Wednesday, 18 July 2012

Bank PO Essays 4 FDI in Retail Sector

Should FDI be allowed in retail sector? Why?
(This essay is written by SUBBALEKSHMY US of our PO 20 Batch)

Foreign Direct Investment (FDI) has both advantages and disadvantages. Since the advantages are more than the disadvantages, I think we should go for FDI in retail sector.
FDI is a cross border investment, that is, foreign assets are invested in organizations of domestic market, excluding investment in stock. In developing countries FDI has become a vital part in their economy. The availability of cheap labour, uninterrupted supply of raw materials, less production cost and quick and easy market penetration have made FDI feasible. If FDI is allowed in India, it will result in the cheap production facilities, application of new technology and long term cash liquidity. FDI ensures better operations in production and distribution cycles. It enables transfer skills and technology from overseas and develops the infrastructure of the domestic country. FDI provides the capital necessary for setting up organized chain of retail stores. The physical capital invested is not easily liquidated.

On the other hand, FDI can lead to a large scale job loss. Small scale retail business has virtually be wiped out in developed countries like the USA and in Europe. Global retailers will create monopoly in this field. This can adversely affect the supply of essential items. For instance, food supply will be controlled by foreign companies. The farmers barely subsist while the middlemen take the cream. This will lead to an unequal relationship in the market.  Moreover, the retail industry which consists of individual stores, commercial complexes, agencies, companies and organizations constitutes a major chunk of Indian economy.  FDI in retail sector may strike a fatal blow on the unorganized retail business, which is a source of income for millions.   So we have to think twice before allowing FDI in retail sector.    

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