RECENT FDI REFORMS IN INDIA: Impact on Indian Market

India opened its supermarket sector to foreign chains recently after months of dithering, pushing ahead with the boldest reforms yet in Prime Minister Manmohan Singh's government as it tries to revive the country's tottering economic growth. The government has decided to allow foreign airlines to buy stakes of up to 49 per cent in local carriers, in a much-awaited policy move that provides a potential lifeline to the country's debt-laden airlines by opening up a fresh source of funding. Also, one of the significant and visionary decisions taken recently by the Indian Cabinet Committee on Economic Affairs (CCEA) regarding foreign direct investment is to permit FDI up to 49% in the power exchanges or power trading in India.

These key reforms have following implications on the Indian market:

EXPECTED IMPACT OF FDI IN RETAIL -

Foreign Direct Investment or FDI in Indian retail sector up to 51 % is the most emotive topic and has been in discussion everywhere in the country. The Union Cabinet has approved 51% FDI in multi-brand retail and raised the cap on FDI in single-brand retail from 51% to 100%.

Also significant recommendations of the latest FDI liberalization policy of India, in multi-brand retail sector, are the following:

• The minimum level of FDI in multi-brand retail sector will be worth $ 100 million
• Supermarkets are allowed in only those cities of India whose population is at least one million
• At least 50% of the total investment will be made on the Back-end Infrastructure
• And, at least 30% of their goods and products will be procured from the local companies and industries.

For FDI in Retail:

- FDI in India Retail should be welcomed as this will bring a lot of money in India. 
- Foreign Investment will help the government to build new infrastructure and improve rural infrastructure. 
- Farmers will be the biggest beneficiaries from this move, as they will be able to improve their productivity and get high prices by selling their crops directly in the market to the large organized players.
- Government will also gain by FDI through transparent and accountable monitoring of goods and supply change management systems.
- Products will be available to the consumers at reduced price.
- This will provide lots of job opportunities to unemployed people in India.
- It will provide more options to the farmers with less wastage of agriculture product.
- FDI in retail will increase the competition for Indian players pushing them to improve their products and services. The final beneficiary of this competition will be the consumers. 

Against FDI in Retail:

- FDI in Indian Retail should not be welcomed as they sell only their products throughout sourcing at cheap rates from foreign companies which reduces the value of Indian commodities and labour.
- Companies like Wall Mart, Tesco etc. will only engage well educated and smart workforce in small proportion. Thus it will not solve the problem of unemployment.
- It will create competitive markets for the Indian companies as they will be struggling with the foreign companies to increase the demand of their products.
- The market of our local shopkeepers will suffer.
- Farmers will become poorer as these big companies will slowly turn into monopoly buyers ruling the rates. 

EXPECTED IMPACT OF FDI IN AVIATION-

Foreign investors in the aviation sector of India will find extensive and ever-growing domestic and international market, for tremendous profits. Air travel for both domestic and international aviation will be cheaper and more lavish. There will be greater income to the aviation sector of India by domestic and international tourism, and other related sectors of Indian economy. Better will be chances for employment in the aviation sector of India.

However, there are certain inherent uncertainties and disadvantages in the FDI in the aviation sector of India, to both foreign companies and investors and the Indian aviation companies and investors in the short- and long- terms. The business competition in the Indian aviation market will be more and intense, and will favor the big players. The presence of greater number of aviation companies will reduce the overall profitability. Cost of employment for highly qualified and talented aviation professionals will rise regularly. Indian aviation companies will need to become more efficient, circumspect, and professional.

EXPECTED IMPACT OF FDI IN POWER TRADING-

FDI in the power sector of India has been permitted up to 100% (except the Atomic energy), but, there was no concrete and clear provision for FDI in the power trading in India. It is hoped that this decision of the Government of India will boost perfect and easy power exchanges, augment the availability of power, improve energy distribution, and introduce most efficient and best practices in power trading.Power Trading involves purchasing and selling of electricity, with the help and guidance of the Power Exchanges. The power exchanges serve as a well-organized, unbiased, and open platform to the generators, suppliers, traders, shareholders, and consumers in the power sector of a country. At present, there are two main power exchanges functioning full-fledged in India, the Indian Energy Exchange (IEX) and the Power Exchange India (PXI). Collectively, these two major power exchanges handle just 2% of the total 800 billion units of power generated in the whole country. Hence, there was desperate need for FDI in the power trading in India, to make this power sector of the country better and most efficient.

This permission to FDI up to 49% in the power trading exchanges comes under the categories of 26% Direct FDI and 23% Institutional Investment by any Foreign Institutional Investor (FII). These investments will be made in proper and strict compliance with the rules and regulations of SEBI and the Central Electricity Regulatory Commission (CERC). The FII investment will be made under the Automatic Route, and the Direct Investment will be performed under the Governmental Route.

FDI has its advantages as well as disadvantages. FDI in right areas is required for the development of the country. FDI in retail especially in multi-brand retail needs to be well regulated and invited through proper safeguards while we should invite FDI in technology and infrastructure with open hands. 

(Pardeep Kumar)