Foreign Direct Investment, known as ‘FDI’ popularly, simply put, is an investment made by a foreign company in India. Foreign investments are done for many reasons like cheap labour in investing country, availability of tax benefits by such country, etc. Foreign Direct Investments do not only ensure cheap labour and other such benefits for the investing country but also ensures greater benefits like development and financial support for the countries in which such investment is done.
FDI isn’t a new concept in India. Apart from few sectors in which FDI is completely prohibited, there are two routes through which funds can be pumped into India in various other sectors. First being the Automatic route, where FDI is permissible without prior approval by either the Government or the Reserve Bank of India in all activities/sectors as specified in the consolidated FDI Policy, issued by the Government of India from time to time. Other being the Approval Route, which deals with investment in activities which are not covered under the Automatic Route.
Under the Approval Route, the investor is required to take prior approval from the Government, which are considered by Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, and Ministry of Finance. The Indian company having received FDI either under the Automatic route or the Government route is required to comply with provisions of the FDI policy including reporting the FDI to the Reserve Bank of India. (Source)
Retail, both multi-brand as well as single brand has always been the linchpin of controversy. Until 2011, FDI was not allowed in multi-brand retail, thus preventing foreign companies from any ownership in supermarkets, convenience stores or any retail outlets. Even single-brand retail was limited to 51 per cent ownership. In January 2012, 100 per cent FDI investment was permitted in single-brand stores (49% through automatic route; 49-100% through FIPB approval), with a condition that the single brand retailer would have to source 30 percent of its goods from India. Later that year, India allowed 51 per cent FDI in multi-brand retail.
As every story has two sides, so does FDI in retail. On one hand, when foreign investment in retail shall ensure constant inflow of funds in India, availability of variety of high quality products at low prices etc., it shall cease to meet the level of jobs that local traders, domestic producers provide the general population now. However, this situation can be dealt with if there are sufficient conditions regarding employment, compensation etc. that can be attached to the investment policy.
Way back in year 2012, when UPA introduced FDI in Retail, it witnessed lot of opposition from NDA. And now, BJP-led government, released its consolidated FDI policy in May this year, wherein it itself stuck to the UPA decision of 51 per cent FDI in multi-brand retail in India. In fact, recently, the government has relaxed conditions for FDI in single-brand, thus permitting manufacturers to sell their products through wholesale and/or retail, including e-commerce without government approval, besides permitting 100% FDI in duty free shops.
Other norms regarding sourcing 30% products in India have also been relaxed by the Government. The government has eased FDI policy conditionality for Single Brand Retail Trading. However, this time, very expectantly, it did receive opposition from UPA.
FDI in Retail certainly has its pros as well as cons. But I feel giving a political angle to every decision/policy, big or small, do not lead to taking a decision, rather procrastinates development. If the political environment in India behaves like one team, things can be way stronger for our country. Every issue, small or big, boils down to a political rage in our country. Earlier BJP was opposing FDI in Retail and now when tables have turned, Congress is dutifully handling its position of opposition. We as citizens are mere spectators, who, at this juncture, have no option but to just sit back, and look what is in store for us!!
