Retail Sector in India – Is It Necessary for Inviting FDI?

Abstract

Retailing is the last link that connects the individual consumer with the manufacturing and the distribution chain. The Indian retail sector is highly fragmented, with 97% of its business being run by the unorganized retailers. The organized retail, however, is at a very nascent stage. Foreign direct investment (FDI) in multi-brand retailing must be dealt cautiously, as it has direct impact on a large chunk of population. Many of the foreign brands would come to India if FDI in multi-brand retail is permitted, which can be a blessing in disguise for the economy. In India, the vast middle class and its almost untapped retail industry are the key attractive forces for global retail giants wanting to enter into newer markets, which in turn will help the Indian retail industry to grow faster. Given this backdrop, the recent clamor about opening up the retail sector to FDI becomes a very sensitive issue, with arguments to support both sides of the debate. Supporters of FDI in retail trade talk of how ultimately the consumer is benefited by both price reductions and improved selection, brought about by the technology and know-how of foreign players in the market. This in turn can lead to greater output and domestic consumption. But, the most important factor against FDI-driven ‘modern retailing’ is that it is labour displacing to the extent that it can only expand by destroying the traditional retail sector. Till such time that we are in a position to create jobs on a large scale in manufacturing, it would make eminent sense that any policy that results in the elimination of jobs in the unorganized retail sector should be kept on hold (Sahoo, 2005). Though most of the high-decibel arguments in favour of FDI in the retail sector are not without some merit, it is not fully applicable to the retailing sector in India, or at least not yet. This paper provides information about the growth of retailing industry in India and the need for FDI. The paper includes growth of retail sector in India, retail format in India, recent trends and opportunities for development through FDI.