Fdi in Various Sectors

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Chapter 3: FDI in various Sectors

There are several factors that results into flow of FDI, can also be called as influencing factors

that ATTRACTS FDI. These influencing factors can be classified into three categories: Supply,

Demand and Government.

Supply Factors Demand factors Government Factors

Production Cost Customer Access Economic Priorities

Logistics Follow Clients Avoidence of trade barrier

Resource Availability Follow Rivals Economic development

incentives

Access to technology Exploitation of Competitive

Advantage

INDIAS Share: Another important factor which Attracts FDI is DEMOCRACY. Democracy

about which we are so proud is itself an impediment to the flow of FDI.

Foreign Direct investment in India

In India, Foreign Direct Investment Policy allows for investment only in case of the following

form of investments:

Through financial alliance

Through joint schemes and technical alliance

Through capital markets, via Euro issues

Through private placements or preferential allotments

India has allowed FDI in various sectors through automatic route and has fixed ceilings for FDI.

Investment beyond the ceiling through automatic route requires Government approval.


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FDI In India Across Different Sectors

Hotel & Tourism

Hotels include restaurants, beach resorts and business ventures providing accommodation and

food facilities to tourist. Tourism would include travel agencies, tour operators, transport

facilities, leisure, entertainment, amusement, sports and health units.

100 per cent FDI is permitted for this sector.

Trading

For trading companies 100 per cent FDI is allowed for

Exports

Bulk Imports

Cash and Carry wholesale trading.

Power

For business activities in power sector like electricity generation, transmission and distribution

other than atomic plants the FDI allowed is up to 100 per cent.

Drugs & Pharmaceuticals For the production of drugs and pharmaceutical a FDI of 100 per cent is allowed, subject to the

fact that the venture does not attract compulsory licensing, does not involve use of recombinant

DNA technology.

Private Banking

FDI of 49 per cent is allowed in the Banking sector through the automatic route provided the

investment adheres to guidelines issued by RBI.

Insurance Sector

For the Insurance sector FDI allowed is 26 per cent through the automatic route on condition of

getting license from Insurance Regulatory and Development Authority (IRDA).


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Telecommunication

For basic, cellular, value added services and mobile personal communications by

satellite, FDI is 49 per cent. For ISPs with gateways, radio-paging and end to end bandwidth, FDI is allowed up to 74

per cent. But any FDI above 49 per cent would require government approval.

Business Processing Outsourcing

FDI of 100 per cent is permitted provided such investments satisfy certain prerequisites.

NRI's And OCB's

They can have direct investment in industry, trade and infrastructure

Up to 100 per cent equity is allowed in the following sectors

34 High Priority Industry Groups

Export Trading Companies

Hotels and Tourism-related Projects

Hospitals, Diagnostic Centers

Shipping

Deep Sea Fishing

Oil Exploration

Power

Courier Services

Housing and Real Estate Development

Highways, Bridges and Ports

Sick Industrial Units

Industries Requiring Compulsory Licensing

Industries Reserved for Small Scale Sectors.


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FDI up to 24% allowed: In manufacture of items reserved for small sector, however prior

government approval is required.

FDI up to 26% allowed:

FM- Broadcasting: FDI and FII investment upto 20% with prior government approval Up linking news and current affairs T.V channels. Defence Production: With prior government approval. Insurance: FDI AND FII under automatic route. Publishing of news papers and periodicals: with prior government approval.

FDI up tp 49% allowed: (with prior government approval)

Broadcasting: Setting up hardware facilities, Cable network, DTH direct to home (FDI

cannot exceed 20%)

Scheduled air transport services. Commodity exchange. Refining in case of PSUs . Asset reconstruction companies.

FDI up to 51% allowed:

Single Brand Product retailing subject to prior approval, this means FDI can come and setup its

brand but it requires 49% partner from the host countries.

FDI up to 74% allowed: (with prior government approval).

Establishments and operation of satellites.

Private Sector Banking. Telecommunications services Non scheduled air transport services.


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FDI seeks to fill the gaps in the technology managerial skills and entrepreneurism. It means the

technology, or product or services which the developed nations are enjoying can also be catered

to the developing nations, one can get the complete advantage of the resources available that

have alternative usage and spread all over the globe. Multinational Companies not only provides

the Resources (including financial resources) and new factories to poor countries but also supply

a Package of needed resources, including managerial skills, entrepreneurial abilities, and

technology skills that can be transferred to the local counterparts. Further more in order to

compete these giants domestic companies come up with several competitive products, that are

economical, also instead of exploiting consumers by dominating over them they start to

providing better and quick services, that could help them survive in front of the Global

companies companies.

Thus, FDI is allowed in above sectors in order to infuse technology and make maximum usage

of their giant power, which ultimately leads to the welfare of the end user as well as the

economy as whole.


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Chapter 4: FDI Restricted in several sectors and it s Reasons.

FDI has entry barriers/ prohibited in certain sectors, they are

FDI is prohibited under the Government Route as well as the Automatic Route in the followingsectors:

Retail Trading (except single brand product retailing)

ii) Atomic Energy

iii) Lottery Business

iv) Gambling and Betting

v) Business of Chit Fund

vi) Nidhi Company

vii) Agricultural (excluding Floriculture, Horticulture, Development of seeds, AnimalHusbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. under controlledconditions and services related to agro and allied sectors) and Plantations activities (otherthan Tea Plantations)

viii) Housing and Real Estate business (except development of townships, construction of residential/commercial premises, roads or bridges)

ix) Trading in Transferable Development Rights (TDRs).

x ) Manufacture of cigars , cheroots, cigarillos and cigarettes , of tobacco or of tobaccosubstitutes.

These sectors or we can say individual activities are not open for FDI because, they are been

carried by the countries individuals as their business or by the Government himself.

These sectors that are handled by the Government, are run to provide facilities to the

general Public at low cost, even if the sector is at loss. Now if these sectors are made allowed

for FDI then MNCs , then in order to earn profit they would charge more and all the middle

class will be the sufferers.


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In all the above Mentioned areas where FDI is allowed, in which consumer is involved directly,

say single Brand retailing. This was accepted because all the companies that entered, got the

goods and services only for the Luxurious class.

Initially they set up their products stores in hotels like TAJ, OBERIO etc. thus this did not

affected the poor class much, however it bought change for those people who could afford it.

Current issue is related to ALLOWING FDI IN RETAIL TRADING 100%. And there is a call

for mall which is huge , Giant , and Dynamic, which is successfully operating in 15 countries i.e.

WALMART.

Just back from first frenzied shopping experience in the UK, a four year old daughter asked to

her father, Why do we not have a Harrods in Delhi? Shopping there is so much fun! Simple

question for a four-year-old, but not so simple for her father to explain.

As per the current regulatory regime, retail trading (except under single-brand product retailing

FDI up to 51 per cent, under the Government route) is prohibited in India. Simply put, for a

company to be able to get foreign funding, products sold by it to the general public should only

be of a single - brand; this condition being in addition to a few other conditions to be adhered to.

That explains why we do not have a Harrods in Delhi. And this is one of the reasons why FDI

is required in retailing.

Defination of Retailing

In 2004, The High Court of Delhi Association of Traders of Maharashtra v. Union of India,

2005 (79) DRJ 426 Defined the term retail as a sale for final consumption in contrast to a

sale for further sale or processing (i.e. wholesale). A sale to the ultimate consumer.

Thus, retailing can be said to be the interface between the producer and the individual consumer

buying for personal consumption. This excludes direct interface between the manufacturer and

institutional buyers such as the government and other bulk customers Retailing is the last link


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that connects the individual consumer with the manufacturing and distribution chain. A retailer is

involved in the act of selling goods to the individual consumer at a margin of profit.

Question comes what will happen if FDI is allowed for 100% in this sector?

As we all know every coin has two sides, similarly every events or innovation that takes place

has good as well as bad aspects.

ARGUMENTS IN FAVOUR :

Consumers and Farmers are going to be at the priority on the list of highly Beneficial

parties if this decision is undertaken.

India will enjoy Global exposure in terms of all the retail brands Most importantly consumers will get value for money, especially in agricultural goods,

because WALMART has a strategy to buy directly from the farmers, keep it in cold

storage and sell them at lowest cost.

Since there will be no Middle man Farmers will be paid 10 more than they were been

paid earlier.

Also WALMART has strategy to attract those people who are not allowing it or notgiving it vote to enter. They say they will infuse the technology of ISRAEL in farming.

This technology and tactic helps to cultivate 5 times more from one piece/ part of land.

Furthermore, they say they will take charge of educating the farmers for the same, and

farmers will be given money for both cultivating as well as selling the products that are

grown.

If we talk about other products, WALMART purchases in BULK from all the

15countries in which it is operating. Thus consumers will have too many choices, valuefor money (VFM), A graded products, which will result into higher standard of living.

It will also Generate Employment opportunities, because WALMART may get its

managers in order to take strategic decisions but not the workers to work in the mall. For

that they have to generate employment wherever they set up their unit.


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Government says all the above phenomenon will decrease inflation to some extent and

also it is a right of a consumer to avail all the above benefits, and thus duty of the

government to provide the same.

Strategy is that WALMART is to be setup at 20 to 30 km away from the city area where

usually more retailers reside. So normal man will buy bulk stock of the month from

WALMART and other day to day requirements from the kirana stores. This is how

intrest of both will be Preserved.

ARGUMENTS AGAINST FDI:

The first argument is related to the threat of existence of the local retailers.

The retail industry is mainly divided into:-

1) Organised Retailing and

2) Unorganised Retailing.

Organised retailing refers to trading activities undertaken by licensed retailers, that is, those who

are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets

and retail chains, and also the privately owned large retail businesses.

Unorganised retailing, on the other hand, refers to the traditional formats of low-cost retailing,

for example, the local kirana shops, owner manned general stores, paan/beedi shops,

convenience stores, hand cart and pavement vendors, etc. In India 97% of the business being run

by the unorganized retailers. Thus argument is entailed that their existence will be in danger if

FDI is allowed.

Hence, another argument is kept forward that unemployment of these unorganizedretailers will take place. However this is not true those who are actually working hard are

not going to go anywhere , but yes those who are just having a shop and selling some

other brands are surely going to be in trouble. Because at the end of the day you have to

work hard in order to face competition.


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Example: In a shop, say a shop which keeps NIKE brand, a customer enters and ask

for the NIKE SHOES from the owner , the owner wil ask his employee the give the

same. Here what is the owner s job?

Did he created the Brand? Advertised it? Took efforts to invite the customer? The

answer to all the customers in NO!.

So for them unemployment will surely take place.

It is also said that since WALMART is a giant Elephant in long run it will start buying all

the natural resources event the retailers and create its own monopoly.

Because, they say initial strategy of these huge companies is to make loses by providing

all the goods at extremely low cost and then once it is set in the minds of the consumers

that low cost products will be available only by these giants, slowly and gradually they

start exploiting the customers. And at that time no one has any power to stop them.

Secondly, they feel instead of inviting them why not to spend money and get the

same out of the domestic retailers. One example that was sited was coldstorage!

Now this is not so easy, or feasible if government is ready to give 50% subsidy he

will definitely give and things may happen , but this subsidized amount will

have to be born my cutting the amount kept for other benefits, say from the

construction of roads, and it will also lead in more and more burden on the

government.

Thus if we are getting the same benefits without increasing burden on

government, and things are being outsourced, at low cost as well then why to

restrict the same?.


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There are certain set of rules which these companies have to consider, say for

example there is a rule that WALMART have to take nearly 30% of the stock

from these retailers.

But Argument is that these retailers want that the rule should be changed and

instead of 30% it should be between 40% to 50%.

Also in countries like Germany where WALMART is already there, they have

setup sister shops, or sister retailers from whom they buy the stock as mentioned

in the rules. So they creae Inside Tacit Agreement Thus in reality they buy

from their own clients only rather from the domestic retailers.

The above disadvantages have solutions as well. That is

DEMAND FOR FOCUS BY THE RETAILERS:

Focus in sense instead of selling already established brands, all the retailers should come

together create their own Brands.

Instead of competing internally all should come together, and work. So one must

compete in front of the FDI companies forming a group. This strategy is adopted in U>S

as well.

For example: The retailers have set up their own brand of PIZZA S that arehealthy and fat free, they have created their own niche segment instead of

competing with Dominos and Pizza hut.

One must create FRANCHISE of their own so that people can relate it as a huge Brand

altogether.

Conclusion

Thus instead of criticizing the event we must try to minimize the disadvantages of FDI and

Grab all the benefits, because at the end of the day if it is going to give benefits to the end

users , even retailers will be benefited .


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Fdi in Various Sectors