Foreign Direct Investment

ABSTRACT

FDI is generally known to be the most stable component of capital flows needed to

finance the current account deficit. Moreover, it adds to investible resources, provides access to

advanced technologies, assists in gaining production know-how and promotes exports. In the

past decades, FDI was concerned only with highly industrialized countries. US was the world’s

largest recipient of FDI during 2006 with an investment of 184 million. France, Greece, Iceland,

Poland, Slovak Republic, Switzerland and Turkey also have a positive record in FDI

investments. Now, during the course of time, FDI has become a vital part in every country more

particularly with the developing countries. This is because of the following reasons:        

Availability of cheap labor, uninterrupted availability of raw material, less production cost

compared with other developed countries, Quick and easy market penetration. Retail industry,

being the fifth largest in the world, is one of the sunrise sectors with huge growth potential and

accounts for 14-15% of the country’s GDP. It consist of individuals, stores, commercial

complexes, agencies, companies, and organizations, etc., involved in the business of selling or

merchandizing diverse finished products or goods to the end-user consumers directly and

indirectly. Comprising of organized and unorganized sectors, Indian retail industry is one of the

fastest growing industries in India, especially over the last few years. The recent issue in FDI in

retail sector is to allow 51% FDI in multi-brand retail. Though at present only 53 cities with

population not less than 10 lakh in the country have been identified for FDI, India is a preferred

destination for FDI. Wal-Mart entered India through a joint venture with New Delhi-based

Bharti, which owns India’s largest mobile service provider, Airtel. The venture will build 15

wholesale outlets and a nationwide supply chain over the next seven years. Multibrand retailers

like Wal-Mart aren’t yet allowed to set up their own stores in India, whereas retailers that sell

only their own brand can own up to 51% of a local company.