FDI

What

is

FDI?

Foreign Direct Investment is the investment which is done in productive assets and participation in the
management of the company as the stake holders by a company which is based in one country, into a
company based in another country. Recently the cabinet said OK for 51% FDI in multi-brand retail
sector & 100% FDI in single brand. Foreign Investment in India is governed by the FDI policy
announced by the Government of India and the provision of the Foreign Exchange Management Act
(FEMA) 1999. RBI also issues notifications which contains the Foreign Exchange Management
(Transfer or issue of security by a person resident outside India) Regulations, 2000 and had been
amended many times. The Ministry of Commerce and Industry, Government of India is the nodal
agency

for

motoring

and

reviewing

Ways

the

FDI

policy

on

continued

of

basis.

investment?

The investing company may make its overseas investment in a number of ways - Joint Ventures,
merger, Franchising, Sourcing of Supplies from small-scale sector, Cash and Carry whole sale
trading, Non-Store Formats, Strategic Licensing Agreements, either by setting up a subsidiary or
associate company in the foreign country, by acquiring shares of an overseas company.
The foreign retail chains will need to make very expensive real estate investments which may or may
not

Who

be

feasible

are

the

in

target

the

long

run.

group

for

FDI?

The people who prefer going to shopping malls instead of kirana shops constitute not a sizable
percentage and who belong to affluent, upper middle and middle class. As such there is no immediate
threat to the kirana shops or small venders, as they have their own share of customers with whom
they

share

Why

special

only

relationship.

India?

India has a population of nearly 1.2 billion, and many countries feel it as most alluring and thriving
retail destination. Liberalization of trade policy and loosening of barriers and restrictions to the foreign
investment in the retail sector of India, have made the FDI in retail sector quite easy and smooth.
India being a signatory to World Trade Organisations General Agreement on Trade in Services, which
include wholesale and retailing services, had to open up the retail trade sector to foreign investment.
In 1997, FDI in cash and carry (wholesale) with 100 percent ownership was allowed under the
Government approval route. It was brought under the automatic route in 2006. 51 percent investment
in a single brand retail outlet was also permitted in 2006. India being an open economy with skilled
workforces and good growth prospects tend to attract larger amounts of foreign direct investment
among

other

Advantages of FDI:

growing

and

emerging

markets.

FDI in Retail Sector

What

is

Retail

sector?

In 2004, The High Court of Delhi defined the term retail as a sale for final consumption in contrast to
a sale for further sale or processing (i.e. wholesale). The Retail Industry is the sector of economy
which is consisted 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. A retailer is involved in the act of selling
goods to the individual consumer at a margin of profit. Thus, retailing can be said to be the interface
between

the

producer

and

the

individual

consumer

buying

for

personal

consumption.

According to the Investment Commission of India, the retail sector is expected to grow almost three
times its current levels of $250 billion to $660 billion by 2015. The Indian Retail Industry is the 5th
largest retail destination and the second most attractive market for investment in the globe after
Vietnam as reported by AT Kearneys seventh annual Globe Retail Development Index (GRDI), in
2008 Retail sector contributes to maximum percentage of employment after agriculture. In spite of the
recent developments retail sector is assumed to possess huge growth potential. The retail industry is
mainly

1)
2)

divided

into:-

Organised

and

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. In India 97% of the business is done by
organized

sector.

Unorganised retailing - 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

What

vendors,

is

FDI

in

etc.

Multiple

brand

retail?

Multiple brand retail means selling the same product under different brand names. FDI in multi-brand
retailing should be carefully monitored as there are chances that if left alone it can directly impact a
large percentage of population and would ultimately deepen the gap between the rich and the poor.
So in order to ensure development, it can be stipulated that a percentage of FDI should be spent
towards building up of back end infrastructure, logistics or agro processing units, and reconstituting
the poverty stricken and stagnating rural structure with at least 50% of the jobs in the retail outlet
should

be

reserved

for

rural

youth.

India and the Global Financial Crisis What Have We Learnt?

K.R. Narayanan Oration by Dr. Duvvuri Subbarao, Governor, Reserve Bank of

India at the South Asia Research Centre of the Australian National University,
Canberra on June 23, 2011
By all accounts the 2008/09 crisis has been the deepest financial crisis of our times. It has taken a
devastating toll on global output and welfare. Arguably, the fundamental causes of all financial crises
are the same - global imbalances, loose monetary policy and high levels of leverage driven by
irrational

exuberance.

In

that

respect,

this

crisis

has

been

no

different.

5. Where this crisis has been different, however, is in its manifestation. Most recent crises had
occurred in individual emerging economies or regions, and they were, at their core, traditional retail
banking or currency crises. The countries in trouble could be rescued by multilateral interventions;
besides, the advanced countries provided a buffer for trade and financial support. In contrast, this
crisis originated in the most advanced economy, the United States, and hit at the very core of the
global financial system. With virtually no buffers to fall back on, the crisis rapidly engulfed the whole
world. Much to their dismay, emerging market economies too were soon pulled into the whirlpool.

How

was

India

hit

by

the

Crisis?

India was no exception. We too were affected by the crisis. Output growth that averaged 9.5 per cent
per annum during the three year period 2005/08 dropped to 6.8 per cent in the crisis year of 2008/09.
Exports that grew at 25 per cent during 2005/08 decelerated to 12.2 per cent in the crisis year
(2008/09) and declined by 2.2 per cent in 2009/10. In the pre-crisis years, we had capital flows far in
excess of our current account deficit. In contrast, during the crisis year, net capital flows were
significantly short of the current account deficit and this put downward pressure on the rupee. The
exchange rate depreciated from ` 39.37 per dollar in January 2008 to ` 51.23 per dollar in March
2009.

Notwithstanding our sound banking system and relatively robust financial markets, India felt the
tremors of the tectonic shocks in the global financial system. The first round effects came through the
finance channel by way of sudden stop and then reversal of capital flows consequent upon the global
deleveraging process. This jolted our foreign exchange markets as well as our equity markets. Almost
simultaneously, our credit markets came under pressure as corporates, finding that their external
sources of funding had dried up, turned to domestic bank and non-bank sources for credit.

By far the most contagious route for crisis transmission was the confidence channel. For weeks after
the Lehman collapse in mid-September 2008, everyday there was news of yet another storied
institution crashing. In this global scenario of uncertainty, the lack of confidence in advanced country
markets transmitted as hiccups to our markets too. The net result was that all our financial markets equity, debt, money and foreign exchange markets - came under varying degrees of pressure. Finally,
the transmission of the crisis through the real channel was quite straightforward as the global

Changing Inflation Dynamics in India

Speech by Deepak Mohanty, Executive Director, Reserve Bank of India, delivered

at the Motilal Nehru National Institute of Technology (MNNIT), Allahabad on 13th
August 2011
The headline wholesale price index (WPI) inflation averaged 9.6 per cent in 2010-11 as compared
with 5.3 per cent per annum in the previous decade. Similarly, the average consumer price inflation,
measured by the consumer price index for industrial workers (CPI-IW), was even higher at 10.5 per
cent in 2010-11 as compared with 5.9 per cent per annum in the previous decade. Moreover, this
elevated level of inflation also persisted through the first quarter of 2011-12. In response to inflationary
pressures, the Reserve Bank has raised the policy repo rate 11 times bringing it up from a low of 4.75
per cent in March 2010 to 8.00 per cent by July 2011. It is expected that inflation should come down
towards

the

later

part

of

this

year.

Why has inflation been so high and persisted for so long? This is the theme of my talk today. In my
presentation, I propose to address the following questions: Is India an outlier among major countries
in terms of recent inflation performance? Has the inflation process changed? What are the causal
factors global and domestic as well as supply and demand? I will conclude with some thoughts on
managing

Is

India

the

an

inflation

outlier

in

dynamics

the

inflation

on

the

performance

among

way

forward.

major

countries?

It is important to appreciate the global backdrop in which we are experiencing a resurgence of inflation
now. In the last decade, inflation was low, both in advanced countries as well as in emerging and
developing economies till the global financial crisis unfolded. Consequently, global economy got into a
recession and global output declined by 0.5 per cent in 2009. However, global output growth
rebounded

to

5.0

per

cent

in

2010.

As the global economy recovered from the worst effect of the global financial crisis, inflation picked up
in emerging and developing economies. This was because the global recovery was largely driven by
emerging market economies (EMEs) what was termed as a two-speed recovery a faster growth in
EMEs accompanied by a slower growth in advanced economies. As output gaps closed, there was
increasing inflationary pressure in EMEs, particularly in Asia. According to the International Monetary
Fund (IMF), consumer price inflation in developing Asia almost doubled from 3.1 per cent in 2009 to
6.0 per cent in 2010 and is projected to be around the same level in 2011. Latest data suggest that
inflation

in

rapidly

growing

BRICS

remains

elevated.

Transnational Gas Pipelines

1.

Natural

Gas

the

Clean

Fuel

of

21st

Century:

Natural gas is a clean fuel and would be increasingly used in the 21st century. Gas is a mainly used in
the

power

2.

sector

but

Natural

is

also

Gas

used

in

Key

refining,

to

industry

and

India|s

domestic

consumption.

Economic

Growth:

India does not have the gas reserves to match its growing needs. India imports 67 million cubic
metres of gas per day as part of its requirement of 150 million cubic metres (mcm) of gas per day. By
2020 India|s demand for gas could go up to 400 mcm per day. Thus, an assured supply of gas will be
the

key

India|s

3.

economic

growth

of

Transnational

8-9

per

Gas

cent.

Pipelines:

The Soviet Union constructed the first transnational gas pipelines in the 1970s to supply natural gas to
West Germany and other parts of Western Europe. Currently Russia meets 30 per cent of Europe|s
gas requirements. Currently over 100 gas pipeline projects valued at $100 billion are being
implemented

4.

across

Main

Sources

of

the

Natural

Gas

globe.

are

in

Asia:

Analysts point out that the main sources of natural gas are in Asia. Russia|s Asian area has 27 per
cent of the world|s proven reserves, with Iran (15 per cent) and Qatar (14 per cent) following. Over 70
per cent of the world|s reserves of natural gas are found in northern Central Asia and the Gulf.

5. Transnational Gas Pipelines to Increase in Asia with Increase in Demand for Gas:
The transnational gas pipelines across Asia are set to multiply with an increase in gas demand over
the next few years. Thus, as the energy requirements of Asia increase, the transnational gas pipelines
will

6.

A.Gas

play

an

increasingly

Advantages

Pipeline

important

role

in

of

the

meeting

Gas

Cheapest

Mode

these

demands.

Pipelines:

of

Transportation:

There are three ways of transporting gas - by ships as Liquefied Natural Gas (LNG); through deepsea pipeline; or by gas pipelines on land. Analysts point out that world over, gas pipeline
transportation is the preferred mode for gas conveyance as it is the cheapest and does not entail any
loss

B.India

of

Should

energy

Make

Gas

in

Strategic

conversion.

Determinant:

Analysts point out that of the total global energy consumption in world, gas accounts for 30%. Gas will
be a key commodity in the overall context of India|s national security calculus. Gas is an eco-friendly