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A case for FDI in Multi-Brand Retail in India
Jatin Prasad Dr Jyoti Singh
Research Scholar Associate Professor
Rajasthan College, Jaipur Rajasthan University, Jaipur
Abstract direct investment (“FDI”) to it. As per
the present regulations 100% FDI is
India is ranked as the third most allowed in wholesale trading and 51%
attractive nation for retail investment is allowed in single-brand retailing. The
among emerging markets and many FDI in multi-brand retailing has been
MNCs have been looking for the just allowed and so the question, if
potential benefits to be taken from it. opening up of FDI in multi-brand retail
The development of organized retail is a boon or a curse, is opened up.
has the potential of generating
employment, improvement in
technology, development of real estate
etc. On the other hand critics of the 2. The Foreign Direct
FDI feel that allowing FDI would Investment
jeopardize the unorganized retail FDI is defined as "investment made to
sector and would not only adversely acquire lasting interest in enterprises
affect the small retailers and operating outside of the economy of
consumers but will give rise to the investor. It is a long-term
monopolies of large corporate houses relationship between the investor and
also, which can adversely affect the the recipient entity.” (www.unctad.org)
pricing and availability of goods. A
case for the prospects for the same is For FDI there is a need of a 10%
discussed in this paper. holding or greater. Most FDI ends up
being 100% ownership by a Multi-
Keywords: FDI, multi-brand retail, National Corporation (MNC). In the
Wal-Mart past twenty years, FDI has increased
1. Introduction dramatically and has become the most
common type of capital flow across the
The retail industry in India is divided borders of world economies.
into two sectors: organized and
unorganized sectors. Since 1991, There are two matching ways and
when economy was liberalized, concepts of measuring the FDI:
organized retail has grown
exponentially because of burgeoning  It is a particular form of the
purchasing power of Indian middle capital flow across international
class and the opening up of the foreign borders giving rise to a
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2. IJASCSE Vol 1 Issue 2, 2012
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as potential host countries often
lack the resources for R&D to
particular form of international acquire the latest technology,
assets for the home countries. so they may acquire it from
To be specific, the value of MNEs by FDI.
holdings in corporations,  The MNE can train local people
controlled by a home country of host countries with its
resident or in which a home management skills to occupy
country resident holds a certain managerial, financial and
share of the voting rights. technical positions within the
 It is a set of economic activities MNE, which eventually become
or operations carried out in a generally available within the
host country by firms controlled host country.
or partly controlled by firms in
some other (home) country.  The jobs are created directly
These activities are, for and indirectly through the
example, employment, multiplier effect. The indirect
production, sales, the use and employment effects may equal,
purchase of fixed capital and and sometimes exceed, the
intermediate goods, and the direct effects. FDI sometimes
carrying out of R&D. also eliminates jobs through
displacement of local firms, but
FDI is not only beneficial to individuals the net effect is generally
of the society but it is spread additional employment within
throughout the economy also via the the host economy. (Hill, 2005,
theory of the multiplier effect, which p. 246)
ultimately boosts the economy of a  FDI has a number of BOP
country raising its standard of living. benefits for a host country:
For the most part economists welcome  Due to an investment by MNE,
the increase of FDI to developing the capital account registers a
economies. It brings capital needed for credit - a one-off credit.
economic development in the country  The current account will register
in a way that is not as risky as credits, if the FDI is a substitute
borrowing from overseas. It may also for imports
bring a range of additional benefits.  If the MNE uses the investment
for exports, again it will be the
The benefits of FDI arise from: current account credit.
 The important benefit is from Potential costs of FDI are:
the trickle-down effect of the
infusion of capital in the national  It is expected that a well-
economy of the country. financed MNE with managerial
 As MNEs typically possess expertise can drive existing
state-of-the-art technology and local companies out of
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Wal-Mart has currently joint venture
with Bharti that has six large format
business. It may also inhibit the wholesale stores. It supplies to 130
growth of infant industry. Easy Day retail outlets owned by
Bharti Retail. Although Wal-Mart is
 The continuing outflow of pleased with their journey so far with
earnings from the FDI and Bharti, but it has been planning to
imports of components as part open 10 stores this year and a similar
of total production process will number next year, mostly in tier-II and
be shown as debits on the tier-III cities of south and west India.
capital account. The reason behind this is that they
 An emotional reaction can be believe there is more demand for multi
evoked by the presence of an brand from consumers in India who
MNE in a host country to also hold a large potential.
apparent economic domination
and loss of national identity. Wal-Mart India aims to establish farm
linkages and work with the farmer to
3. A case for FDI in multi-brand improve productivity so as to establish
retail in India linkages with its 1,000 plus suppliers in
the country.
There is a lot of talk about allowing FDI
in multi-brand retail in India. There are The future of Wal-Mart in India is quite
still some prohibitions for FDI in multi prospective. There is a boom in Indian
brand retail trade in India. The country, retail scenario and Indian retailers are
however, has recently allowed up to 51 performing well across the board. In
per cent FDI in multi brand retail like the organized retail trade current
single brand. profits are good and the future appears
to be even more alluring. The savings
The Wal-Mart has been thinking to are less today by an average urban
enter the multi-brand retail in India with consumer than it were a few years ago
FDI. “It is for the government to deal and more importantly, expenditure of
with and as and when they come out income is on a wider array of goods
with the conditions for allowing such than it was earlier. It is the
investments. The final decision will expansionist mood of the current
depend on government’s future stand market as consumers are willing to lap
on its investment policy in multi brand up better and newer brands. By 2012,
retail. We expect the government to the retails markets 16% account is to
consider allowing at least 50 per cent be captured by organized retailers,
FDI in multi-brand retail and then there which would be quite up from 4% of
are other terms and conditions which today. The India's retail trade size is
too will be considered for shaping the estimated at $206 billion and it has
future of Wal-Mart in India,” said Wal- been growing at five per cent per
Mart country head in India. annum.
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4. Conclusion
Worldwide, the business of Wal-Mart With the case of Wal-Mart, it can be
revolves around a very efficient supply said that FDI in multi-brand retail in
chain, with savings in each aspect of India should be given a serious
that supply chain. It's not just about thought and a gradual opening up
negotiation to get better prices with the must be made possible. In spite of
suppliers; it is actually to remove country wide speculation on the plight
inefficiencies in the supply chain. of small retailers, India must take a
lesson from China, where organized
“Our relationship with India is broader.
and unorganized retail is co-existing
We have a sourcing relationship; we
and growing together. With allow of
buy a lot of merchandise out of India.
FDI in multi brand retails, local
Again, I think the wholesale
enterprises of India will potentially
opportunity is big. My experience over
receive an up-gradation with the import
the last few years has been in the
of advanced technological and
wholesale business in the US serving
logistics management expertise from
small business. I believe there is a role
for us to play here serving kiranas and the foreign entities to improve its
infrastructure, access sophisticated
hotels and restaurants and other
technologies and generate
people and we’ll work on those things.
employment for those keen to work in
Also, we are trying to create the retail
this sector. The FDI would lead to a
infrastructure as we serve the Bharti
more comprehensive integration of
stores with cold chain, with a
India into the worldwide market and,
relationship with farmers and others,
as such, it is imperative for the
so that things are ready if and when it
government to promote this sector for
does present an opportunity for us to
the overall economic development and
open stores directly.
social welfare of the country. If done in
the right manner, it can prove to be a
We are long-term thinkers. I think if
boon and not a curse.
you look back at the history of Wal-
Mart’s business, not only outside the
5. References
US, but even in the US, we like to start
slowly and learn the business and
Carkovic, Maria, and Ross Levine
make our mistakes and fix them and
(2002), “Does Foreign Direct
once it is time, the government,
Investment Accelerate Economic
customers and society is ready, we
Growth?”, University of Minnesota
can do things faster if that is the case.
Department of Finance Working
But if not, we will just continue to go
Paper, June. Hill 2005, p. 253.
along as we are and have a long-term
view” said Doug McMillon, President
Lipsey, Robert E. (1994), “Foreign-
and Chief Executive Officer of Wal-
Owned Firms and U.S. Wages,” NBER
Mart International.
Working Paper No. 4927, Cambridge,
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MA, National Bureau of Economic
Research.
___________(2002b), “Foreign Direct
Investment and the Operations of
Multinational Firms: Concepts, History,
and Data,” in James Harrigan, Editor,
Handbook of International Economics,
Oxford, Blackwell, forthcoming.
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