FDI in Retail; A revolutionary step by government

Manmohan Singh is going with new steps. He made some spectacular reforms in the country like freeing petrol prices, freeing fertilizer prices and India US Nuke Deal etc. The arrival of multinational retailers to the country will make tremendous changes in the Indian retail sector. It is an innovative step by the government to attract foreign funds to India. The government has also raised the limit of foreign investments in government and corporate bonds. The new reforms like deregulation of diesel prices and minimizing the LPG subsidy are coming. Another is the food security bill.  It will beneficial for the poor people. Some critics say that it will widen the fiscal deficit.

There are some other challenges that should be faced by the world class supermarkets like wall Mart, Carrefour and Tesco in India. The political parties ruling in the 28 cities are opposing these players. The major cities included in the list are Bangalore, Ahmadabad, Patna, Allahabad and Bhopal. According to the rule, the state governments can reject the application for license, if they are not satisfied. BJP gave a hint that that they will not permit it in their states. They are also planning for strike even in the congress ruling states. Nitish Kumar, Bihar Chief Minister is totally against these companies. There are also problems in Uttar Pradesh, Tamil Nadu and West Bengal.

The central government has raised FDI limit to 51% and 100% in the multi branded retailers and single branded retailers respectively. A $450 Billion retail market is opened for the world. The retail stocks like Pantaloon Retail, Vishal Retail, Koutons Retail, Shoppers Stop and Trent rallied after the announcement. The problem is that the individual state governments can rejects those companies. Even some state wings of Indian National Congress are opposing the matter. Kerala Pradesh Congress Committee has called for the Chief Minister to not allow foreign direct investment in Kerala retail market. What is the difference between multi brand and single brand retail stores?  Multi brand retail companies can sell a variety of products in different brand names. Wall Mart and Carrefour are the good examples for multi brand retail stores. Single brand retailers can sell products under one brand. Nike and Levis’ are good examples for single brand retail stores.

The Indian organized retail sector has only a market share of 5% to 10%. The government move was beneficial for the companies like Pantaloon Retail, koutons Retail and Shoppers Stop. Most of these companies are struggling with financial problems. If they get any strategic partner, it will be beneficial for them.

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