FDI in retail: two core arguments

Abstract

The Indian government has recently passed two bills to allow Foreign Direct Investments in Single Brand Retail Trading and Multi Brand Retail Trading. As of this report, 100% FDI is allowed in SBRT and 51% FDI is allowed in MBRT. This paper evaluates two core arguments pertaining to the employment potential and the net value addition to the Indian economy if FDI in retailing as a GOI policy in current form implemented. Retail trading in India is currently being dominated by unorganized sector. With the introduction of FDI in retail, the growth in the organized sector would bring in the much needed efficiency into the retail value chain. However, in the near term, increase in employment opportunity in the organized sector would result in net job loss in the retail sector overall due to greater job losses in the unorganized sector. In the long run, much needed investments in the back-end infrastructure and retail allied product manufacturing sectors would result in growth of the overall domestic market and potentially exports. This should adequately compensate for the near term job loss for the FDI policy in retail to considered successful.