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FDI in Indian retail sector advantages and disadvantages
The India Government’s decision to approve 51 per cent FDI in multi-brand retail has met with both praise and criticism as some likely to gain and other will lose substantially.
Let’s look at who are the gainers:
General consumers are the biggest gainers as they will receive world class services at competitive price, better quality products and they will be better informed about the product content.
Real estate agents and developers: The slow down real estate industry will benefit immensely due to increase in demand. Developers were finding difficult to find buyer for their unutilised space so perhaps this is the best news for them as it will help them to fill their vacant space in their shopping malls.
Banking sector will also grow consequently with the real estate sector growth as money is needed.
Economy on the whole will gain momentum as foreign investment along with the required skills is coming into the country, consumers are benefiting, supply chain system will improve, better logistics and warehousing facilities in the country, quality food, jobs to the middle class and it can be expected that farmers will get good price and contract farming concept may develop in India.
A foreign retailer needs to invest minimum $100million dollars of which 50% must be on backhand infrastructure which is great as India needs trillions of dollars to improve infrastructure problems and reduce the wastage of farm produce and improve the life of farmers.
Majority of the Indian small-scale industries or manufacturers will be forced to shut down and Indian manufacturing jobs will be lost as MNC retail brand in order to compete would prefer to source 2/3rd of their products cheaper from outside the country such as China.
Majority of small traders and shopkeepers will end up closing their shops, stores and lower middle class workers would end up losing their jobs as the Illiteracy level among them is very high.
Contrary to the most people belief, International brands such as Wal-Mart won’t be able to make any profits out of it for at least in the next 5 to 10 years they would only see the losses considering the low purchasing power and transaction value, uncertainty in the Indian political scenario, unrealistic rental and real estate pricing and heterogeneous consumer consumption in south,north east and western states in India.
About the author:
Subodh Gupta is the author of the book Doing Business in India and Understanding Pitfalls the only book which highlights business challenges in detail while doing business in India.
The author and corporate trainer Subodh Gupta has worked for around 12 years in India as an entrepreneur, an engineer, a guest professor to various MBA schools and around six years in the UK as a freelance trainer and India business consultant.