FDI in the global economic landscape has been one of the most noticeable changes in the previous two decades. It is because FDI creates a win-win situation for both the host and home countries. The fast expansion of FDI by multinational corporations during the mid-1980s can be attributed to considerable technological advancements, increased trade, investment liberalization, deregulation, and privatization of markets in many countries, including developing countries like India.
India is one of the most significant countries to invest in the retail sector. The world’s second-largest population, a 600-million-strong middle class, rising urbanization, rising family incomes, connected rural customers, and increased consumer spending are all factors that make India so appealing.
Initially, the Foreign Direct Investment was restricted in the retail sector, but in 2006, the government relaxed retail policy for the first time, allowing up to 51% FDI through single-brand retail. Since then, FDI into the retail sector has steadily increased. Recent policy changes allowed 100% FDI under the automatic route for single-brand retail trading.
From US$ 1,824 billion in 2017, total consumption expenditure is predicted to reach almost US$ 3,600 billion by 2020. It generates more than ten percent of the country’s GDP and employs about eight percent of the workforce. In terms of retail, India is the world’s fifth-largest destination.
Advantages of FDI in Retail.
- Boost in the economy- New infrastructure will construct when international corporations arrive. Real estate and banking will experience expansion. MNCs will also pay a large amount of taxes to the Indian government, which improves infrastructure.
- Employment generator– setting up of new infrastructure will provide jobs to many people.
- Reduction in wastage– There is a lot of wastage in the unorganized sector, up to 40% wastage on vegetables and fruits. By investing in supply chains and adequate storage facilities, large retail chains can reduce waste.
- Boost productivity — India’s agricultural and food output is currently at an all-time low. FDI in retail will offer agriculture infrastructure and farming methods a much-needed boost.
- Consumer benefits – FDI in retail means lower costs and a more comprehensive range of products for consumers to choose from. They’ll have access to foreign brands as well.
- The benefit to farmers– Farmers will profit because they would buy directly from farmers and producers, reducing the need for intermediaries. Farmers’ profit margins will improve.
India’s retail market is primarily unorganized, accounting for 88 percent of the country’s entire retail industry. The organized retail market is currently worth $60 billion, with the cluttered market accounting for the remainder. By 2021, the organized retail market’s share is expected to rise to 22-25 percent, bringing the unorganized retail market’s share down to 77 percent. As a result, the organized retail sector has the potential to reach around $140 bn.
Mobile shopping, which is estimated to rise at a rate of 21% annually over the next four years, is likely to boost India’s e-commerce market to US$ 111 billion by 2024. Digital wallets (40%) were the most popular online payment option in 2020, followed by credit cards (15%) and debit cards (10%). (15 percent). By 2024, online retail penetration is predicted to reach 10.7%, up from 4.7 percent in 2019.