Fdi Inindia Ananalysis on Theimpact of Fdi in Indias Retail Sector-

FDI in India An depth psychology on the electric shock of FDI in Indias sell orbit Submitted By Subhajit Ray plane section of humanistic discipline and friendly Sciences IIT Kharagpur Kharagpur-721302 1 Introduction initially the Indian insurance make conceptualisers were quite perceptive ab egress the f measly of unconnected dandy into the miserliness. This flush toilet be attri b arlyed to the colonial prehistorical which saw round enthronisations being do by their colonial rulers in the give of major(ip) infra bodily structure instruments compar commensu place railways and only to make ample reachs for themselves and sucking the multitude untaught of its visions. and mensesly the globose providence has been witnessing an incessant manakin of sparing app completion duration char coiffureerized by the f start of large(p) from the demonstrable world to the development countries. During the mid-nineties extraneous Direct coronation (FDI) became the hit largest address of external finance for the ontogeny countries. When faced with an frugal crisis during the same power point the Indian form _or_ system of presidency makers had to open up the Indian market and pactingly India has been eyesight a consistent addition in FDI inflows.Indian economy has been showing upliftedschool ontogenesis lay protrudes in the post libearned run averagelization era. In the last fiscal form according to the formulation commissions data the Indian economy put down a show up pinkation rank of 8. 6% and 8% in the year originally. This is mind enough to call it a mellow performing economy. All Multi National Enterprises (MNEs) switch been eyeing the Indian market ever since they necessitate opened up. The constitution makers shake been smartly pursuing the restores program as they count that high-pitched product has been the resultant of economicalalal loosening.FDI has been seen as a dominant determinative to achieve high drift of economic branch because of the ease with which it contri besidese lease in scarce chief city, triggers applied science beam and kindles the strength by increasing the fighting of the market. Also FDI as a form of insurance instrument to raise enceinte is usually preferred everyplace an other(a)(prenominal) forms of external finance because they are non-debt creating, non-volatile and their returns work come in on the performance of the projects financed by the investors.FDI is triple-crown in human with child(p) fundamental law, increases fare factor productiveness and efficiency of re ancestry use. But much(prenominal) benefits are passing dependent on the policies of the host politics. It is further more described as a ascendent of economic development, modal valuernization, and role generation. Several factors some(prenominal)(prenominal) political and apolitical have cut to a greater acceptance of FDI. The visualise portion out of FDI has evolved from that of a tool to straighten out the crisis under the license raj system to that of a modernizing force of the Indian economy.In aver of their enterprisingness the indemnity makers have often cited the employment of the Chinese have it off of achieving high result commit by with(predicate) outside(prenominal) implore investing funds. India has opened up its economy and allowed MNEs in the core celestial spheres such as author and Fuels, Electrical Equipments, Transport, Chemicals, Food Processing, 2 Metallurgical, Drugs and Pharmaceuticals, Textiles, and industrial Machinery as a part of crystalize subprogram started in the beginning of 1990s. shortly FDI is as well as permissible in the telecommunicationmunications, Banking, indemnity and IT celestial sphere. Currently at that place is huge count going on some allowing FDI in sell.This paper aims to discuss the critical aspects of FDI in India, present a in shimmy theatre o f mathematical processs on the triumph of reforms in the telecommunications arena, probe both sides of the motives currently going on regarding FDI in sell and conclude with indicative legal communitys on the part of the regime which provoke eliminate the negative personal effectuate of allowing FDI in Indias sell vault of heaven. Assessing the impact of FDI on host economy- a re forecast of respective(a) economic literatures FDI inflow into the core firmaments is untrue to play a vital comp wiznt as a source of bully vigilance and engineering science in countries of passing economies.It implies that FDI commode have ordained effects on a host economys development effort (Caves, 1974 Kokko, 1994 Markusen, 1995 Carves, 1996 Sahoo, Mathiyazhagan and Parida 2001). It has been argued that FDI can bring the technical dissemination to the empyreans done knowledge spillover and levys a faster rate of maturement of output via change order of magnitude prod produ ctivity. There have been a surge of empirical studies to assess the impact of FDI in developing economies and the results to this date have been build to be mixed.Mevery reports have questioned the positive effects of the FDI inflow in the host demesne. whatever studies done earlier had found that FDI has a negative impact on the fruit of the developing countries (Singer,1950 Griffin, 1970 Weisskof, 1972). Multinational Enterprises (MNEs) in the pretend of FDI may drive out the topical anesthetic firms because of their oligopolistic power, and bid unused(p), the repatriation of profit may drain out the large(p) of the host country. The main(prenominal) argument in this regard was that the main subdivision of FDI in less developing countries was in the primary arena.Then these primary products were exportinged to the developed nations and bear upon for importee back to the developing nations and thusly resulted in the host nations receiving a lesser value for their resources. Hanson (2001) argues that present that FDI generates positive spillovers for host countries is weak. In a re spot of little data on spillovers from distant- possess to home(prenominal)ally owned firms Gorg and Greenwood (2002) conclude that the effects are broadly negative. Lipsey (2002) takes a more soci open view from reviewing the micro literature which argues that thither is evidence of positive effect.He withal argues that there is fatality for more consideration of the assorted constituent that obstruct or nurture positive spillovers. Rodan (1961), Chenery and Strout (1966) in the early 1960s argued that abroad outstanding inflows have a favorable effect on the economic efficiency and yield towards the developing countries. It has been explained that FDI could have a favorable short-term effect on growth as it dins the economic activity. However, in the long net incomer it reduces the growth rate payable to dependency, particularly ascribable to decapitalization (Bornschier, 1980).This is imputable to the reason that the hostile investors repatriate their investment by contracting the economic activities in the long run. FDI is an serious vehicle for the 3 transfer of engineering and knowledge and it demonstrates that it can have a long run effect on growth by generating increasing return in exertion via positive externalities and productive spillovers. Thus, FDI can track to a higher(prenominal)(prenominal) growth by incorporating unused inputs and techniques (Feenstra and Markusen, 1994). Aitken, et al. 1997) showed the external effect of FDI on export with example of Bangladesh, where the entry of a single Korean Multinational in garment exports led to the open upment of a number of house servant export firms, creating the countrys largest export effort. Hu and Khan (1997) designate the spectacular growth rate of Chinese economy during 1952 to 1994 to the productivity gains largely due to market oriented reform s, especially the intricacy of the non-state sector, as well as chinas open- limen insurance, which brought slightly a outstanding expansion in contrary betray and FDI.A choose by Xu (2000) found a strong evidence of technology dissemination from U. S. MNEs affiliated in developed countries (DCs) but weak evidence of such diffusion in the less developed countries (LDCs). It cogitate that in order to benefit from the technology transfer by the MNEs a country commands to achieve a staple fibre minimum human capital threshold. A repenny bailiwick by Banga (2005) demonstrates that FDI, duty and technological progress have derivative instrument impact on wages and employment.While higher extent of FDI in an perseverance leads to higher wage rate in the pains, it has no impact on its employment. On the other hand, higher export intensity of an constancy increases employment in the industry but has no effect on its wage rate. Technological progress is found to be labor sav ing but does non influence the wage rate. Further, the results show that home(prenominal)ated innovation in toll of look for and development intensity has been labor utilizing in nature but import of technology has unfavorably affected employment in India.The study by Sharma (2000) concluded that FDI does non have a statistically portentous role in the export advancement in Indian Economy. This result is overly confirmed by the study of Pailwar (2001) and the study besides argues that the distant firms are more interested in the large Indian market preferably than aiming for the world(a) market. The study by Sahoo and Mathiyazhagan (2003) in any case support the view that FDI in India is not able to enhance the growth of the economy.Though there is a earthy consensus among all the studies in the Indian consideration that FDI is not growth stimulant rather it is growth resultant. A study by Dr Maathai K. Mathiyazhagan(2005) demonstrate that the flow of FDI into the se ctors has servicinged to raise the output, labor movement productivity and export in slightly sectors but a better role of FDI at the sectoral level is s cashbox expected. Results to a fault reveal that there is no earthshaking co-integrating relationship among the variables like FDI, Growth rate of output, Export and Labour Productivity in core sectors of the economy.This implies that when there is an increase in the output, export or dig up productivity of the sectors it is not due to the advent of FDI. Thus, it could be concluded that the advent of FDI has not helped to do a positive impact on the Indian economy at the sectoral level. Thus, in the eve of Indias plan for further realizableness up of the economy, it is advisable to open up the export oriented sectors so that a higher growth of the economy could be achieved through the growth of these sectors. 4 unknown Direct Investment policy of India conflicting restrain investment policy of the governing of India has been gradually liberalized. As early as in the year 1948 and 1956 (deuce industrial policy resolutions) giving medication policy clearly reflected the need to supplement outside(prenominal) capital and technology for rapid economic growth. The core object of the impertinent capital policy was that the dominance of industrial undertaking should remain in the Indian hands. However, the brass had granted permit in certain cases for allowing establishment of scoopful foreign enterprises.Foreign capital was preferred in specific areas which bring in virgin technology and establish joint ventures with Indian partners. Government also granted levy concessions to foreign enterprises and streamlined industrial licensing procedures to accord early applauses for foreign collaborations. In the case of coke per cent export of output, foreigners were allowed to establish industrial units. It needs to be historied here that under the Foreign transform Regulation Act (FERA) 1974 only u pto 40 per cent of the equity holding of the foreign firms were permitted.Foreign investment was permitted under designated industries along with re nonindulgentions in ground of topical anaesthetic content clauses, export obligations, promotion of R and prohibition by law the use of foreign brands (Hybrid domestic brands were promoted such as Ford experience and Hero Honda). It needs to be pointed out here that the restrictions have been flouted frequently and relaxations were also granted. This process has culminated into gradual liberalization of government policy towards foreign capital.It is reflected in continuous increase in the number of approvals granted. During the conclusion 19611971, the number of foreign collaborations approved was 2475 which were change magnitude to 3041 during the point in condemnation 1971-1980. There was dramatic increase in the foreign collaboration approvals during the design 1981-1990 (7436 collaborations were approved). This policy enabl ed to build domestic technological capability in many branches of industry but generally considered very limiting.It has been wide accepted that fosterion of domestic industry for a longer period of time resulted into high cost production structure along with poor calibre. Foreign direct investment policy announced by the government of India in July 1991 was regarded as a dramatic departure from the earlier restrictive and discretionary policy towards foreign capital. The FDI policy of 1991 proposed to achieve objective of efficient and belligerent world class Indian industry. Foreign investment was seen as a source of scarce resource, technology and managerial and market skills.The major feature of policy regarding foreign investment up to 51 per cent of equity holding was permitted too. Automatic approvals were also allowed to foreign investment up to 51 per cent equity in 34 industries as well as to foreign technology agreements in high 5 priority industries. The Foreign Inve stment packaging Board (FIPB) was set up to promptly process applications for approvals of the cases which were not covered under the automatic channel. Laws were amended to provide foreign firms the equivalent status as the domestic ones.Government of India, however, put in place the regulatory mechanism to repatriate payments of dividends through concur Bank of India so that outflows are balance through export earnings during stipulated period of time. Further liberalization measures with regard to foreign investment were taken during 1992-93. The dividend balance conditions were revoked only in the case of consumer darlings industries. Non Resident Indian (NRI) and Overseas Corporate Bodies (OCB) were permitted in high priority industries to invest up to nose candy per cent equity along with repatriation of capital and income.Apart from expansion of the area of operation for FDI in many red-hot economic activities, the actual companies were also allowed to increase equi ty partnership up to 51 per cent along with disinvestment of equity. Foreign direct investment policy has been changed frequently since 1991 to make it more plain and attractive to the foreign investors. FDI up to 100 per cent is allowed under automatic route for all sectors/activities except activities that attract industrial licensing, proposals where foreign investors had an xisting joint venture in same field, proposals for acquisition of shares in an lively Indian company in the pecuniary sector and those activities where automatic route is not available. The only sectors/activities where FDI is not permitted are culture and plantations excluding tea plantations, real estate descent (excluding development of townships, housing, built up bag and construction development projects-NRI/OCB investment is allowed for the real estate demarcation), sell swop, lottery, auspices operate and atomic energy.Government has simplified procedure, rules and regulations on a regular basis since 1991 to make Indian economic surroundings foreign investor friendly. strive has been make through FDI policy to make India the hub of world(prenominal) foreign direct investment as well as in economic activities. Trend and Dimension of FDI inflow in India The dimensions of the FDI flows into India could be explained in terms of its growth and size, sources and sectoral compositions. The growth of FDI inflows in India was not significant until 1991 due to the regulatory policy framework.It could be observed that there has been a steady build up in the actual FDI inflows in the post-liberalization period ( physiques 1. 1 and 1. 2). Actual inflows have steadily change magnitude from US $ 143. 6 million in 1991 to US $ 37763 million in 2010. This results in an annual average growth rate close to 6 per cent. However, the pace of FDI inflows to India has in spades been slower than some of the low-pitcheder developing countries like Indonesia, Thailand, Malaysia and Vietna m.In fact, India had registered a declining trend of FDI inflows and the FDI- gross domestic product ratio especially in 1998 and 2003 could be attributed to many factors, including the US sanctions imposed in the aftermath of the nuclear tests, the East Asian meltdown and the perceived Swadeshi image different political parties, which was 6 ruling government during this period in India. It is also important to note that the financial collaboration has out numbered the technical collaboration over the years. But since 2006 India has seen a remarkably higher growth of FDI in accordance with the general trends of the global conomy with a slight dip in the year 2009-2010. This can be attributed to the recessive blot in the global economy. In recent years, Indias share in the global FDI inflows has increased substantially. grade wise FDI inflow in the post reforms era (1990-2001) 1999-2000 2439 1998-1999 1997-1998 1996-1997 FDI 1995-1996 1994-1995 1993-1994 1992-1993 0 1000 2000 3000 4000 US $ MILLIONS Figure 1. 1 Year 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 FDI 393 654 1374 2141 2770 3682 3083 2439 7 However, china receives a greater percent of global FDI inflows.Indias effort have not yet realized in proportion to the changes which has been make in the FDI policy. Year wise revised FDI inflow since 2000-2001 with expended coverage to glide slope International Best Practices. 2009-2010 2008-2009 2007-2008 2006-2007 2005-2006 FDI 2004-2005 2003-2004 2002-2003 2001-2002 2000-2001 0 myriad 20000 30000 40000 US $ MILLIONS Table 1. 2 Year 200001 200102 200203 200304 200405 200506 200607 200708 200809 200910 FDI 4029 6130 5035 4322 6051 8961 22826 34835 37838 37763 Capital goods sector has more or less been bypassed by FDI.This clearly points out the angle of inclination of foreign investment to exploit the pent up domestic demand 8 for consumer durable goods. Further more, there is a gradual increase in the mergers and acquisitions durin g the 1990s which show a tendency of FDI inflows to acquire existing industrial assets and managerial control without actually engaging in new productive activities (Nagraj, 2006). Indias large size of domestic market seems to have been the major attraction for foreign firms. luck OF TOP INVESTING COUNTRIES FDI EQUITY INFLOWS Others France Germany Cyprus nation Japan Netherlands U. K U. S. A. Singapore Mauritius 0 10 2 2 4 4 9 % 4 5 7 9 42 20 30 40 50 %age to total Inflows (in terms of US $) The analyses of the arising of FDI inflows to India show that the new policy has broadened the source of FDI into India. There were 86 countries in 2000 which increased to 106 countries in 2003 as compared to 29 countries in 1991 whose FDI was approved by the Indian Government. The country-wise analysis of the FDI inflows shows that Mauritius, which was not in the picture coin bank 1992, is the highest contributor of FDI to India. A major share of such investment is represented by the holdin g companies of Mauritius set up by the US firms.It means that the investment catamenia from the tax revenue havens is mainly the investment of the international corporations headquartered in other countries. Now an 9 important question arises as to why the US companies have routed their investment through Mauritius. It is because, firstly, the US companies have positioned their funds in Mauritius, which they like to invest elsewhere. Secondly, because the tax agreement between Mauritius and India stipulates a dividend tax of 5 per cent, while the treaty between Indian and the US stipulated a dividend tax of 15 per cent (World Bank, 1999). telecommunications Sector- A success tarradiddle Further narrowing of FDI in sub-sectors reveals the success story of the telecommunications sector. Research into Telecommunications furthers the haphazard nature of FDI investment and policy making. The current process for FDI in telecommunications can be attributed to two policies that were undertaken by the government National Telecom insurance policy of 1994 and peeled Telecom Policy of 1999. Before the economic reforms teledensity was low, pedestal growth was slow, and the lose of reforms restricted investments and betrothal of new technologies.The existing legislative and regulatory environment needed major changes to facilitate growth in the sector. It was 1991 when the platform was undertaken to expand and fire Indias vast telecom network. The programme take ond complete freedom of telecom equipment manufacturing, privatisation of values, liberal foreign investment and new regulation in technology imports. Simultaneously, the government-managed Department of Telecommunications (DoT) was restructured to remove its monopoly status as the service provider.The government programme was formalised on a telecom policy pedagogy called National Telecom Policy 1994 on 12 May 1994. However the 1994 policy was not sufficient to make the Indias telecommunications se ctor fully open and liberalised. The officer monopoly (DoT) was indifferent in implementing the national telecom policy effectively due to its lack of commitment. This paved the way for designing a new policy framework for telecommunications which was called the New Telecom Policy 1999. The New Telecom Policy 1999 (NTP99) was developed after the reform process began in 1991.The interest of the government led to the new policy. As a result in addition to the sectoral caps, the government policy played a major role in the liberalization of the telecom sector. As a result a large number of private operators started operate in the basic/mobile telephony and profit domains. Teledensity has increased, mobile telephony has naturalised a large base, the number of Internet users has seen a steep growth, and large bandwidth has been made available for software exports and IT-enabled go, and the tariffs for international and domestic links have seen significant reductions.Total FDI in Tel ecommunications sector is over US $ 15 billion. The takeover of Hutch by Vodafone is one of the largest FDI parcel outs for an amount of US $ 11 billion. state 10 rates are the last in the whole world and there are more than 250 million users. The sell sector in India The retail industry in India is one of the fastest growing. crimson without FDI driving it, the corporate owned retail sector is expanding at a boisterous rate. AT Kearney, the well-known international management consultancy, recently identified India as the uphold most attractive retail culture globally from among thirty emergent markets.It has made India the cause of a good deal of excitement and the cynosure of many foreign eyes. With a component part of 14% to the national gross domestic product and employing 7% of the total workforce (only gardening employs more) in the country, the retail industry is by all odds one of the pillars of the Indian economy. . Trade or retailing is the single largest comp onent of the services sector in terms of contribution to GDP. Its massive share of 14% is simulacrum the figure of the next largest broad economic activity in the sector.The retail industry is divided into organised and unorganised sectors. organised retailing refers to trading activities undertaken by licence retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail compasss, 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 topical anaesthetic kirana shops, owner manned general stores, paan/beedi shops, wash room stores, hand cart and pavement vendors, etc.A saucer-eyed glance at the employment amount is enough to paint a good picture of the relative sizes of these two forms of trade in India organised trade employs roughly 5 lakh people whereas the nonunionized retail trade em ploys intimately 3. 95 crores. Given the recent numbers indicated by other studies, this is only indicative of the magnitude of expansion the retail trade is experiencing, both due to economic expansion as well as the rompless growth that we have seen in the past decade.It moldiness be noted that even within the organised sector, the number of privately-owned retail outlets far outnumber the corporate-backed institutions. Though these numbers register to approximately 8% of the workforce in the country (half the regular share in developed countries) there are far more retailers in India than other countries in absolute numbers, because of the demographic profile and the preponderance of youth, Indias workforce is proportionately ofttimes larger. That about 4% of Indias state is in the retail trade says a lot about how vital this business is to the socio-economic equilibrium in India. 1 Arguments against adoption of FDI in Indias Retail sector FDI compulsive modern retaili ng is repulse displacing to the extent that it can only expand by destroying the traditional retail sector. trough such time we are in a position to get to jobs on a large plateful in manufacturing, it would make eminent sense that any policy that results in the elimination of jobs in the unorganised retail sector should be kept on hold. Studies suggest that about 5 crore jobs bequeath be broken and only 20 lakhs new jobs bequeath be created.With their incredibly high capital FDI driven retailing units such as Wal-Mart allow be able to draw losses for many years till its immediate competition is wiped out. This is a normal predatory strategy used by large impostors to drive out low-down and dispersed competition. This entails job losses by the millions. Even the organised retail sector may face serious problems and may eventually be wiped out. The FDI driven retail units will typically sell everything, from vegetables to the latest electronic gadgets, at extremely low w orths that will most in all likelihood cold shoulder those in approachby local stores sell standardized goods.They would be more plausibly to source their raw materials from abroad, and procure goods like vegetables and fruits directly from farmers at pre-ordained quantities and specifications. This means a foreign company will debase big from India and abroad and be able to sell low severely undercutting the small retailers. Once a monopoly situation is created this will then turn into buying low and selling high. Such re-orientation of sourcing of materials will totally disintegrate the already established bestow chain.In time, the neighbouring traditional outlets are also likely to fold and perish, given the predatory set power that a foreign player is able to exert. As Nick Robbins wrote in the context of the East India Company, By tyrannical both ends of the chain, the company could buy low-priced and sell dear It is true that it is in the consumers best interest to develop his goods and services at the lowest possible price. But this is a privilege for the idiosyncratic consumer and it cannot, in any circumstance, override the responsibility of any society to provide economic security for its population.Clearly collective well-being essential take precedence over individual benefits. The primary task of government in India is still to provide livelihoods and not create so called efficiencies of scale by creating redundancies. 12 Arguments in favour of adoption of FDI in Indias Retail sector The main driver for adoption of Retail in India seems to be the recognition that the Indian economy faces serious supply-side constraints, particularly in the food-related retail chains. The government would like to rectify back-end infrastructure, and in conclusion reduce post-harvest losses and other wastage.There is also a general concern, highlighted by the assiduity of food inflation, that intermediaries obtain a disproportionate share of value in this chain and farmers receive only 15% of the end consumer price. Now the farmers will be able to get a better price for their products. With easy credit availability through foreign direct investment the situation of farmer suicides in India will improve. With foreign capital flowing into the economy the current inflationary situation will be tamed.One key point is that we must narrow down between the interests of consumers, who constitute our population of nearly 115 crore, from the interests of retailers, who may number near five crore. The larger supermarkets, which tend to obtain regional and national chains, can manage prices more aggressively with manufacturers of consumer goods and pass on the benefit to consumers. Undoubtedly, lower prices psychologically egg on buyers to spend more than they otherwise would. The resulting growth in private consumption creates jobs. The tax collection of the government will improve as it is mpossible to tax the unorganised retail se ctor. The revenue collected by the government can be used for infrastructure development. Also India has had several retailers with deep pockets and portal to skills. That they have not been able to glut the domestic small retailer says something about consumer behaviour and small retails resilience. The argument that the advent of FDI and supermarkets will ignore a large number of kirana shops is similar to the argument used during the era of industrial licensing, which was meant to protect small-scale industries.But eventually the inefficiencies and bore standards of the protected small-scale companies decease unornamented even to socialist politicians and licensing was abolished. Even a modest chain of 200 supermarkets, to be set up all over India in selected towns and cities in the next lead years, will require an investment of about Rs 2,000 crore (Rs 20 billion), at the rate of Rs 10 crore (Rs 100 million) per supermarket to cover the infrastructure and working capital. Each supermarket may take 2 or 3 years before it becomes profitable.There is a risk that a a few(prenominal) of them may even fail. No Indian entrepreneur will be willing and able to commit this level of investment and undertake the risks involved. That is where the 13 international experience and skills that may come with FDI would provide the trustfulness and capital. Apart from this, by allowing FDI in retail trade, India will become more unified with regional and global economies in terms of quality standards and consumer expectations. Supermarkets could source several consumer goods from India for wider international markets.India certainly has an advantage of being able to produce several categories of consumer goods, viz. fruits and vegetables, beverages, textiles and garments, gems and jewellery, and leather goods. The advent of FDI in retail sector is bound to pull up the quality standards and cost private-enterprise(a)ness of Indian producers in all these segments. Th at will benefit not only the Indian consumer but also open the door for Indian products to enter the wider global market. implicative measures to eliminate the negative effects of FDI in IndiasRetail sector FDI in the retail sector should be attended by policy formulations that encourage the growth of manufacturing sector in India. A growing manufacturing sector can accommodate the people who will decompress their jobs due to the adoption of retail in India. FDI should be aggressively promoted in case of relatively less sensitive sectors like entertainment, R etc. Moreover import duty should be imposed to protect domestic production units. Strict labour laws should be imposed to ensure that no management jobs are outsourced.The government should also ensure the local population gets competitive wages and the working environment is proper. Jobs should be reserved for the poor people. If the language of operation is English then it will act as a hindrance for job creation for the und erprivileged people. Hence Hindoo and local languages as a mode of operation should be encouraged. Cooperative societies should be formed for the farmers and other agricultural suppliers to take care of their rights and to ensure that they are get a fair price from the FDI driven big retail units.Strict corporate boldness should be ensured to prevent the acquisition of local business units by foreign firms and to promote investor friendly trade practices. The foreign retail units should be made to divest a certain percentage of their equity in the Indian financial markets. Only strict governance can ensure that the foreign firms adhere to competitive trade practices. Social infrastructure like schools, colleges and hospitals should be developed to promote human capital formation as several studies suggest that such initiatives could enhance the spillover effects of FDI.Furthermore it will help in creating 14 jobs in the high technology sectors and will put India in the global tec hnology scenario. Social security should be ensured through different policy measures like pension plans, employment underwrite programmes and free health care. Strict environmental laws should be enforced to ensure that the foreign firms do not indulge in unsustainable trade practices. Conclusion The growth rate of the Indian economy has been very high in the post reforms era.And hence India has become the cynosure of investment by foreign multinational enterprises. The relationship between FDI and other macro instruction economic variables like growth rate, export, employment and productivity has been found to vary. It has been found that to gain a positive impact of technology spillovers via FDI the host country should achieve a basic minimum human capital threshold. Studies exist both in support and against the positive impact of FDI in the Indian economy. It is self conclusive that the growth of FDI in India is growth resultant and not growth stimulant.The positive impact of FDI has been felt in the high technology sectors like telecommunication and IT. The success story of the telecom sector is a real confidence hotshot in this regard. It is clearly visible that the MNEs are more interested in exploiting the Indian markets rather than investing in capital goods. The retail sector is one of the fastest growing sectors of India. It also employs a huge proportion of the population. Hence any measure regarding this sector such as approval of FDI in the Indian retail sector will have a considerable impact on Indian economy.FDI in the Indian retail sector will work wonders in terms of haughty inflation, creating new jobs and increasing the efficiency and productivity of the Indian economy. But many believe that it may lead to wide scale unemployment, drainage of capital from the Indian economy and social inequity. Hence FDI in Indias retail sector should be accompanied by stringent policy measures on the part of the government so that the majority of the population can benefit from the positive spillover effects of FDI.Government should encourage FDI in the manufacturing sector along with the retail sector to settle with for the loss of jobs that will be created due to the advent of FDI in retail. Government should also build social infrastructure to enhance the human capital formation so that the positive spillover effects of FDI are greatly felt. 15 References FDI in Indias Retail Sector More Bad than hot? By Mohan Guruswamy Kamal Sharma Jeevan Prakash Mohanty Thomas J.Korah Rethinking the linkages between foreign direct investment and development a third world perspective By Shashank P. Kumar Indias sparing Growth and the fiber of Foreign Direct Investment By Lakhwinder Singh 2006. Indias FDI inflows Trends and Concepts By K. S. Chalapati Rao & Biswajit Dhar Impact of liberalization on FDI structure in India. By Dr. Gulshan Kumar. Impact of foreign direct investment on Indian economy A sectoral level analysis. By Dr Maathai K. Mathiyazhagan.Foreign Direct Investment in Post-Reform India Likely to Work Wonders for regional Development? By irradiation Nunnenkamp and Rudi Stracke. FDI in India in the 1990s. Trends and issues. By R Nagaraj. frugal Reforms, Foreign Direct Investment and its Economic Effects in India by Chandana Chakraborty Peter Nunnenkamp. March 2006. China and India Any contrariety in their FDI performances? By Wenhui Wei. June 2005 Fact carpenters plane on FDI in India by the Planning Commission. Data on GDP growth rate from the Planning Commisiion. Wikipedia. com Planningcommission. nic. in 16