The Case for FDI in the Retail Sector in India

Abstract

Services sector has emerged as the largest and fastest-growing sector in the world economy in the last two decades, providing more than 60 per cent of global output and, in many countries, an even larger share of employment. Not only has the services sector grown in terms of its share in global output and employment, its share in total trade has also grown rapidly in this period. Along with this, we find that global FDI is also shifting away from manufacturing towards services sector. Now services trade grew at the same rate as goods trade in the 1990s, i.e., about 6.5 per cent. In the FDI mode, share of services investment in the global annual flow of FDI has been over 50% in the late 1990s. Consequently, the importance of service activities in the global stock of FDI has risen to a share of about 43 per cent. According to the WTO, the value of commercial services has grown sevenfold as compared to fivefold increase in trade in goods during the period 1980 to 1999. Accordingly, we find that the share of services in GDP has increased steadily in both developed as well as developing countries in the last two decades. This study tries to build a case for, FDI in the retail sector in India by evaluating current FDI regime and looks at the Market size, market potential of the retail in the future and how this industry can grow at a very fast rate provided FDI is opened up.