FDI will Help cut Inefficiency in Retail Business: Experts

Sonipat: Foreign direct investment (FDI) will help reduce inefficiency in retail business and benefit both consumers and farmers, experts at a conference said.

Addressing a conference organised Tuesday by Jindal Global Business School, Thomas Lairson, professor of international business, Rollins College, US, said India should learn from the experience of China, Japan and Brazil, whose economies have benefited from FDI in retail.

Lairson said opening of retail in India will lead to potential reduction of inefficiencies in that sector.

The Indian government recently took a decision to allow up to 51 percent foreign direct investment (FDI) in multi-brand retail. This has paved the way for the global retail giants like Walmart and Carrefour to open their stores in India.

In single-brand retail, the FDI limit is hiked to 100 percent from earlier limit of 51 percent.

Analysing the Chinese experience, Lairson observed that the key is managing interdependence with the developed world.

Lairson said FDI intensified the competition in China's domestic market, improved the efficiency of the economy, and propelled state-owned enterprises to reform and China's transition to a market-oriented economy.

In 1970, imports and exports together constituted just five percent of China's GDP but rose significantly to 65 percent by 2005 due to significant opening of the economy.

"China thus shifted from extremely closed to the most open large economy in the world and attracted cumulative FDI of over $1 trillion between 1979 and 2011.

Referring to the Japanese experience, Lairson noted that significant protection of small and inefficient retailers and small farmers raised prices and created a large and inefficient sector of the economy.

Stating that there is no economic alternative to reducing the number of farmers and distributors; he added that it was a major source of Japanese economic stagnation for more than 20 years.

Leonardo Onofre, head of economic and commercial section, Embassy of Brazil in India, said FDI led to economic growth, high employment rates, decrease of interest rates and increase of credit and development of new models of business in Brazil.

Brazil will be the fifth largest consumer market in the world by 2020, Onofre said.