Tag Archives: FDI in India

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FDI in retail sector

Foreign Direct Investment (FDI) for a developing country like India is a major avenue of forex influx in the economy. It not only boosts the market performance but also provides a sense of security in case of unforeseeable events.

FDI in retail sector in India was restricted initially, but the dire need for forex lead to government liberalizing the policies of making investment upto 51% by way of FDI in ‘single brand’ retail sector and upto 49% equity participation in ‘multi brand’ retail sector, which further escalated steadily in retail sector.

Defining Retail Sector
Retail Sector is inclusive of small, medium to large shops that sell goods to the ultimate consumers for their personal consumption. Retailing to a customer who further sells those goods is not treated as consumer here. It encompasses all kinds of shops, from small groceries to supermarket chains and large departmental stores. In computing the definition of retail sector, traditional bricks-and-mortar shops mail-order and online businesses is also included.

Pros and cons of FDI in retail sector
Following are some advantages which will take place as a result of FDI entering the economy:

  • Overall economic growth: Entry of foreign companies in India will boost the infrastructure and real estate sector will be equally benefitted. Banks and Financial Institutions will also gain momentum as a result of FDI infusion in the economy.
  • Employment Opportunities: Following the trend and analyzing the vast possibility of business expansion, more business ventures will enter the market and create job opportunities for the vast population of the country.
  • Eliminating middlemen: Intermediaries dominate articulation between manufacturers or producers and final consumers resulting in loss of maximum share of profits of manufacturers or producers to the intermediaries. With the introduction of FDI, manufacturers or producers might be offered contractual supply of products, thus, eliminating the loss of profits to middlemen.
  • Benefitting ultimate consumers: Customers or end consumers will get access to a variety of international quality products at lower rates, compared to what they used to pay earlier in the market.

Introduction of FDI in the markets may lead to the following disadvantages:

  • Country’s share of revenue drained: FDI will drain out the country’s fair share of profits by diverting them to foreign countries, causing negative impact on India’s overall economy.
  • Domestic players crushed: Entry of big international players in the market might affect the performance of small domestic companies / individuals negatively. Small companies are not fully equipped to tackle the international company’s strategies and might lose their market share.
  • Jobs in other sectors affected: Many of the small business owners and workers from other functional areas may lose their jobs, as lots of people are into unorganized retail business such as small shops.

FDI policy in India:
Administration of Foreign Investment in India is regulated by the provision of the Foreign Exchange Management Act (FEMA) 1999 and FDI policy announced by the Government of India. The Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000 are issued by the Reserve Bank of India (RBI) via a notification. From time to time, this notification has been amended.

The Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion (DIPP) notified the FDI policy through Press Notes. Foreign investments are freely allowed in India, except few sectors/activities, where prior approval from the RBI or Foreign Investment Promotion Board (FIPB) would be mandatory.

It is believed that FDI can prove to be powerful catalyst which can spur competition in retail industry. Also, organized retail sector is a budding phenomenon in India and leads to exponential growth of markets, despite all the downturns. Need some assistance or more information for investment in India, please click here.

Also, we can assist you in setting up your presence in India, company formation in India, statutory accounting and bookkeeping and other regulatory requirements at click here 

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India: The nucleus for FDIs

Foreign businesses often channelize their funds to reap the benefits of fast growing economy, cheap labor and wide scope of earning increased returns in India. To capture and relish such benefits, FDIs are superintended towards India in huge proportions by different countries around the world. 

What is FDI?
Foreign Direct Investment (FDI) is generally termed as an investment made by a firm or individual in one country into business interests located in another country. Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets, including establishing ownership or controlling interest in a foreign company.

India amidst top destinations for FDI
India ranks among the top 10 host economies for FDI, according to the United Nations Conference on Trade and Development (UNCTAD) 2018 World Investment Report. FDI inflows hit an all-time high of USD 44.5 billion in 2016, however, following the global downward trend, flows to India declined in 2017 to USD 39.9 billion.

In January 2018, the Indian government gave its approval to a number of major amendments aiming to further liberalise and simplify the national FDI policy. In the last three years, the government had already eased 87 FDI rules across 21 sectors. In 2018, India ranked 100th out of 190 countries in the Doing Business report published by the World Bank.

Russia contemplating investments in India
One such major step can be sighted by the Russian Direct Investment Fund (RDIF) moving towards investing in India eyeing to boost infrastructure funding. As mentioned by Kirill Dmitriev, CEO, RDIF in an interview that RDIF will sign two key deals at this annual summit on October 5, 2018:

  • Agreement with their partners in India to jointly invest in ports & logistics; and
  • Joint investment in mineral fertilisers, including the construction of production facilities and related infrastructure, as well as the introduction of advanced technologies in Russia and India. The agreement also provides for the supply of PhosAgro products to Indian partners on a long-term basis.

Growth spotted
The sectors attracting the greatest amounts of FDI in India include the services sector, followed by IT services and software, construction, the automobile industry and wholesale and retail trade.

FDI Equity Inflows by Country

Main Investing Countries 

 (January – March 2018)

%

 (April – June 2018)

%

Mauritius 34 33
Singapore 18 19
Netherlands 6 6
United States 6 6
Japan 7 7
Germany 3 3
United Kingdom 7 7
Cyprus 3 2
France 2 2
U.A.E. 2 2

Discerning the consistent and steady growth in the influx of FDIs, one can identify these to be a secure source of foreign funds entering in the economy subsequently. Thus, promoting all sectors in India.

Is it a lot to take in? Need some assistance or more information for investment in India, please click here.

Also, we can assist you in setting up your presence in India, company formation in India, statutory accounting and bookkeeping and other regulatory requirements.

Source:

  1. https://en.portal.santandertrade.com/establish-overseas/india/foreign-investment
  2. http://www.dipp.nic.in/fdi-publications