Foreign direct investment (FDI) in simple terms refers to foreign nationals investing their money in specific sectors of the economy of a country. The country in question tries to regulate such investments with the objective of protecting the local investors and other locals who may have a stake in such a sector.
So, what is all the din about FDI in multi brand retail in India which has paralyzed the parliament. Until now, FDI upto a certain limit was allowed only on single brand products and that is the reason why you see branded stores like Nike, Reebok, Wrangler cropping up in most of the cities of India. FDI in multi brand would lead to setting up of stores like More, Reliance Fresh, Big Bazaar, etc. The difference would be that these stores would have some part of their investment through FDI. The government of India has taken a conscious decision of allowing the FDI in multi brand retail with many reasonable strings attached which are conveniently left out of the discussion by the opposition parties. The conditions levied include limits on investment in front-end and back-end, deposits to be made, etc and there is also a scope of adding other conditions to protect the interests of stakeholders like farmers, petty shop owners, etc but the call for a blanket ban on FDI in multi brand retail per se is not justified for the following reasons.
Setting up of such stores like Wal-mart would mean more competition and more buyers for the farmer’s produce leading to the bourgeoisation of the farmers. It is but obvious that the powerful middle class ‘baniya’ community which buys vegetables at 2 rupees per kilogram and sells at 8 rupees per kilogram will revolt. At present, the standards of the products sold by these petty shops are also not standard which could change with the decision on FDI. The Manmohan Singh government has taken a bold decision and has to fight this struggle intellectually in the parliament though democracy and ‘rationality’ may not go together.
The customers will also benefit from such a competition in multi brand retailing as more and more shops would start selling the same products at competitive rates. On the downside, though FDI is considered a stable source of capital, there may be externalities which the economic policy makers of the nation have to handle. Nevertheless, a blanket ban on development is uncalled for.