Foreign direct investment (FDI) is direct investment into
production in a country by a company located in another country, either by
buying a company in the target country or by expanding operations of an
existing business in that country.
Foreign direct investment is done for many reasons including
to take advantage of cheaper wages in the country, special investment
privileges such as tax exemptions offered by the country as an incentive to
gain tariff-free access to the markets of the country or the region.
Foreign direct investment is in contrast to portfolio
investment which is a passive investment in the securities of another country
such as stocks and bonds.
As a part of the national accounts of a country, national
income equation is Y=C+I+G+x-m, [(Y = real GDP, C = consumption spending, DI =
disposable income, I=investment expenditure, G=government spending, T = tax
revenue, X = exports, M = imports,)].
FDI refers to the net
inflows of investment (inflow minus outflow) 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.
It is the sum of equity capital, other long-term capital, and
short-term capital as shown the balance of payments. It usually involves
participation in management, joint-venture, transfer of technology and
expertise.
There are two types of FDI: inward foreign direct investment
and outward foreign direct investment, resulting in a net FDI inflow (positive
or negative) which is the cumulative number for a given period. Direct
investment excludes investment through purchase of shares. FDI is one example
of international factor movements.
There are four main working pillars of FDI. They are
financial collaborations, technical collaborations and joint ventures, capital
markets via Euro issues, and private placements or preferential allotments.
In Indian scenario, FDI in retail is an economic reform,
which would allow global chains like Wal-Mart Stores Inc and Carrefour to own
up to 51 percent of retail ventures.
The policy would let foreign retailers own up to 51 percent
of supermarkets and 100 percent of single-brand stores. The policy doesn't
require parliamentary approval, but foreign retailers must get approval from
state governments where stores will be located.
The government, as a measure of protection, has said foreign
retailers would have to source 30 percent of their goods from small industries.
Multi-brand retail in India is largely in the unorganised
sector dominated by neighbourhood kirana stores and there is a concern among
political parties and traders that these stores would be affected by the entry
of global retailers.
India's stellar economic growth is slowing, the rupee has
skidded to record lows and inflation is stuck close to a double-digit clip.
Faced with this predicament, Prime Minister Manmohan Singh seems to have
weighed the benefits of opening a $450 billion market to foreign investment.
Kaushik Basu, one of Singh's close advisers, once said
allowing global chains to open their first stores in India would be one of the
most effective ways to help the country deal with food inflation, which stands
close to 10 percent.
But the UPA seems to have misjudged the political mood on
this reform decision. The Trinamool Congress and the DMK, allies which give the
UPA government a parliamentary majority, have opposed FDI in retail. The
opposition, of course, has united to reject the idea and it has stalled Parliament.
The government failed to convince the opposition, and even
some allies, on the reform. The government is likely to allow global
supermarkets such as Walmart, Tesco and Carrefour to set up deep discount
stores in India, but with a few conditions.
Corporate India, expectedly, cheered the move terming it as a
"game changer" that will reduce wastage, bring down costs and create
millions of jobs.
While some shop owners cheer the FDI in retail, small
retailers fear loss of livelihood and income from mega stores of transnational
corporations terming the move as "a bailout package for large
corporations".
Advantages
- · Increase economic growth by dealing with different international products
- · 1 million (10 lakh) employment will create in three years - UPA Government
- · Billion dollars will be invested in Indian market
- · Spread import and export business in different countries
- · Agriculture related people will get good price of their goods
Disadvantages
- · Will affect 50 million merchants in India
- · Profit distribution, investment ratios are not fixed
- · An economically backward class person suffers from price raise
- · Retailer faces loss in business
- · Market places are situated too far which increases traveling expenses
- · Workers safety and policies are not mentioned clearly
- · Inflation may be increased
- · Again India become slaves because of FDI in retail sector
This is a very complex scenario as per FDI is concerned in Indian
context as consumers will pay lower
prices to buy products on the other hand a huge number of person will be affected
directly or indirectly by losing their job.
The ultimate question is who is Patriotic those who support
this movement or those who don’t! Only time will tell.
