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1/15/2018 Economics for Everyone: Going Global–FDI Fables–FDI in Multibrand Retail
Economics for Everyone: Going Global–FDI

Fables–FDI in Multibrand Retail
India Infoline News Service | Mumbai | May 02, 2012 15:22 IST
FDI- Foreign Direct Investment
Context:
NEWS
FDI in multi-brand retail to go ahead,TNN (TIMES OF INDIA)
Govt says committed to multi-brand retail FDI FE BUREAU
Aviation FDI: Cautious, Centre set to take allies on board, BUSINESS STANDARD
India has been ranked at the third place in global foreign direct investments in 2009 and will continue to
remain among the top five attractive destinations for international investors during 2010-11, according to
United Nations Conference on Trade and Development (UNCTAD) in a report on world investment
prospects titled, 'World Investment Prospects Survey 2009-2011' released in July 2009.
A report released in February 2010 by Leeds University Business School, commissioned by UK Trade &
Investment (UKTI), ranks India among the top three countries where British companies can do better
business during 2012-14.
BACKGROUND -Economic Reforms

The Government embarked upon major economic reforms since mid-1991 with a view to integrate with the
world economy, and to emerge as a significant player in the globalization process. Reforms undertaken
include decontrol of industries from the stringent regulatory process; simplification of investment
procedures, promotion of foreign direct investment (FDI), liberalisation of exchange control, rationalization
of taxes and public sector divestment. The FDI policy was liberalized progressively through review of the
policy on an ongoing basis and allowing FDI in more industries under the automatic route.
FDI-Concept
FDI stands for Foreign Direct Investment. It's a component of a country's national financial accounts.
Foreign direct investment is investment of foreign assets into domestic structures, equipment, and
organizations. It does not include foreign investment into the stock markets. Foreign direct investment is
thought to be more useful to a country than investments in the equity of its companies because equity
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investments are potentially "hot money" which can leave at the first sign of trouble, whereas FDI is durable
and generally useful whether things go well or badly.
Generally speaking FDI refers to capital inflows from abroad that invest in the production capacity of the
economy and 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. FDI also
facilitates international trade and transfer of knowledge, skills and technology.”
According to the Benchmark Definition of OECD, the most referred to and relied upon definition of FDI:
Foreign direct investment reflects the objective of establishing a lasting interest by a resident enterprise in
one economy (direct investor) in an enterprise (direct investment enterprise) that is resident in an economy
other than that of the direct investor. The lasting interest implies the existence of a long-term relationship
between the direct investor and the direct investment enterprise and a significant degree of influence on the
management of the enterprise. The direct or indirect ownership of 10% or more of the voting power of an
enterprise resident in one economy by an investor resident in another economy is evidence of such a
relationship....Direct investment is not solely limited to equity investment but also relates to reinvested
earnings and inter-company debt.
Thus, FOREIGN DIRECT INVESTMENT (FDI) indicates

A direct investment by a corporation in a commercial venture in another country FDI is the process where by
resident of one country (the home country) acquires ownership of assets for the purpose of controlling the
production, distribution and other activities of a firm in another country (the host country)
PURPOSE AND NEED FOR FDI

FDI is considered to be the most attractive type of capital flow for emerging economies as it is expected to
bring latest technology and enhance production capabilities of the economy. According to the National
Manufacturing Competitiveness Council “Foreign investments mean both foreign portfolio investments and
foreign direct investments (FDI). FDI brings better technology and management, access to marketing
networks and offers competition, the latter helping Indian companies improve, quite apart from being good
for consumers. This efficiency contribution of FDI is much more important”.
There can be three ways by which a foreign market can differentiate itself from others – Economic – Size of
the foreign market, growth rate, market concentration, infrastructure, availability of talent, competitive cost
structures etc
Political: These include the political risk of the country, the judicial mechanisms and how transparent the
judicial system is, labour laws, ease of doing business etc
Social: These include similarities of culture, ways of doing business, social structure between the country of
origin of the firm and the foreign country etc.
Thus the predominant intents for investing abroad were identified as follows:
Market Seeking: Market seeking investment is driven by gaining access to local or regional market and
investing locally could help prevent some operational costs such as those of distribution.
Technology or Brand Seeking: Firms may also invest in order to gain access to new technology or to
acquire some brands or products.
Resource Seeking: Resource seeking investment is driven by gaining access to natural resources.
Thus, FDI helps in Gain a foothold in a new geographic market
Increase a firm’s global competitiveness and positioning
Fill gaps in a company’s product lines in a global industry
Reduce costs in areas such as R&D, production, and distribution
Some of the factors which can explain the growth of FDI in developing countries are as follows:
1. Intense competitive pressure in domestic economy.

2. Rationalizing of production activities so as to reap economies of scale and lower overall production
costs.
3. Higher commodity prices have stimulated FDI flows to countries rich in natural resources such as oil
and minerals.
4. Increased mergers and amalgamation activities at global level has also acted as stimulant for FDI
flows.
Countries continue to adopt new laws and regulations with a view to making their investment environments
more investor friendly.
Inward FDI occurs when foreign capital is invested in local resources. The factors propelling the growth of
inward FDI include tax breaks, low interest rates and grants. Outward FDI, also referred to as "direct
investment abroad", is backed by the government against all associated risk.
There has been phenomenal growth in FDI in the world following the pursuance of the policy of
liberalization and globalization across different countries. FDI by MNCs has now come to be recognized as a
powerful means of linking national economies and defining the character of the emerging global economy.
Many MNCs like Sony, Toyota, Royal Dutch Shell, IBM, GM, Coca-Cola, McDonald's, Daimler-Benz, and
Nestle have established their presence worldwide through FDI. These MNCs have invested burgeoning
resources both tangible and intangible in different parts of the world in their strive to take maximum mileage
of their competitive superiority.
Advantages of FDI to host country
FDI bridges the gap between savings & demand for resources for investment.
FDI also provides managerial, technical (Transfer of technology) and administrative expertise to local
enterprises.
FDI encourages local enterprises to set up supporting industries.
FDI increases the GDP of the country and generates employment opportunities.
FDI encourages competition.
FDI creates Revenue for the Government and Economic development of the host
Access to international market
Increase domestic saving and investment
Integration with the global market
Some of the challenges for the host country include

Difference in language and culture
Country secret may be disclosed
Less control
Domination by the foreign player
Impact
Exploitation by the foreigner
FDI In India
According to the RBI a direct investment enterprise is defined as an incorporated or unincorporated
enterprise in which a direct investor, who is resident in another economy, owns 10% or more of the ordinary
shares or voting power (for an incorporated enterprise) or the equivalent (for an unincorporated). As such, a
company in which 10 per cent or more equity capital is held by a single non-resident investor is defined as a
Foreign Direct Investment Company. The emphasis has been more on bringing India’s FDI reporting system
in alignment with the international reporting system. This was further operationalised following the
recommendations of the RBI Committee on Compilation of Foreign Direct Investment in India in 2002.
Indian policy in FDI- Snap shot
Economic reforms 1991.

It allowed level playing field to foreign players in number of sectors.
Floating exchange rate system was adopted.
Rupee made convertible in current account
Tax rate applicable on foreign companies have come down progressively
The FDI limits in number of sectors has been progressively increased.
FDI investments and returns can now be easily repatriated.
Initially, FDI up to 100% allowed in number of sectors except for in Media, Banking, Aviation,
Insurance, Retail
Recent policy Initiatives
FDI in Aviation increased from 40% to 49%.FDI up to 100% permitted in Infrastructure development
of townships, other construction projects.
FDI limit in telecom increased to 74%
FDI in exploration and mining of coal, Lignite, permitted up to 74%.
FDI up to 20% allowed in FM Broadcasting.
100% FDI permitted in tea plantations, Modernization of Airports, ports and courier services.
FDI-related Institutions in India

There are three primary institutions in India that handle FDI-related issues: the Foreign Investment
Promotion Board (FIPB), the Secretariat for Industrial Assistance (SIA), and Foreign Investment
Implementation Authority (FIIA).
Foreign Investment Promotion Board (FIPB)

The Foreign Investment Promotion Board (FIPB), Department of Economic Affairs (DEA), Ministry of
Finance is the nodal single-window agency for all matters relating to FDI as well as promoting investment in
the country. It is chaired by the Secretary, Industry (Department of Industrial Promotion and Policy). Its
objective is to promote FDI in India:
By undertaking investment promotion activities in India and abroad;

By facilitating investment in the country by international companies, non-resident Indians and other
foreign investors;
Through purposeful negotiations/discussions with potential investors;
Through early clearance of proposals submitted to it; and
By reviewing policies and putting in place appropriate institutional arrangements, transparent rules and
procedures and guidelines for investment promotion and approvals.
Secretariat for Industrial Assistance (SIA)

The Secretariat for Industrial Assistance (SIA) has been set up by the Government of India in the Department
of Industrial Policy and Promotion, Ministry of Commerce & Industry to provide a single-window service
for entrepreneurial assistance, investor facilitation, receiving and processing all applications which require
government approval, conveying government decisions on applications filed, assisting entrepreneurs and
investors in setting up projects (including liaison with other organisations and state governments) and
monitoring the implementation of projects. It also notifies all government policy decisions relating to
investment and technology, and collects and publishes monthly production data for select industry groups.
The SIA website2 provides chat time during fixed hours when all questions are answered. During other
times, investors are encouraged to write e-mails and the Secretariat assures a reply within 24 hours.
Foreign Investment Implementation Authority (FIIA)

The Government of India has set up the Foreign Investment Implementation Authority (FIIA) to facilitate
quick translation of Foreign Direct Investment (FDI) approvals into implementation, and to provide a pro-
active one-stop after-care service to foreign investors by helping them obtain necessary approvals, sort out
operational problems and meet with various government agencies to find solutions to their problems. The
Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy & Promotion (DIPP)
functions as the Secretariat of the FIIA.
Foreign Investment Policy- Current System of FDI Classification and methods of approvals in India
Foreign investment is permitted in virtually every sector, except those of strategic concern such as defence
(opened up recently to a limited extent) and rail transport. Foreign companies are permitted to set up 100 per
cent subsidiaries in India. No prior approval from the exchange control authorities (RBI) is required, except
for certain specified activities.
According to the current policy, FDI can come into India in the following ways.
1. Automatic route: FDI in sectors/activities to the extent permitted under the automatic route does not
require any prior approval either by the government or the Reserve Bank of India (RBI). The investors are
only required to notify the concerned regional office of the RBI within 30 days of receipt of inward
remittances and file the required documents with that office within 30 days of issue of shares to foreign
investors.
No need of Prior Approval From FIPB,RBI,GOI but the investors are only required to notify the Regional
Office concerned of the Reserve Bank of India within 30 days of receipt of inward remittances.
2. Prior Government Approval route: In the limited category of sectors requiring prior government
approval, the proposals are considered in a time-bound and transparent manner by the Foreign Investment
Promotion Board (FIPB) under the Department of Economic Affairs, Ministry of Finance. Approvals of
composite proposals involving foreign investment/ foreign technical collaboration are also granted on the
recommendations of the FIPB.
The Department of Industrial Policy and Promotion (DIPP) compiles FDI data. The data is collected and
reported by the Reserve Bank of India (RBI) as unit records of various FDI inflow transactions. These unit
records provide information about the name of the Indian company, name of the foreign investor, amount of
foreign direct investment, route of inflow and the receiving sector. DIPP processes these unit records into a
usable form and presents them in different ways. In general, FDI inflows are presented by route (RBI
Automatic, FIPB and acquisition of shares), by country of origin and by sector.
Investment proposals falling outside the automatic route would require prior Government approval. Foreign
Investment requiring Government approvals are considered and approved by the Foreign Investment
Promotion Board (“FIPB”).Filings have to be made by the Indian company with RBI
3. Cabinet Committee of Foreign Investment CCFI Route:-

Investment proposals having a project cost of Rs. 6,000 million or more. Requires prior approval of Cabinet
Committee of Foreign Investment (“CCFI”).Decision is usually conveyed in 8-10 weeks. Filings have to be
made by the Indian company with the RBI
Legal Framework
Foreign Direct Investments under Automatic Approval and Government Approval are regulated by the
Foreign Exchange Management Act, 1999 (FEMA vide Reserve Bank’s Notification FEMA, amended from
time to time).
If a foreigner or foreign company or a person resident outside India wants to invest in India either in the
manufacturing sector or service sector, including the housing sector, insurance, banking,
telecommunications, etc., the foreigner, foreign company or a person resident outside India has to pay due
attention to the conditions, regulations and procedures which are laid down in different notifications by the
Reserve Bank of India issued in terms of Section 6 of FEMA.
Also, there are special class of foreign investors such as the venture capital funds, non resident Indians and
FII’s.
Foreign Company has the following options to set up business operations in India
By incorporating a company under the Companies Act, 1956
A wholly owned subsidiary.
Joint venture company - existing company or new company with domestic partner
As an unincorporated entity
Liaison Office
Project Office
Branch Office
Mode of Entry
FDI as a mode of foreign market entry provides a permanent foothold in the foreign market and can generate
high returns when managed properly. However, FDI requires a substantial investment which entails
additional risks, such as foreign exchange risk, political risk and cultural risk that do not exist in case of
domestic investment. These additional risks may or may not be offset by higher expected earnings.
The different mode of entry consists of
Alliance:
Joint Venture
Expansion:
Acquisition:
Minority Stake
Another dimension of definition is whether a FDI is Greenfield or Brownfield

In essence, foreign direct investment (FDI) constitutes three components; viz., equity; reinvested earnings;
and other capital. Equity FDI is further sub-divided into two components, viz., Greenfield investment; and
acquisition of shares, also known as mergers and acquisitions (M&A). Reinvested earnings represent the
difference between the profit of a foreign company and its distributed dividend and thus represents
undistributed dividend. Other capital refers to the intercompany debt transactions of FDI entities.
A form of foreign direct investment where a parent company starts a new venture in a foreign country by
constructing new operational facilities from the ground up. In addition to building new facilities, most parent
companies also create new long-term jobs in the foreign country by hiring new employees. Green field
investments occur when multinational corporations enter into developing countries to build new factories
and/or stores.
This is opposite to a brown field investment.
Equity FDI may also include “Brownfield investment”, a term often used in the FDI literature. This
represents a hybrid of Greenfield and M&A foreign investment. Such investment formally appears as M&A,
though its effect resembles Greenfield investment. In Brownfield investment, the foreign investor acquires a
firm and undertakes near-complete renovation of plant and equipment, labour and product lines. Thus in
‘Brownfield investment” a company or government entity purchases or leases existing production facilities
to launch a new production activity. This is one strategy used in foreign-direct investment.
Thus, in foreign direct investment, the parent company builds productive capacity in a foreign country. In a
cross-border acquisition, a domestic parent acquires the use of an asset in a foreign company. A company can
acquire productive capacity in a foreign country in one of the two ways, viz; cross-border acquisition of
assets and cross-border acquisition of stock.
Cross-border acquisition of assets is the most straightforward method of acquiring productive capacity
because only the asset is acquired without the transfer of liabilities to the purchaser. As against this, in a
cross-border acquisition of stock, an MNC buys an equity share in a foreign company. In a cross-border
merger, two firms pool their assets and liabilities to form a new organization.
Thus the motives behind cross-border M&As include: the search for new markets, increased market power
and market dominance; access to proprietary assets; efficiency gains through synergies; greater size;
diversification (spreading of risks); financial motivations; and personal (behavioural) motivations.
Also, in a cross-border merger, the assets and operations of two different firms belonging to two different
countries join together to form a new legal entity. The stocks of the companies are surrendered during the
amalgamation process and the new company’s stocks are issued in the process. One such example is the
merger of Essar and Hutchison to form Hutchison Essar. As another example, Daimler-Benz and Chrysler
ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created.Further, in a
cross-border acquisition, the control of assets and operations is transferred from a local to a foreign company.
The local company ceases to exist and becomes an affiliate of the foreign company. An acquisition can be
forced through a majority interest in the management, by purchasing shares in the open market, or by
offering a take-over proposal to the general body of the shareholders. For instance, Ranbaxy Laboratories as
part of its expansion strategy in the US market acquired the New Jersey-based Ohm Laboratories in 1995.
Vodafone’s acquisition of Hutchinson Essar and Lenova’s takeover of IBM´s PC business are more recent
examples.
Technically, mergers are generally differentiated from acquisitions by the way in which the deal is financed
and partly by the relative size of the companies. Most mergers are executed in a consensual manner where
the managements of two relatively same-sized firms decide to combine into a new legal entity, which is
worth more than the sum of its parts. The shareholders of the merging firms get their shares exchanged for an
equal number of shares in the newly merged firm. In contrast, an acquisition can be forced or hostile, where a
smaller company gets purchased by a larger one. In this case, the acquiring firm offers a cash price per share
to the acquired company’s shareholders. Sometimes, the acquiring firm offers shares according to a specified
conversion ratio. In both cases, the purchasing company finances the deal through an outright purchase of the
target company for its shareholders.
Some examples:
GREENFIELD INVESTMENT
Ex:- ICI plan of new paint unit in South India
BROWNFIELD INVESTMENT
Ex:- Wockhartt plan of Rs.5.6 bn investments
MERGER AND ACQUISITIONS
Merger: Merger is defined as combination of two or more companies into a single company where one
survives and the others lose their corporate existence
Ex:- TATA - Corus
Acquisition: Acquisition is the purchase by one company of a controlling interest in the share capital of
another existing company
Ex:- GE Capital service- SRF Finance
Foreign Direct Investment in SEZs

Some of the policy measures taken to attract foreign direct investment (FDI) in Special Economic Zones
(SEZs) include:
1. FDI up to 100 per cent under the automatic route for all manufacturing activities, except arms and
ammunition, explosives and allied items of defence equipment, defence aircraft and warships, atomic
substances, narcotics, psychotropic substances and hazardous chemicals, distillation and brewing of
alcoholic drinks, and cigarettes/ cigars and manufactured tobacco substitutes.
2. 100% FDI allowed for development of townships including housing, commercial and recreational
facilities on a case-by-case basis.
3. iii. Facility to foreign companies to set up manufacturing units in SEZs as branch operations on a
standalone basis without approval from the RBI.
4. Round trippingRound-tripping refers to the channeling abroad by direct investors of local funds and
the subsequent return of these funds to the local economy in the form of direct investment. Round-
tripping can take many formats like under-invoicing and over-invoicing of exports and imports.
Round-tripping involves getting the money out of India to, say, Mauritius, and then bringing it back to
India as FDI or FII investment.
India has received $37.763 billion in foreign direct investment (FDI) and $29.048 billion in FII investment
up to March 31, 2010. Between April 2010 and January 2011, FDI inflows were $22.958 billion and FII
investment $31.031 billion. Millions of rupees go out of the country only to be returned as FDI or FII
investment.
According to some experts the recent Vodafone verdict may encourage round tripping and treaty shopping.
The Vodafone case was a global test for India’s legal and tax system. Perhaps, in one of the most important
verdicts in Indian corporate history, the Supreme Court has made it clear that the tax department has no right
to levy tax on share sale carried out by two overseas entities, even if the underlying assets are in India. The
verdict has cancelled the tax departments claim of around Rs 11500 crore tax on the deal.
THE CASE
‘FOREIGN DIRECT INVESTMENT (FDI) IN MULTI-BRAND RETAIL TRADING’.
BACKGROUND:
Standing on the threshold of a retail revolution and
witnessing a fast changing retail landscape, India is all set to
experience the phenomenon of a global village. India
presents a grand opportunity to the world at large, to use it as
a business hub. Retail, one of India’s largest industries and
the leading destination for investment, has presently emerged
as one of the most dynamic and fast paced industries of our
times with several players entering the market. Accounting
for over 10% of the country’s GDP and around 8% of the
employment to reach $17 billion by 2010, retailing in India
is gradually inching its way toward becoming the next boom
industry.
Since November of last year, when the Indian government announced it would allow 100% ownership of
multi-brand retail into the domestic economy(companies like Wal-Mart and Carrefour can now partner with
an Indian company and sell to consumers),only to then retract the offer because of political backlash.
Present Scenario
FDI in Multi-Brand retailing is prohibited in India. FDI in Single-Brand Retailing was, however, permitted
in 2006, to the extent of 51%. Since then, a total of 94 proposals have been received till May, 2010. Of this,
57 proposals were approved. An FDI inflow of US $ 194.69 million (Rs. 901.64 crore) was received
between April, 2006 and March, 2010, comprising 0.21% of the total FDI inflows during the period, under
the category of single brand retailing. The proposals received and approved related to retail trading of
sportswear, luxury goods, apparel, fashion clothing, jewellery, hand bags, life-style products etc., covering
high-end items. Single brand retail outlets with FDI generally pertain to high-end products and cater to the
needs of a brand conscious segment of the population, mainly attracting a brand loyal clientele, which often
has a pre-set positive disposition towards the specific brand. This segment of customers is distinctly
different from one that is catered by the small retailers/ kirana shops.
FDI in cash and carry wholesale trading was first permitted, to the extent of 100%, under the Government
approval route, in 1997. It was brought under the automatic route in 2006. Between April, 2000 to March,
2010, FDI inflows of US $ 1.779 billion (Rs. 7799 crore) were received in the sector. This comprised 1.54 %
of the total FDI inflows received during the period.
Foreign Direct Investment - Prohibited Sectors
Foreign direct investment (“FDI”) is prohibited in the following cases

Gambling and betting, Lottery Business to ensure that no unethical things are practiced.
Retail Trading (except single brand retail trading-not provided in Master Circular)
Atomic Energy to prevent technology and ensure security matters.
Housing and Real Estates.
Agriculture (with certain exceptions) and Plantations (Other than Tea plantations)
Concept of Multibrand
In simple terms mutibrand a single retailer
come up with the number of new brands in the
market to capture the market. It is important to
understand the the definition of single versus
multi-brand retail. Multi-brand retail, as
considered by the Indian government, would
include retailers like Wal-Mart, Tesco,
Carrefour, CVS, Walgreens, 7-11, Best Buy,
Home Depot, Staples and Office Depot.
Single-brand retail would be companies like
GAP, Levi, Nike, Apple and other luxury goods
who may own exclusive outlets.
PRESENT POLICY FRAMEWORK
Government has decided to allow 51% FDI in Multi-brand retails.

Minimum investment of $100 million.
50% of the investment is to be in backend infrastructure development.
30% of all raw materials has to be procured from India's small and medium industries.
Permission to set up malls only in cities with a minimum population of 10 lakh.
Government has the first right to procure material from the farmers.
Products should be sold under the same brand internationally.
Foreign investor should be the owner of the brand.
Probable impact
It will increase competition which is always

beneficial for the customer.
It will remove the middleman from the equation. It

will reduce costs which in turn will reduce prices.
With better infrastructure investment the wastage in

food produce can be minimised and thus it will help
control food inflation. We are the second highest
producer of fruits and vegetables in the world but
still we are not able to utilise it properly because of
inadequate infrastructure facilities. Existing Public
Distribution System may not be sufficient to solve
the food crisis.
It will create 1.5 million more jobs in 5 years. Apart from the huge number of indirect employment.
More choices for consumers.

Global retailers are bound to bring in global best practices and technology that will lead to a more
competitive marketplace benefiting the consumers.
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The sourcing clause (30%) will lead to a direct benefit for the Small Medium enterprises (SME) sector.
Issues
However a number of concerns have been expressed with regard to opening of the retail sector for FDI.
The first is that the retail sector in India is the second largest employer after agriculture. As per the latest
NSSO 64th Round, in 2007-08 retail trade employed 7.2% of total workers and provided job opportunities to
33.1 million persons. More than 2/3rd of the total employment, in the broad category of trade, hotels and
restaurants, is in the retail sector.
Another concern is that it would lead to unfair competition and ultimately result in large-scale exit of
domestic retailers, especially the small family managed outlets, leading to large scale displacement of
persons employed in the retail sector. Further, as the manufacturing sector has not been growing fast enough,
the persons displaced from the retail sector would not be absorbed there.
A third argument is that the Indian retail sector, particularly organised retail, is still under-developed and in a
nascent stage and that, therefore, it is important that the domestic retail sector is allowed to grow and
consolidate first, before opening this sector to foreign investors.
Some other key concerns are
With 51% equity interest, foreign retailers can control the Indian operations and consolidate the
financials with the parent company.
The minimum amount fixed for foreign investment is $100 mn over Rs 500 crs at today’s exchange
rates. Thus the policy is designed in favour of the big players.
The foreign retailer can purchase locally all agricultural produce, and sell them in their stores. Thus
they can virtually corner the market and trade in these products.
Domination in warehouse infrastructure business (“back-end infrastructure clause).
Policy of 30% of the procurement of manufactured and processed products should be sourced from
“small industry”. Critics point out that the Indian retail trade sources far more than 30% currently from
small industry. So this is no concession.
The policy states that retail locations should be restricted to cities with one million plus population.
This is to protect the smaller cities and rural areas from the predatory practices of the foreign retailers
(which means the small retailers in the cities are sacrificed).
The government is retaining the first right to procure agricultural produce. Experts point out that such a right
exists with or without stating it. They point out the imminent threat of foreign control over the distribution
channels over time.
Some experts are even of the view that there is no such thing as single brand retail and it is more of a policy
definition.
Further, hundreds and thousands of acres of fertile and barren lands that can be brought to use are being
grabbed by the unorganized uncontrolled real estate business and the land for cultivation is shrinking slowly.
Fdi Recent Trends in India

India attracted FDI equity inflows of US$ 2,214 million in April 2010. The cumulative amount of FDI equity
inflows from August 1991 to April 2010 stood at US$ 134,642 million, according to the data released by the
Department of Industrial Policy and Promotion (DIPP).
The services sector comprising financial and non-financial services attracted 21 per cent of the total FDI
equity inflow into India, with FDI worth US$ 4.4 billion during April-March 2009-10, while construction
activities including roadways and highways attracted second largest amount of FDI worth US$ 2.9 billion
during the same period. Housing and real estate was the third highest sector attracting FDI worth US$ 2.8
billion followed by telecommunications, which garnered US$ 2.5 billion during the financial year 2009-10.
The automobile industry received FDI worth US$ 1.2 billion while power attracted FDI worth US$ 1.4
billion during April-March 2009-10, according to data released by DIPP.
In April 2010, the telecommunication sector attracted the highest amount of FDI worth US$ 430 million,
followed by services sector at US$ 355 million and computer hardware and software at US$ 172 million,
according to data released by DIPP. During the financial year 2009-10, Mauritius has led investors into India
with US$ 10.4 billion worth of FDI comprising 43 per cent of the total FDI equity inflows into the country.
The FDI equity inflows in Mauritius is followed by Singapore at US$ 2.4 billion and the US with US$ 2
billion, according to data released by DIPP.
India has made considerable economic progress in the area of external trade since its Independence. Some of
the key areas of achievements in the areas of exports and FDI.
Exports crossed target of $ 200 billion for 2010-11 to reach $ 252 Billion ($41 per cent growth).IT software
and IT enabled services exports touched $49 billion in 2010 rising from $2 billion in 1998.2nd most
attractive investment destination among the Transnational Corporations (TNCs) - UNCTAD’s World
Investment Report, 2005.India received investments from GE Capital, American Express, Citibank, Conseco,
British Airways, Dell Computers and Reuters. This FDI resulted in the development of call centres, back
office support and facilities to handle knowledge-intensive activities. From software giant Microsoft to
telecom biggies Nokia and Samsung to auto majors Honda and Toyota, global players now eye India as the
most attractive destination for investment.
India has also achieved some key milestones in its outward FDI thus making India Inc. global. The cases
include acquisition of Jaguar & Land Rover by Tata Motors. Acquisition of UK based Corus steel by Tata
Steel.Suzlon Energy Ltd acquired German firm Repower Systems AG for $ 1.7 billion. Hindalo acquired
Novelis for $ 6 billion
Inbound Transactions include

Sistema, Russian Joint Stock Company’s acquisition of 74% stake in Shyam Telelink – Telecommunications.
French banking major BNP Paribas’s acquisition of 45% stake in financial services firm Sundaram Home
Finance for $45.81 million. Standard Chartered Bank bought 49% stake for $34.19 million in UTI Securities
and Interpublic Group hiked its stake in Lintas India to 100% for $100 million.
Net capital flows at US$ 41.1 billion in the first half of 2011-2012 remained higher as compared with US$
38.9 billion in first half of 2010-2011. Under net capital flows, FDI has shown considerable increase at US$
12.3 billion during H1 of 2011-2012 vis-à-vis US$ 7.0 billion in the corresponding period of 2010-2011.
Similarly, external commercial borrowing increased to US$ 10.6 billion during

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1/15/2018 Economics for Everyone: Going Global–FDI Fables–FDI in Multibrand Retail

Economics for Everyone: Going Global–FDI

FDI- Foreign Direct Investment

FDI in multi-brand retail to go ahead,TNN (TIMES OF INDIA)

Govt says committed to multi-brand retail FDI FE BUREAU

BACKGROUND -Economic Reforms

Thus, FOREIGN DIRECT INVESTMENT (FDI) indicates

PURPOSE AND NEED FOR FDI

1. Intense competitive pressure in domestic economy.

Advantages of FDI to host country

Some of the challenges for the host country include

Indian policy in FDI- Snap shot

Economic reforms 1991.

Recent policy Initiatives

FDI-related Institutions in India

Foreign Investment Promotion Board (FIPB)

By undertaking investment promotion activities in India and abroad;

Secretariat for Industrial Assistance (SIA)

Foreign Investment Implementation Authority (FIIA)

3. Cabinet Committee of Foreign Investment CCFI Route:-

By incorporating a company under the Companies Act, 1956

A wholly owned subsidiary.

The different mode of entry consists of

Another dimension of definition is whether a FDI is Greenfield or Brownfield

This is opposite to a brown field investment.

Ex:- ICI plan of new paint unit in South India

Ex:- Wockhartt plan of Rs.5.6 bn investments

MERGER AND ACQUISITIONS

Ex:- TATA - Corus

Ex:- GE Capital service- SRF Finance

Foreign Direct Investment in SEZs

‘FOREIGN DIRECT INVESTMENT (FDI) IN MULTI-BRAND RETAIL TRADING’.

Foreign Direct Investment - Prohibited Sectors

Foreign direct investment (“FDI”) is prohibited in the following cases

PRESENT POLICY FRAMEWORK

Government has decided to allow 51% FDI in Multi-brand retails.

It will increase competition which is always

It will remove the middleman from the equation. It

With better infrastructure investment the wastage in

More choices for consumers.

Some other key concerns are

Fdi Recent Trends in India

Inbound Transactions include

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