Table of Contents

FDI (Foreign Direct Investment) .................................................................................................................... 1 1. 2. 3. 4. 5. 6. 7. 8. 9. Introduction: ......................................................................................................................................... 1 Definition and meaning of FDI: ............................................................................................................. 2 Types ..................................................................................................................................................... 2 Methods ................................................................................................................................................ 2 Sectors in which FDI is prohibited ........................................................................................................ 3 Incentives to the foreign investors ....................................................................................................... 3 Approval for FDI .................................................................................................................................... 4 Advantages of FDI ................................................................................................................................. 4 Disadvantages of FDI ............................................................................................................................ 6

10. Foreign direct investment in the United States ................................................................................... 7 11. FDI in developing countries .................................................................................................................. 7 12. India lagging behind china in FDI Inflows ............................................................................................. 8 13. Advantages of India and china in terms of FDI inflows ........................................................................ 8 14. FDI approach China and India ........................................................................................................... 9 Reasons for higher growth of FDI in China: ........................................................................................ 10 15. FDI In India .......................................................................................................................................... 10 Reasons for low FDI in India ................................................................................................................ 11 16. Foreign direct investment in India ...................................................................................................... 11 17. Who is afraid of FDI in retail? .............................................................................................................. 16

FDI (Foreign Direct Investment) 1. Introduction:

FDI inflows in India are a defining feature of free market and globalization. One major channels through which inflows of foreign capital of FDI in particular, affect labour markets in developing countries is economic growth.

2. Definition and meaning of FDI:

It is an important feature of an increasingly globalized economic system. FDI is direct investments in productive assets by a company incorporated in a foreign country, as opposed to investments in shares of local companies by foreign entities. Foreign direct investment (FDI) or foreign investment refers to the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. Therefore, sometimes is an investment which is sufficiently large to affect a company's subsequent decisions. This is sometimes a majority ownership, but sometimes it's just a significant minority ownership

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.

3. 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; an estate (law), trust or other social institution; or

any combination of the above.

4. Methods
The foreign direct investor 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...

5. Sectors in which FDI is prohibited

FDI is prohibited under the Government Route as well as the Automatic Route in the following sectors: ii) Atomic Energy iii) Lottery Business iv) Gambling and Betting v) Business of Chit Fund vi) Nidhi Company vii) Agricultural (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. under controlled conditions and services related to agro and allied sectors) and Plantations activities (other than Tea Plantations) (cf. Notification No. FEMA 94/2003-RB dated June 18, 2003). viii) Housing and Real Estate business (except development of townships, construction of residential/commercial premises, roads or bridges to the extent specified in Notification No. FEMA 136/2005-RB dated July 19, 2005). ix) Trading in Transferable Development Rights (TDRs). x ) Manufacture of cigars , cheroots, cigarillos and cigarettes , of tobacco or of tobacco substitutes.

6. Incentives to the foreign investors

Foreign direct investment incentives may take the following forms:

low corporate tax and income tax rates tax holidays other types of tax concessions preferential tariffs special economic zones EPZ - Export Processing Zones Bonded Warehouses 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)

7. Approval for FDI

FDI Approvals in India are carried out by agencies like the Reserve Bank of India and the Foreign Investment Promotion Board. FDI Approval in India is done quickly by the concerned agencies in order to bring in huge amounts of foreign direct investment into the country.

FDI policy under automatic route

Sectors working under automatic route do not require any prior approval of the Central Government of RBI to attract Foreign Direct Investment. The foreign investors are only required to inform the Regional Office concerned of RBI within thirty days receiving of inward payments and submit the required documents in that office again within thirty days of the issuing of the shares of foreign institutional investors.

FDI policy under government approval

The proposals which involve foreign investment or foreign technical collaboration are granted permission by the Foreign Investment Promotion Board (FIPB). All the proposals for FDI are to be submitted to the FIPB Unit and those of Non-Resident Indian (NRI) investments and 100% Export Oriented Units (EOUs) should be submitted to SIA in Department of Industrial Policy and Promotion

8. Advantages of FDI
Attracting foreign direct investment has become an integral part of the economic development strategies for India. FDI ensures a huge amount of domestic capital, production level, and employment opportunities in the developing countries, which is a major step towards the economic growth of the country. FDI has been a booming factor that has bolstered the economic life of India, but on the other hand it is also being blamed for ousting domestic inflows. FDI is also claimed to have lowered few regulatory standards in terms of investment patterns. The effects of FDI are by and large transformative. The incorporation of a range of well-composed and relevant policies will boost up the profit ratio from Foreign Direct Investment higher. Some of the biggest advantages of FDI enjoyed by India have been listed as under: 1. Economic growth- Economic growth, which is enormously benefited from foreign direct investment. A remarkable inflow of FDI in various industrial units in India has boosted the economic life of country. Basically, causes a flow of money into the economy which stimulates economic activity 2. Trade- Foreign Direct Investments have opened a wide spectrum of opportunities in the trading of

goods and services in India both in terms of import and export production. Products of superior quality are manufactured by various industries in India due to greater amount of FDI inflows in the country. 4. Employment and skill levels- FDI has also ensured a number of employment opportunities by aiding the setting up of industrial units in various corners of India. 5. Technology diffusion and knowledge transfer- FDI apparently helps in the outsourcing of knowledge from India especially in the Information Technology sector. It helps in developing the know-how process in India in terms of enhancing the technological advancement in India. It is a tool for bringing knowledge, managerial skills and capability. 6. Linkages and spillover to domestic firms- Various foreign firms are now occupying a position in the Indian market through Joint Ventures and collaboration concerns. The maximum amount of the profits gained by the foreign firms through these joint ventures is spent on the Indian market. 7. FDI inflow helps the developing countries to develop a transparent, broad, and effective policy environment for investment issues as well as, builds human and institutional capacities to execute the same. 8. It may give domestic producers an incentive to become more efficient. 9. The government of the country experiencing increasing levels of FDI will have a greater voice at international summits as their country will have more stakeholders in it. 10. FDI can be a tool for bring managerial skill and capability, product design, quality characteristics, brand names, channels for international marketing of products and consequent integration into global production chains which are the foundation of a successful exports strategy. 11. FDI could benefit both the domestic industry as well as the consumer by providing : Opportunities for technological transfer and upgradation, Access to global managerial skills and practices Optimal utilization of human capabilities and natural resources, Making industry internationally competitive Opening up exports market Providing backward and forward linkages ad access to international quality goods and services Augmenting employment opportunities.

12. FDI flows are usually preferred over other forms of external finance because they are non-debt creating, non-volatile and their returns depend on the performance of the projects financed by the investors.

9. Disadvantages of FDI
1. FDI has and adverse effects on competition. 2. FDI will be make the host country lost the control over domestic policy. 3. It has been observed that the defense of a country has faced risks as a result of the foreign direct investment in the country. 4. Certain foreign policies are adopted that are not appreciated by the workers of the recipient country. 5. Foreign direct investment may entail high travel and communications expenses. 6. Another disadvantage of foreign direct investment is that there is a chance that a company may lose out on its ownership to an overseas company. This has often caused many companies to approach foreign direct investment with a certain amount of caution. 7. The host country is not well connected with their more advanced neighbors, it poses a lot of challenge for the investors. 8. Inflation is increased 9. Local market is affected . 10. Domestic firms may suffer if they are relatively uncompetitive 11. If there is a lot of FDI into one industry e.g. the automotive industry then a country can become too dependent on it and it may turn into a risk 12. As investors search the globe for the highest returns, they are often drawn to places endowed with bountiful natural resources but are handicapped by weak or ineffective environmental laws. Many people and communities are harmed as the environment that sustains them is damaged or destroyed -- villages are displaced by the large construction projects, for example, and indigenous people watch their homelands disappear as timber companies level old-growth forests. Foreign investment-fed growth also promotes western-style consumerism, boosting car ownership, paper use, and Big Mac consumption rates towards the untenable levels found in the United States -- with grave potential consequences for the health of the natural world, and the stability of the earths climate, and the security of food supplies. 13. However, many developing economies have tried to restrict, and even resist, foreign investments because of nationalist sentiments and concerns over foreign economic and political influence. 14. One pertinent reason for this sentiment is that many developing countries, or at least countries with a history of colonialism, fear that foreign direct investment may result in a form of modern day economic colonialism, exposing host countries and leaving them and their resources vulnerable to the exploitations of the foreign company. 15. it has the potential of adversely affecting the net capital flow of a developing economy especially if it does not have a healthy and sustainable FDI schedule. 16. It is also often argued that FDIs generate negative externalities in the labour market of the host economy. Why so? All firms are profit maximizing entities, and one way to achieve this is often the most direct approach of cost reduction. FDIs may enter the host country for unique strategic reasons but there is ultimately the need to achieve returns on investments.

17. Evidence shows that multinational companies do pay a slight premium over local-term wages, but does this really benefit the host economy? Paying a premium for the price of labour may improve the consumption power of workers, but it also has the detrimental ability of disrupting the local employment market. When the price of labour increase, wage premiums in this case, this creates a distortion and creates a disequilibrium in the labour market. Job matching stops being efficient and may even create unemployment.

10. Foreign direct investment in the United States

The United States is the worlds largest recipient of FDI. More than $228 billion in FDI flowed into the United States in 2010, with Europe contributing 75% of the total.[5] The $2.1 trillion stock of FDI in the United States at the end of 2008 is the equivalent of approximately 16 percent of U.S. gross domestic product (GDP).

11. FDI in developing countries

Foreign Direct Investment, or FDI, is a measure of foreign ownership of domestic productive assets such as factories, land and organizations. Foreign direct investments have become the major economic driver of globalization, accounting for over had of all cross-border investments.
The most profound effect has been seen in in developing countries, where yearly foreign direct investment flows have increased from an average of less than $10 billion in the 1970s to a yearly average of less than $20 billion the 1980s. From 1998 to 1999 itself, FDI grew from $179 billion to $208 billion and now comprise a large portion of global FDI. According to UNCTAD, spurred on by mergers and acquisitions and the internationalization of production in a range of industries, FDI for developing countries rose from $481 billion in 1998 to $636 billion in 2006. And China is at the forefront of FDI growth, followed by Russia, Brazil and Mexico. The "Asian Tiger" economies such as China, South Korea, Singapore and the Philippines benefitted tremendously and experienced high levels of economic growth at the onset of foreign direct investment into their economies. Given the high growth rates and changes to global investment patterns, the definition to FDI has evolved to include foreign mergers and acquisitions, investments in joint ventures or strategic alliances with local enterprises.

1. India lagging behind china in FDI Inflows

According to a new World Bank report, India lags behind China in terms of attracting FDI Inflows in the country, in spite of having high-tech industries and adept workforce. The main cause behind this drawback is that India is not skilled enough to adopt the technological advancements at a fast pace. FDI Inflows only contributes to 0.8 percent of India's GDP as compared to 3.5 percent of the same in China. India's high-tech industries claim for 2.3 percent of Gross Domestic Product whereas the high-tech industry in China contributes to around 7.9 percent in the GDP of the country. India did not open much of economic activities to the foreign players as compared to other developing nations except liberalizing trade and foreign investments.

Advantages of India and china in terms of FDI inflows

The majority of the foreign investors prefer China over India for investment opportunities as China has a bigger market size than India, offers easy accessibility to export market, government incentives, developed infrastructure, cost-effectiveness, and macro-economic climate. India on the other hand has

skilled and efficient manpower, talented management system, rule of law, transparent system of work, cultural affinity and regulatory environment.

FDI in China has increased considerably in the last decade reaching $185 billion in 2010.[7] China is the second largest recipient of FDI globally. FDI into China fell by over one-third in 2009 due the Global Financial Crisis (global macroeconomic factors) but rebounded in 2010

2. FDI approach China and India

CHINA China attracted FDI mainly into the export oriented sectors. The Chinese diaspora accounted for 70 percent of FDI flows into China, through hongkong and Taiwan Problems of infrastructure and connectivity exist in both the countries but china tackles these faster. Example: Chinas tele -density is 16.70 fixed lines and 16.10 mobiles for every 100 persons. China has been able to cut red tape.

INDIA India was largely for the domestic sector

But NRI community generally prefers to invest wherever the returns are safe and high, and not necessarily in India Problems of infrastructure and connectivity exist in both the countries. Example: India Tele density is 4.50 fixed lines ad 4.73 mobiles for every 100 persons.

It is observed that a typical power project in India requires 43 central and 57 state level clearances. In India, on the other hand, even after two years one may still be unaware of the status.

Chinese approval process is fast and efficient. Project status, be it yes or no is known

within a couple of months. In the year 2004, China cleared 159 FDI proposals in hotel and restaurants projects. In India the Foreign investment promotion board cleared only 30 projects in trourism in 2004.

14.1 Reasons for higher growth of FDI in China:

Attractive and guaranteed foreign investment policy: By offering substantial tax concessions, leasing of land and property, government guarantees for investment and special arrangements regarding retention and repatraiation of foreign exchange, china has been able to attract FDI . An important factor overlooked in comparing India to China is that 80 percent of the FDI to china comes from hong kong, Taiwan, Japan, Korea dn southeast Asian countries.

Creating confidence among overseas Chinese (NRCs): Most of the investment comes from overseas Chinese who are businessmen and are shifting manufacturing oprations to China. Also, as the Wrold bank global development finance report points out, a substantial protion of FDI may be round tripping from China. Chinese residents move money to offshore centers and bring it back as FDI to china. In 2000, the US accounted for only 11 percent of the total FDI flows to china, Japan 7 %, Germany 3% and France 2%. Huge market in china: Since the reforms in urban areas began in the mid-1980s domestic demand has quickly risen. Retail sales have been growing rapidly on account of increasing incomes. Labor Power: The main attraction in China for foreign investors was its cheap and seemingly endless supply of labor. The huge migration of rural population is turning out to be a blessing in disguise for china, for It is now turning out to be its greatest advantage over more mature markets. China Price: China price has to know that goods manufactured in china cost anywhere from 30%- 50% less than what they would have if they were made in the US. China has an abundance of production workers who are willing to work for 40 cents an hour. Wages are always kept at a minimum.

3. FDI in India
India gets less than 5%of the FDI flows to developing countries. A very large component of FDI flows has been privatization and cross border mergers and acquisitions. Given the global uncertainity, Indias 56% growth rate will attract attention and if we create the right conditions, $15 billion FDI can be achieved.

Reasons for low FDI in India

The biggest stumbling block is Indias bloated bureaucracy. Approximately only 20% of FDI approvals translate into actual investment. This implies that the initial enthusiasm to invest peters out by the time companies actually go through the process. Streamlining procedures for FDI approval, such as environmental clearances and legal work, are still time consuming. Added to this, there is the political uncertainity at the central and the state levels and their relations. Infrastructure reforms are moving very slowly.

4. Foreign direct investment in India

Starting from a baseline of less than $1 billion in 1990, a recent UNCTAD survey projected India as the second most important FDI destination (after China) for transnational corporations during 2010-2012. As per the data, the sectors which attracted higher inflows were services, telecommunication, construction activities and computer software and hardware. Mauritius, Singapore, the US and the UK were among the leading sources of FDI. FDI in 2010 was $24.2 billion, a significant decrease from both 2008 and 2009.[9] Foreign direct investment in August 2010 dipped by about 60% to aprox. $34 billion, the lowest in 2010 fiscal, industry department data released showed.[10] In the first two months of 2010-11 fiscal, FDI inflow into India was at an all-time high of $7.78 billion up 77% from $4.4 billion during the corresponding period in the previous year. The worlds largest retailer Wal-Mart has termed Indias decision to allow 51% FDI in multi-brand retail as a first important step and said it will study the finer details of the new policy to determine the impact on its ability to do business in India.

1.

CUMULATIVE AMOUNT OF FDI FLOWS INTO INDIA (from April 2000 to April 2011) (Equity inflows+ includingdata on Re-invested earnings& Other capital, which is available from April 2000 onwards. These are the estimates on an average basis, based upon data for the previous two years, published by RBI in Monthly Bulletin dt: 10.06.2011)

US$ 1,97,935 million

1.

CUMULATIVE AMOUNT OF FDI EQUITY INFLOWS (from April 2000 to April 2011) (excluding, amount remitted through RBIs-NRI Schemes) FDI inflows do not include data on Re-invested earnings& Other capital,as company-wise details are not maintained by RBI.

5,94,569 crore

US$ 1,32,837 million

2.

AMOUNT OF FDI EQUITY INFLOWS DURING FINANCIAL YEAR 2011-12 (for April 2011)
Amount of FDI inflows (In Rs. Crore) (In US$ mn)

13,846 crore

US$ 3,121 million

Financial Year 2011-12 ( April-March )

1.

April 2011

13,846
13,846 9,697 ( + ) 43 %

3,121
3,121 2,179 ( + ) 43 %

2011-12 (for April 2011) # 2010-11 (for April 2010) %age growth over last year

1 E. SHARE OF TOP INVESTING COUNTRIES FDI EQUITY INFLOWS (Financial years):

Ranks Country 2009-10 (AprilMarch) 49,633 (10,376) 11,295 (2,379) 9,230 (1,943) 3,094 (657) 4,283 (899) 5,670 (1,183) 7,728 (1,627) 2,980 (626) 1,437 (303) 2010-11 ( AprilMarch) 31,855 (6,987) 7,730 (1,705) 5,353 (1,170) 3,434 (755) 5,501 (1,213) 7,063 (1,562) 4,171 (913) 908 (200) 3,349 (734) 2011-12 (for April 2011) Cumulative Inflows (April 00 April 11) 247,092 (55,203) 58,090 (13,070) 42,898 (9,529) 29,451 (6,643) 25,799 (5,739) 25,001 (5,511) 22,702 (4,982) 13,607 (3,051) 11,244 (2,484) %age to total Inflows (in terms of US $) 42 % 10 % 7% 5% 4% 4% 4% 2% 2%

1. 2. 3. 4. 5. 6. 7. 8. 9

MAURITIUS SINGAPORE U.S.A. U.K. NETHERLANDS JAPAN CYPRUS GERMANY FRANCE

4,332 (976) 5,214 (1,175) 356 (80) 19 (4) 172 (39) 1,043 (235) 754 (170) 231 (52) 977 (220)

10.

U.A.E.

3,017 (629) 123,120 (25,834)

1,569 (341) 88,520 (19,427)

91 (21) 13,846 (3,121)

8,683 (1,910) 594,569 (132,837)

1%

TOTAL FDI INFLOWS *

Sectors in India that are attracting highest amount of FDI

Ranks

Sector

2009-10 (AprilMarch)

201011 ( AprilMarch) 15,539 (3,403) 3,571 (784) 7,546 (1,665) 5,149 (1,127) 5,077 (1,125) 6,008 (1,331) 5,709 (1,252) 5,055 (1,105) 2,621 (574) 1,810 (398)

2011-12 ( for April 2011) 2,922 (658) 425 (96) 205 (46) 167 (38) 1,381 (311) 1,182 (266) 1,136 (256) 229 (52) 28 (6) 152 (34)

Cumulative Inflows (April 00 April 11) 123,706 (27,668) 48,135 (10,821) 48,313 (10,611) 43,288 (9,655) 42,160 (9,491) 28,037 (6,199) 27,848 (6,156) 18,724 (4,286) 13,763 (3,159) 13,234 (2,927)

% age to total Inflows (In terms of US$) 21 % 8% 8%

1. 2. 3.

SERVICES SECTOR (financial & non-financial) COMPUTER SOFTWARE & HARDWARE TELECOMMUNICATIONS (radio paging, cellular mobile, basic telephone services) HOUSING & REAL ESTATE CONSTRUCTION ACTIVITIES (including roads & highways) AUTOMOBILE INDUSTRY POWER METALLURGICAL INDUSTRIES PETROLEUM & NATURAL GAS CHEMICALS (other than fertilizers)

20,776 (4,353) 4,351 (919) 12,338 (2,554) 13,586 (2,844) 13,516 (2,862) 5,754 (1,208) 6,908 (1,437) 1,935 (407) 1,328 (272) 1,707 (362)

4. 5. 6. 7. 8. 9. 10.

7% 7% 5% 5% 3% 2% 2%

Ranks

Sector

2009-10 (AprilMarch)

201011 ( AprilMarch) 15,539 (3,403) 3,571 (784) 7,546 (1,665) 5,149 (1,127) 5,077 (1,125) 6,008 (1,331) 5,709 (1,252) 5,055 (1,105) 2,621 (574) 1,810 (398)

2011-12 ( for April 2011) 2,922 (658) 425 (96) 205 (46) 167 (38) 1,381 (311) 1,182 (266) 1,136 (256) 229 (52) 28 (6) 152 (34)

Cumulative Inflows (April 00 April 11) 123,706 (27,668) 48,135 (10,821) 48,313 (10,611) 43,288 (9,655) 42,160 (9,491) 28,037 (6,199) 27,848 (6,156) 18,724 (4,286) 13,763 (3,159) 13,234 (2,927)

% age to total Inflows (In terms of US$) 21 % 8% 8%

1. 2. 3.

SERVICES SECTOR (financial & non-financial) COMPUTER SOFTWARE & HARDWARE TELECOMMUNICATIONS (radio paging, cellular mobile, basic telephone services) HOUSING & REAL ESTATE CONSTRUCTION ACTIVITIES (including roads & highways) AUTOMOBILE INDUSTRY POWER METALLURGICAL INDUSTRIES PETROLEUM & NATURAL GAS CHEMICALS (other than fertilizers)

20,776 (4,353) 4,351 (919) 12,338 (2,554) 13,586 (2,844) 13,516 (2,862) 5,754 (1,208) 6,908 (1,437) 1,935 (407) 1,328 (272) 1,707 (362)

4. 5. 6. 7. 8. 9. 10.

7% 7% 5% 5% 3% 2% 2%

5. Who is afraid of FDI in retail?

Times of India, TNN Nov 29, 2011, 04.40AM IST Tags:

Given the debate that's raging over opening the retail sector to foreign direct investment, we bring you the government's view, the opposition's objections and TOI's take on the issue. Government argument * Huge investments in the retail sector will see gainful employment opportunities in agro-processing, sorting, marketing, logistics management and front-end retail. * At least 10 million jobs will be created in the next three years in the retail sector. * FDI in retail will help farmers secure remunerative prices by eliminating exploitative middlemen. * Foreign retail majors will ensure supply chain efficiencies. * Policy mandates a minimum investment of $100 million with at least half the amount to be invested in back-end infrastructure, including cold chains, refrigeration, transportation, packing, sorting and processing. This is expected to considerably reduce post-harvest losses. *This will have a salutary impact on food inflation from efficiencies in supply chain. This is also because food, which perishes due to inadequate infrastructure, will not be wasted. * Sourcing of a minimum of 30% from Indian micro and small industry is mandatory. This will provide the scales to encourage domestic value addition and manufacturing, thereby creating a multiplier effect for employment, technology upgradation and income generation. * A strong legal framework in the form of the Competition Commission is available to deal with any anticompetitive practices, including predatory pricing. * There has been impressive growth in retail and wholesale trade after China approved 100% FDI in retail. Thailand has experienced tremendous growth in the agro-processing industry. * In Indonesia, even after several years of emergence of supermarkets, 90% of fresh food and 70% of all food is still controlled by traditional retailers. * In any case, organized retail through Indian corporates is permissible. Experience of the last decade shows small retailers have flourished in harmony with large outlets.

Opposition's argument * Move will lead to large-scale job losses. International experience shows supermarkets invariably displace small retailers. Small retail has virtually been wiped out in developed countries like the US and in Europe. South East Asian countries had to impose stringent zoning and licensing regulations to restrict growth of supermarkets after small retailers were getting displaced. India has the highest shopping density in the world with 11 shops per 1,000 people. It has 1.2 crore shops employing over 4 crore people; 95% of these are small shops run by self-employed people * Global retail giants will resort to predatory pricing to create monopoly/oligopoly. This can result in essentials, including food supplies, being controlled by foreign organizations. * Fragmented markets give larger options to consumers. Consolidated markets make the consumer captive. Allowing foreign players with deep pockets leads to consolidation. International retail does not create additional markets, it merely displaces existing markets. * Jobs in the manufacturing sector will be lost because structured international retail makes purchases internationally and not from domestic sources. This has been the experience of most countries which have allowed FDI in retail. * Argument that only foreign players can create the supply chain for farm produce is bogus. International retail players have no role in building roads or generating power. They are only required to create storage facilities and cold chains. This could be done by governments in India. * Comparison between India and China is misplaced. China is predominantly a manufacturing economy. It's the largest supplier to Wal-Mart and other international majors. It obviously cannot say no to these chains opening stores in China when it is a global supplier to them. India in contrast will lose both manufacturing and services jobs. Times View In principle, governments should not prevent anybody, Indian or foreign, from setting up any business unless there are very good reasons to do so. Hence, unless it can be shown that FDI in retail will do more harm than good for the economy, it should be allowed. A major argument given by opponents of FDI in retail is that there will be major job losses. Frankly, the jury is out on whether this is the case or not, with different studies claiming different findings. Big retail chains are actually going to hire a lot of people. So, in the short run, there will be a spurt in jobs. Eventually, there's likely to be a redistribution of jobs with some drying up (like that of middlemen) and some new ones sprouting up. Fears of small shopkeepers getting displaced are vastly exaggerated. When domestic majors were allowed to invest in retail, both supermarket chains and neighborhood pop-and-mom stores coexisted. It's not going to be any different when FDI in retail is allowed. Who, after all, will give home delivery? The local kirana. Why would anyone shun them?

If anything, the entry of retail big boys is likely to hot up competition, giving consumers a better deal, both in prices and choices. Mega retail chains need to keep price points low and attractive - that's the USP of their business. This is done by smart procurement and inventory management: Good practices from which Indian retail can also learn. The argument that farmers will suffer once global retail has developed a virtual monopoly is also weak. To begin with, it's very unlikely that global retail will ever become monopolies. Stores like Wal-Mart or Tesco are by definition few, on the outskirts of cities (to keep real estate costs low), and can't intrude into the territory of local kiranas. So, how will they gobble up the local guy? Secondly, it can't be anyone's case that farmers are getting a good deal right now. The fact is that farmers barely subsist while middlemen take the cream. Let's not get dreamy about this unequal relationship.