Will FDI booster cure worsening economic condition of India?

The government, in its latest move to help in recovery process of economy, has allowed 51% FDI in multi-brand retail and 49% in aviation. To reduce the fuel subsidy burden, the govt has also raised the diesel price by Rs5/litre and put a cap on using of cooking gas. Will these moves help economy gather pace and have a positive impact on investment flows? Speak Up finds out

51% FDI will have a negative impact on small retailers
We oppose the government’s move to allow 51% foreign direct investment (FDI) in retail sector in India. To express opposition to the 51% FDI, the Confederation of All India Traders (New Delhi) has announced that they have plans to observe a one-day bandh on September 20.

The government’s decision will have a long-term effect on the business of small-time traders and grocery shopkeepers who deal in cereals, clothes, cosmetics, hardware and other such products.

It will surely have a negative impact on the small-time retailers in the market as foreign retailers will create their own monopoly.
When foreign countries do not allow import of food products from India, why should we allow their investments in our country? There is no proper level playing ground for these foreign retailers and the Indian counterparts. This is because there are different governing policies and tax relaxations.
Ajit Setiya, President, Poona Merchants Chamber

Economic condition of the country is bad
The government has not taken these recent decisions of allowing 51% FDI in retail or increasing the same in aviation out of inspiration or any kind of motivational factor, it has been compelled to do so.

The FDI booster comes as a last minute cure for the worsening economic condition of the country. The reality is that the economic condition of the country is so bad that there is no cure. No government could deal with this issue as there is no solution. Our analysis which we have put on our ‘Arthkranti’ website way back in 2001, had predicted the way economy will go.

As of now, the corruption in the system is so high that we have reached a dead end. The rate at which we are functioning, the corporate sector can come to a standstill due to the government’s poor administration and management. Our country is in crisis.
Anil Bokil, Economics Analyst

Retail giants have not killed business of small traders
The government’s move to bring in FDI will definitely have a positive impact on the economy, there is no doubt about it. It was essential to increase the FDI to 51% for retail sector. Even though some political parties are opposing the FDI in retail, we must realise that it exists all over the world even in a country like China.
It will definitely bring investments to the retail sector. Such funds will act as a reliever to the retail companies who are incurring heavy losses.

It is a misconception that allowing 51% FDI will affect small shopkeepers and traders. Retail giants like Reliance, Future Group (Big Bazaar), DMart etc., are already running their chains of shopping stores in India since long and none of the domestic small stores have closed down as a result. In fact, these multi-brand retail giants will add to the value chain. In the long run, it will be beneficial for the consumers.

The government’s move is a positive step and we welcome this decision. As an immediate effect to the government’s announcement, the dollar rate has dropped from Rs56 to Rs54. The hike in diesel price is necessary from the national point of view. However, from an individual’s point, it will add burden on the consumer and disturb his/her monthly budget.
SK Jain, President, MCCIA

Subsidy is not sustainable in the long run
The government’s recent decision to allow 51% FDI in multi-brand retail and 49% in aviation is in the right direction, which  will help to improve the mood and climate of the economy. Factually speaking, there will, however, be some problems. If Walmart and such foreign brands come to India, the impression that our country’s economic problems will be solved is rather misleading.
Our existing efficiency of cold storage, storage facilities and distribution system is still limited. It is understandable that the 51% FDI will be good for the economy and benefit the farmers and consumers, however, we still do need many other basic solutions.

Will there be any logic in increasing FDI for aviation to 49% when the industry has to bear the heavy taxation on aviation fuel and the process is not even made user-friendly? Various prohibitions always keep the cost ahead of price realisation.

Diesel subsidy or any kind of subsidy is not sustainable in the long run. Until subsidies are there, people won’t realise the actual value of what they are buying. Today, the cost of everything is rising irrespective of diesel cost increasing or not. We must understand that if subsidies exist then there has to be some rationing.
Pradeep Bhargava, Chairman, Confederation of Indian Industry (CII)

Big bang reforms

India’s retail industry, which is pegged at $450 billion, could expand manifold with opening up of FDI

Currently, the so-called modern trade — or retail chains — have only 5% share of that pie

The catch, however, is that the 51% FDI decision has been left to the state governments. That’s where implementation problems will arise, said experts

The government has pinned a few riders when opening up: Foreign entities will have to invest 50% in setting up
back-end operations and 30% of the sourcing has to be done from small and medium enterprises

The sourcing norm, however, is likely to be eased

Analysts said these two rules will create more & better quality jobs
The riders also include that any multi-brand entity should have an investment of $100 million (Rs500 crore) and the stores can be opened up only where the population is more than 10 million. At present, there are 53 cities in India that fit this bill

Analysts said the largest investments are likely to flow into the food segment

However, the opposers contend that entry of foreign retail chains will wipe out smaller, traditional players

Govt’s call on FDI

Multi-brand retail
Allowed 51% FDI. At least 50% of total FDI shall be invested in
‘back-end infrastructure’ within 3 years. Outlets can only be set up in cities with population of over 10 lakh.

Aviation
Allowed 49% FDI. Chairman and at least two-thirds of the directors should be citizens of India. Substantial ownership and effective control be vested with Indians.

Broadcasting
Raised FDI cap from 49% to 74% . This includes teleports, cable networks, DTH and mobile TV.

Power trading
Allowed 48% FDI to strengthen power exchanges and to enhance availability of power, as well as to improve its distribution.

PSUs
Allowed partial divestment of Nalco, Hindustan Copper Ltd, Oil India Ltd, MMTC, expected to raise Rs15,000 crore.