Drawbacks and benefits of increasing FDI in retail in India

By Abhinash on September 26, 2012

FDI or foreign direct investment is the investments brought into productions and economy of a country by people of another country. USA was the world’s largest recipient of FDI totaling $194 billion in 2010 after which in line was China with $185 billion in 2010 and  India in 2010 was $44.8 billion (Greyhill Advisors). No doubt FDI have helped a lot of industrial fields to excel and dominate than the others.

In 2011, the ruling party (UPA) in India decided to roll up the FDI in multi brand retail by 51%. Since then it has been a big argument between the opposition and ruling party in India.

Drawbacks of increasing FDI in multi-brand retail

As per Narendra Modi, Chief Minister of Gujrat, FDI will invite trouble by unemployment of small retailers who may fail to compete with the big retail giants like Walmart & Tesco (The Economic Times). This will leave 12 million existing retail outlets in India out of their jobs. Also Union Minister Dinesh Trivedi fears that increasing the FDI in retail will also create a monopoly of foreign brands in the food sector in India. The big retail giants are investment intensive and create a very few job opportunities. A single Walmart store can put out thousands of small scale retailers and related companies and distributors out of their jobs and generating merely 3000 jobs as it did in the US.

Increasing FDI will not only impact just the retailers or the small time retail stores near your homes but will eventually impact all of the businesses that rely on it like the distributors, the small time salesman, rickshaw pullers who carry the goods to the shops, helpers at the distributor’s office and retail shops, small time logistics owners and many small scale industries who cannot afford to purchase shelf space at big stores and retail chains. According to Mamata Bannerjee, increasing the FDI in retail will leave the small time retailers in your neighbors with no shops, no land and no money (Hindustan Times). The big retail giants have a deep pocket and thus cannot be expected to follow  ethical practices which eventually threatens increase in inflation in future. More over none of the FDI supporters cannot claim that if the end consumer will be able to save while purchasing from these retail giants due to this FDI in retail influx.

Benefits of increasing FDI in multi-brand retail

No doubt FDI invites a lot of investment in the country which will turn provide transitional development in technology. The main points of the Government’s proposal of pushing the FDI in retail are:

  1. Benefits to the farmers: Farmers were long been left behind and squeezed between the price raise. Worldwide the big retail giants buy the produce directly from the farmers eliminating the middle men and offering them at least 15% – 20% higher prices then they get.
  2. Reduction in food inflation: The increase in FDI will create stronger competition among the retailers and will eliminate the middle man, which will eventually help in reducing food prices and the stocks will help in reducing the supply constraint.
  3. Increase in Forex reserves: As per Government’s proposal in increasing the FDI in retail the each retail giant is supposed to invest a minimum of 100 million dollars. Each retail giant is expected to open atleast 15 stores across India and to open each store it may require 10- 15 million dollars which can total in billions of dollars in Forex reserves.
  4. Decrease in food wastage: Today a major chunk of the food that is almost 30% – 40% of the produce is wasted in transportation. A lot of grains are also wasted in the government storage and go-downs. The government has made it compulsory to invest 50% of the investment in the development of infrastructure in logistics. Thus it will become critical to save a lot in storage and logistics.
  5. Better consumer choice: Since most of the retail giants work on a large scale, they have large number product varieties which generally the kirana stores in your neighborhood are not able to store.
  6. Benefits to the Kirana stores: As per the government policy for the FDI 30% of the total purchases by these mega giant retailers has to be made from the small retailers. The perfect example is the existing cash and carry model in Punjab.


I am currently working as a Research Associate. My work is centered on Macroeconomics with modern econometric approach. Broadly, the methodological research focuses on Panel data and Times series data analysis for causal inference and prediction. I also served as a reviewer to Journals of Taylor & Francis Group, Emerald, Sage.


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