be more restrictions which would not stall such investment.
Indian politicians and intelligentsia can always find a solution.
Retailers protest against FDI |
Fear of unemploment |
FDI is Beautiful |
5. FDI investors shall be interested in
dealing in goods needed by customers and their own profit. They shall try to
sell high price items with the best quality as well as low cost articles
affordable to customers. If Indian goods with high quality and low price are
available they shall not think about goods from their own country. After all
they are traders not the gods! What is needed is to compete with foreign goods.
India must study why foreign goods are cheaper and still possess high quality.
We must find our own way to achieve higher quality and lower price. India has done
this in past much number of times and we could face this challenge. Indian
scientists have developed indigenous rocket engines when there were
restrictions placed for importing those. In addition India could place some
restriction that certain percentage of goods must be purchased from local
industry/small scale industry for certain period i. e. till Indians are in a
position to compete with foreign goods.
6. It is true that in business to
establish monopoly traders sustain low profit or even losses till the
competitors are driven out from business. FDI investors may adopt this policy.
However, present Indian retailers can fight this situation bravely. They should
form a association and that would be much bigger and stronger than the fdi
investors put together. This association should have its own bank, own good preservation
and storage facility, good transport facility and research cell etc. They
should encourage customers to open bank account with association's bank at Zero
balance with chequebook facility. Research cell should develop a flawless
system for payment by customers by cheque instantaneously. This would need a
computer programme and internet. Amount of bill should be filled on a signed
(and or thumb impression) and the cheque should be processed for finding
availability of balance. If balance is adequate the cheque should be signed
(and or thumb impression) again and presented to machine to complete
transaction. The money should be transferred only to the account of retailer
from whom goods are purchased. This method of money transfer shall be as good
of payment through cash and still much safer. Money shall be instantaneously
transferred to the account where a customer purchases his requirement. This
shall prove to be safer than credit/debit card and requirement of holding cash
or "Change" The government need not print paper currency, specially
high denomination currency.
7. The government can always insist on
facilities to be provided by fdi investors for their employees.
China is No. 1 in FDI |
Wikipedia defines FDI as follows. Foreign
direct investment (FDI) or foreign investment refers to the net inflows of investment
to acquire a lasting management interest (10percent or more of voting stock) in
an enterprise operating in an economy other than that of the investor. It is the
sum of equity capital, other long-term capital, and short-term capital as shown
in the balance of payments. It usually involves participation
in management,
joint-venture,
transfer of technology and expertise.
There are two types of FDI: inward foreign direct investment and outward foreign
direct investment, resulting in a net FDI inflow (positive or negative) and "stock
of foreign direct investment", which is the cumulative number for a given period.
Direct investment excludes investment through purchase of shares. FDI
is one example of international
factor movement.
Types
A foreign direct investor may be classified
in any sector of the economy and could be any one of the following:
- An individual;
- A group of related individuals;
- An incorporated or unincorporated entity;
- A public company or private company;
- A group of related enterprises;
- A government body;
- And, trust or other social institution; or
- Any combination of the above.
Methods
- The foreign direct invest or 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:
- Low corporate tax and income tax rates
- Other types of tax concessions
- Preferential tariffs
- Special economic zones
- EPZ-Export Processing Zones
- Bonded Warehouses
- Maquiladora
- Investment financial subsidies
- Soft loan or loan guarantees
- Free land or land subsidies
- Relocation & expatriation subsidies
- Job training & employment subsidies
- Infrastructure subsidies
- R&D support
- Derogation from regulations (usually for very large projects)
World wide foreign direct investment statistical
data available gives information as follows.
Country
|
2008
|
2009
|
2010
|
World
|
$1,905.60
|
$1,345.90
|
$1,343.60
|
United States
|
$310.10
|
$158.60
|
$236.20
|
China
|
$175.10
|
$114.20
|
$185.10
|
Luxembourg
|
$99.70
|
$210.50
|
$153.80
|
Hong Kong SAR, China
|
$59.60
|
$52.40
|
$68.90
|
Belgium
|
$136.60
|
$25.30
|
$62.80
|
Brazil
|
$45.10
|
$25.90
|
$48.40
|
United Kingdom
|
$93.50
|
$72.90
|
$46.90
|
Germany
|
$4.80
|
$38.90
|
$46.10
|
Russian Federation
|
$75.00
|
$36.50
|
$42.90
|
Singapore
|
$8.60
|
$15.30
|
$38.60
|
France
|
$66.50
|
$35.10
|
$33.70
|
Australia
|
$47.30
|
$27.20
|
$30.60
|
Ireland
|
-$16.30
|
$26.60
|
$27.10
|
Spain
|
$77.90
|
$8.60
|
$24.70
|
India
|
$43.40
|
$35.60
|
$24.20
|
Canada
|
$57.90
|
$22.50
|
$23.60
|
Saudi Arabia
|
$39.50
|
$36.50
|
$21.60
|
Mexico
|
$26.30
|
$15.30
|
$18.70
|
Chile
|
$15.10
|
$12.90
|
$15.10
|
Indonesia
|
$9.30
|
$4.90
|
$13.30
|
Cayman Islands
|
$18.70
|
$17.90
|
$12.90
|
Norway
|
$7.50
|
$15.00
|
$11.70
|
Growth od FDI |
India provides strong pool of scientific
and technical manpower (Prowess of IITs, IIMs where 255 Fortune and 500 other companies
are getting services), 2nd largest English-speaking population, high-quality, cost-effective
and competitive manpower (Over100,000 IT professionals added each year), job creation
capacity is a million direct & 2-3million indirect jobs per annum. Other
advantages available in India are prevalence of foreign technology licensing (Rank
1 in the world), availability of scientist and engineers (Rank 2), quality of management
schools (Rank 9), firm level innovation (Rank 12), firm level technology absorption
(Rank 16), companies spending on R&D (Rank32). (Source: Global Competitiveness
Report, 2003)
India is among world's fastest growing
economies. (Graph shows Indian GDP growth since 1996-97, average GDP (gross domestic
product) growth of 5.4% during the 9th Five-Year Plan i. e. 1997-2002, exports registered
growth of over 19% in 2002-03, foreign exchange reserves at all-time high of over
$90 billion, increase in forex during the fiscal year in 2002-03 to $20 billion,
India's economic growth is sustained, Indian GDP is expected to grow by over 7.0%
or more per year.
Under the Industries (Development &
Regulation) Act, 1951, industrial license is needed only for items falling under
the list of compulsory licensing, reserved for small-scale sector, if location attracts
restriction, all industries are exempt from industrial licensing required to file
an Industrial Entrepreneur Memorandum. Only notification need and not prior approval.
Industries retained under compulsory
licensing under the Industrial (D&R Act-1951) are distillation and brewing of
alcoholic drinks, cigars and cigarettes of tobacco and manufactured tobacco substitutes,
electronic, aerospace defence equipment, industrial explosives and hazardous chemicals.
Following financial sector reforms
have been adopted. These are setting up of the competition commission,
amendments to companies act, fiscal responsibilities, and securitisation act for
creditors' security. Further modifications are computerisation of customs interface,
only 3 rates of indirect tax, trade facilitation measures, Foreign Exchange Management
Act, 1999 providing a liberal regime, allowing selling of shares without prior approval,
allowing repatriation of profits, dividends and capital investment allowing
payment of loyalties by wholly owned arms to parent companies.
There has been improvement in infrastructure
and its policy. Development of over 13,000 km of highways is near completion, the
Electricity Act, 2003 facilitates reforms in power sector such as permitting trading
in electricity and no prior approval for captive generation, airports at New Delhi
and Mumbai have been upgraded, Sagar Mala is a major programme aimed at developing
ports and shipping sector at an estimated investment of $22 billion is in
progress, forward development in telecommunication sector like wider band and sharp
decline in telecommunications cost, an empowered sub-committee of the National Development
Council has been setup on creating an investor friendly climate and removing regulatory
barriers to investment, all IPR Laws are TRIPS compliant, simplification and re-engineering
of work procedures has been undertaken. (More information is available at www.ipindia.com)
West Bengal Economy |
Dr. Man Mohan Singh, PM addressing Youth Congress Rally on FDI |
2 comments:
I think we have not learned any lessons from 150 years of Gulami and the British Raj!.
British came to sell us what we Did Not Wanted, Now we are already biggest producer of retail items and we are Self Dependent, but now with FDI's our 'Self Dependency' will go away!. Just imagine 51% stake in your daily Kirana that means from day one we are at least 51% dependent on someone who doesn't care how we live! so sad.
@ Patra, Dear Sir,
Thank you for your comments to improve this article
Time has changed. 150 years before we were not alert, we were not together but divided in to small princely states, our power was divided and hence East India Company could capture us and market. Now it is impossible for any FDI investor to do so. The only danger is from our own elected members (I don't consider them as people's representatives as 100% or at least 50% voters have not elected them) could be slaves to the FDI investors. We need to find a solution for this though.
We should take this as an opportunity to develop ourselves to face all dangers. This would need restructuring, adopting modern technology, making things cheaper, dependable and highest quality. This is possible only with competition. Our local wholesales and retailers should work at less than 10% profit and then FDI investors would return back from where they came.
This is an opportunity to get capital (funds) for development, compete with the world and refine ourselves. This is the opportunity Indian wholesalers and retailers improve and make India superior to others. We have taken this challenge in past and have come out with flying colours.
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