Fdi In Retail
This paper provides an in-depth analysis of the costs and benefits of opening up of retailing to FDI. It concludes that foreign investments would expedite the development of modern formats and create opportunities for future expansion of trade in distribution services. Entry of foreign players would not be an immediate threat to the existing players. On the other hand, growth of the organized sector would provide consumers with a wider choice of commodities and enable the growth of inter-linked services sectors such as tourism. Modern formats would lead to the development of supply networks and logistic services, thereby increasing the overall efficiency of the sector. It is often argued that the entry of foreign players would wipe out the existing domestic players and hence have a detrimental impact on employment. Government can regulate the operation of foreign investors through various policy measures such as foreign equity ceiling or restricting FDI to specific locations. The sole purpose of such restrictions should be to balance the mutually conflicting objectives of protecting the domestic players and facilitating the inflow of technical know-how, finance and skills.
It is recommended that India should actively participate in the GATS negotiations and offer to bind the existing regime for wholesale trading services, franchising and commission agents' services. An offer consistent with the existing policies would improve India's bargaining position during the negotiations. India should also offer to open up retailing services for foreign direct investment and initiate appropriate domestic reforms to support such commitments. During the negotiations, India should exert pressure on its trading partners for binding commitments in this services sector. Although India's current export possibilities in this sector are very limited, India has the potential of expanding trade (both exports and imports) in distribution services.
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