Foreign Direct Investment in Indian Retail

The point to be proven is that FDI in Indian retail would be beneficial. Foreign Direct Investment, or what we call the FDI, is the investment by a company in production in another country either by buying a firm or expanding the company’s extensions by turning into a partner. Multinational companies often enjoy the many favors the country is willing to let them experience. They give out cheaper wages in to labor; enjoy special investment privileges such as tax exemptions offered by the government as an incentive to gain tariff-free access to the markets of the country.  This is generally beneficial for the firms since they cut down on the transportation costs and can achieve great economies of scale.

Let’s take a case study as an example.

Wal-Mart is the largest retail store in the United States, and is larger than any other retail chain in the world. The company is also the dominant retail store in Canada, Mexico, and the United Kingdom. After Wal-Mart came into the global market of the United States, the government supported it with financial aid and it ended up owning a controlling interest in the country’s market. It turned into a monopolistic one. Initially, it began trading stock as a publicly held company and was soon listed on the New York Stock Exchange.

Wal-Mart continued to grow rapidly and later, became a dominating factor in the American market. With the establishment of a MNC in the country, small firms were overtaken and later thrown out of business. Labor was cheap and Wal-Mart had cash flow into its pockets. They started influencing government policies lenient to their firm bargaining over retail prices and taxes. Wal-Mart does not charge a slotting fee to suppliers for their products to appear in the store but instead, it focuses on selling more popular products and provides incentives for store managers to drop unpopular products and influences manufacturers to supply more popular products. This MNC functions on non-pricing strategies.

The factors that made America a suitable place is that it has well connected roadways that make it suitable for costumers to travel to the retail shops. The population is well above poverty that they can afford decent goods from a branded retailer.

The scenario of Wal-Mart in India was originally considered to be the same. But after further research on its possible impacts on the Indian market, economists came up with conclusions that it effects would not be as drastic as in the USA. Let’s see how. India is a country with almost 60% of its population marginally around the poverty line. The rate of affordability is comparably low, in accordance to their daily income and average cost of living. Wal-Mart in India would be a rather high stake market for most of the Indian population. Disconnected localities, less transportation and affordability would affect the cash flow for any MNC.

Generally in India after raw materials are produced, middle-men buy it off the farmers and pass it on to a whole-sale retailer. Take a 1kg bag of rice. If the farmer agrees to sell it off at Rs 5/- , it passes through many levels of labor to reach the retailer. While it passes, value of the good rises since transportation costs, labor and work force are additionally added. The retailer would probably sell it at Rs 10/-. Wal-Mart’s basic agenda in the Indian market is to eliminate middle-men. This would result in excessive profits to the firm. Then, they buy the raw material off the primary sector at a higher price and would reduce the prices of the goods in the markets that benefit both producer and consumer mutually.  Since the firm satisfies costumers’ wants, demand for the brand goods increase. Other organized retail firms should heavily compete to keep up with the MNC.

The entire retail in India runs on a profit-gaining basis, making it an impossible situation if an MNC like Wal-Mart is established in our country.  To avoid this situation, the ruling government would be equally affected, thus, they illegally pressurize political parties to go against Wal-Mart in Indian retail and pass resolutions in the assembly against it. They illegitimately display dissatisfaction with the MNC’s introduction in the country that would likely affect the market causing it to drastically suffer and unemployment rise. The lower personas involved, not aware of the fact that MNC’s bring in profits, consider them to over-throwing and protest against their establishment in the country as well. The arguments have been overthrown but still do exist.

Wal-Mart opened in India in collaboration with Bharti Airtel, holding a share of about 51% and entered retail through ‘Easy day’ shops. It is making quite a little profit though it would not be as successful as it is in the USA. Indian market and economy would be benefited from Wal-Mart since money loss would be terminated and prices might fall. Value of currency within the boundaries could increase. It would increase the importance of Indian market in the global economy.

Thus, increasing MNC’s like Wal-Mart would be beneficial for the country’s economy against all other personal supportive arguments to pocket high profits that suffer the market.

Any other perspective to the issue?