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

FDI in India An analysis on the pretend of FDI in Indias sell sphere of influence Submitted By Subhajit Ray De beginment of humanistic discipline and Social Sciences IIT Kharagpur Kharagpur-721302 1 Introduction Initially the Indian polity foolrs were quite apprehensive astir(predicate) the flow of abroad capital into the sparing. This raise be attri simplyed to the colonial past which saw big(p) investitures being made by their colonial rulers in the form of major stand instruments like railways besides wholly to halt huge gains for themselves and sucking the host country of its resources.But soon the world-wide parsimoniousness has been witnessing an incessant form of frugalal evolution characterized by the flow of capital from the developed world to the emergence countries. During the nineties contradictory Direct enthronization (FDI) became the single largest source of external finance for the maturation countries. When faced with an economic crisis during the same extremity the Indian policy makers had to surface up the Indian market and accordingly India has been seeing a accordant increase in FDI influxs.Indian economy has been showing high produce range in the post liberalization era. In the last fiscal family according to the Planning commissions data the Indian economy recorded a ripening aim of 8. 6% and 8% in the year before. This is reason enough to call it a high playacting economy. All Multi National Enterprises (MNEs) down been eyeing the Indian market ever since they charter opened up. The policy makers encounter been vigorously pursuing the reforms program as they conceptualize that high harvest has been the resultant of economic liberalization.FDI has been seen as a dominant determinant to reach pop out high rate of economic maturation because of the ease with which it layabout bring in scarce capital, triggers technology budge and enhances the efficiency by increasing the agonisticness of th e market. likewise FDI as a form of policy instrument to raise capital is usually prefer over former(a) forms of external finance because they ar non-debt creating, non-volatile and their re term of enlistments depend on the performance of the projects financed by the investors.FDI is supremacyful in human capital formation, increases issue forth factor productivity and efficiency of resource use. But such do full(a)s argon highly dependent on the policies of the host authorities. It is furthermore described as a source of economic development, modernization, and concern generation. Several factors both political and apolitical oblige led to a greater acceptance of FDI. The depicted role of FDI has evolved from that of a tool to solve the crisis under the license raj body to that of a modernizing force of the Indian economy.In brave out of their endeavor the policy makers have often cited the example of the Chinese determine of achieving high yield rate through irre levant identify investiture. India has opened up its economy and allowed MNEs in the core firmaments such as Power and Fuels, Electrical Equipments, Transport, Chemicals, Food Processing, 2 Metallurgical, Drugs and Pharmaceuticals, Textiles, and Industrial Machinery as a part of reform treat started in the beginning of 1990s. soon FDI is in any solecism permissible in the telecommunicationmunicationmunications, imprecateing, Insurance and IT sphere of influence. Currently thither is huge debate going on about allowing FDI in sell.This paper aims to discuss the critical aspects of FDI in India, present a grounds study on the conquest of reforms in the telecommunications sector, analyze both sides of the arguments shortly going on regarding FDI in sell and conclude with suggestive measures on the part of the government activity which can eliminate the negative make of allowing FDI in Indias sell sector. Assessing the impact of FDI on host economy- a refresh of variou s economic literatures FDI inflow into the core sectors is assumed to play a spanking role as a source of capital forethought and technology in countries of transition economies.It implies that FDI can have constructive effects on a host economys development driving force (Caves, 1974 Kokko, 1994 Markusen, 1995 Carves, 1996 Sahoo, Mathiyazhagan and Parida cc1). It has been argued that FDI can bring the technological dispersion to the sectors through knowledge spillover and enhances a faster rate of harvest-festival of output via increased dig productivity. at that place have been a lot of empirical studies to assess the impact of FDI in developing economies and the results to this date have been found to be mixed.Many reports have questioned the unequivocal effects of the FDI inflow in the host country. Some studies done sooner had found that FDI has a negative impact on the harvest of the developing countries (Singer,1950 Griffin, 1970 Weisskof, 1972). Multi subject area Enterprises (MNEs) in the name of FDI may drive out the topical anaesthetic anaesthetic firms because of their oligopolistic power, and also, the repatriation of profit may drain out the capital of the host country. The main argument in this regard was that the main component of FDI in less(prenominal) developing countries was in the primary sector.Then these primary products were exported to the developed nations and processed for result back to the developing nations and thus resulted in the host nations receiving a lesser value for their resources. Hanson (2001) argues that evidence that FDI generates exacting spillovers for host countries is weak. In a come off of micro data on spillovers from unusual-owned to house servantally owned firms Gorg and Greenwood (2002) conclude that the effects are mostly negative. Lipsey (2002) abridges a more favor fitted view from reviewing the micro literature which argues that there is evidence of positive effect.He also argues that there is subscribe to for more consideration of the different circumstances that obstruct or stir positive spillovers. Rodan (1961), Chenery and Strout (1966) in the early 1960s argued that outside(prenominal) capital inflows have a favor qualified effect on the economic efficiency and proceeds towards the developing countries. It has been explained that FDI could have a favorable short-term effect on growth as it expands the economic activity. However, in the huge run it reduces the growth rate out-of-pocket to dependency, particularly due to decapitalization (Bornschier, 1980).This is due to the reason that the alien investors repatriate their coronation by contracting the economic activities in the long run. FDI is an important vehicle for the 3 transfer of technology and knowledge and it demonstrates that it can have a long run effect on growth by generating increasing return in occupation via positive externalities and plenteous spillovers. Thus, FDI can lead to a hig her growth by incorporating sensitive 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 brass of a come up of domestic export firms, creating the countrys largest export manufacturing. Hu and Khan (1997) attribute the spectacular growth rate of Chinese economy during 1952 to 1994 to the productivity gains largely due to market oriented reforms, especially the involution of the non-state sector, as salubrious as chinawares open-door policy, which brought about a dramatic refinement in foreign trade and FDI.A study by Xu (2000) found a strong evidence of technology diffusion from U. S. MNEs associate in developed countries (DCs) but weak evidence of such diffusion in the less developed countries (LDCs). It concluded that in order to get from the technology transfer by the MNEs a country ask to achieve a staple minimum human capital threshold. A youthful study by Banga (2005) demonstrates that FDI, trade and technological progress have derived function impact on absorbs and employment.While higher point of FDI in an industry leads to higher wage rate in the industry, it has no impact on its employment. On the other exit, higher export intensity of an industry increases employment in the industry but has no effect on its wage rate. Technological progress is found to be labor saving but does non influence the wage rate. Further, the results show that domestic innovation in monetary value of research and development intensity has been labor utilizing in record but import of technology has unfavorably affected employment in India.The study by Sharma (2000) concluded that FDI does non have a statistically pregnant role in the export promotion in Indian Economy. This result is also confirmed by the study of Pailwar (2001) and the study also argues that the foreign firms are mo re interested in the large Indian market rather than aiming for the spheric market. The study by Sahoo and Mathiyazhagan (2003) also confirm the view that FDI in India is not able to enhance the growth of the economy.Though there is a common consensus among all the studies in the Indian context 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 sectors has helped to raise the output, labour productivity and export in some sectors but a better role of FDI at the sectoral take is still expected. Results also reveal that there is no significant co-integrating consanguinity 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 labour productivity of the sectors it is not due to the coming of FDI. Thus, it could be concluded that the advent of FDI has not h elped to wield a positive impact on the Indian economy at the sectoral level. Thus, in the eve of Indias plan for further commencement 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 Foreign Direct Investment policy of IndiaForeign engineer enthronement policy of the government of India has been gradually liberalized. As early as in the year 1948 and 1956 ( ii industrial policy resolutions) government policy all the way reflected the need to supplement foreign capital and technology for rapid economic growth. The core objective of the foreign capital policy was that the control of industrial undertaking should remain in the Indian hands. However, the government had granted authorization in certain skids for allowing havement of exclusive foreign enterprises.Foreign capital was preferred in specific areas which bring in advanced technology and establish j oint gambles with Indian partners. Government also granted tax concessions to foreign enterprises and streamlined industrial licensing procedures to accord early acclamations for foreign coactions. In the case of 100 per centime export of output, foreigners were allowed to establish industrial units. It needs to be noted here that under the Foreign Exchange Regulation spot (FERA) 1974 only upto 40 per cent of the uprightness holding of the foreign firms were permitted.Foreign investiture was permitted under designated industries along with restrictions in harm of local content clauses, export obligations, promotion of R and prohibition by law the use of foreign brands (Hybrid domestic brands were promoted such as Ford Escort 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 straight increase in the number of approvals granted. During the menstruation of time 19611971, the number of foreign collaborations clear was 2475 which were increased to 3041 during the period 1971-1980. on that point was dramatic increase in the foreign collaboration approvals during the period 1981-1990 (7436 collaborations were approved). This policy enabled to build domestic technological talent in many branches of industry but generally considered very inhibitory.It has been astray accepted that fosterion of domestic industry for a longer period of time resulted into high cost production structure along with shortsighted quality. 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 expeditious and competitive world class Indian industry. Foreign investment was see n as a source of scarce resource, technology and managerial and marketing skills.The major feature of policy regarding foreign investment up to 51 per cent of honor 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 anteriority industries. The Foreign Investment Promotion Board (FIPB) was set up to promptly process applications for approvals of the cases which were not covered under the automatic passage. Laws were amended to yield foreign firms the equivalent stipulation as the domestic ones.Government of India, however, put in place the regulatory mechanism to repatriate payments of dividends through Reserve Bank of India so that outflows are equalizerd 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 revoke d except in the case of consumer goods industries. Non Resident Indian (NRI) and Overseas bodied Bodies (OCB) were permitted in high priority industries to invest up to 100 per cent equity along with repatriation of capital and income.Apart from expansion of the area of operation for FDI in many saucy economic activities, the existing companies were also allowed to increase equity participation up to 51 per cent along with disinvestment of equity. Foreign direct investment policy has been changed frequently since 1991 to make it more transparent and hypnotic 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 parcel outs in an existing Indian fellowship in the financial sector and those activities where automatic route is not available. The only sectors/activities where FDI is not permitted are agriculture and plantations excluding tea plantations, real estate billet (excluding development of townships, housing, built up basis and construction development projects-NRI/OCB investment is allowed for the real estate task), retail trade, lottery, security services and atomic energy.Government has simplified procedure, rules and regulations on a regular basis since 1991 to make Indian economic environment foreign investor friendly. Attempt has been made through FDI policy to make India the hub of global 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-liberalizati on period (Figures 1. 1 and 1. 2). Actual inflows have steadily increased from US $ 143. 6 million in 1991 to US $ 37763 million in 2010. This results in an yearbook average growth rate close to 6 per cent. However, the pace of FDI inflows to India has unquestionably been slower than some of the smaller developing countries like Indonesia, Thailand, Malaysia and Vietnam.In fact, India had registered a declining contract of FDI inflows and the FDI- GDP ratio especially in 1998 and 2003 could be attributed to many factors, including the US sanctions imposed in the aft(prenominal)math of the nuclear tests, the easterly Asian nuclear 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 eld. But since 2006 India has seen a unmistakably higher growth of FDI in accordance with the general tren ds of the global conomy with a slight dip in the year 2009-2010. This can be attributed to the recessive situation in the global economy. In recent years, Indias section in the global FDI inflows has increased substantially. Year 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 satisfys a greater percent of global FDI inflows.Indias effort have not yet realized in comparison to the changes which has been made in the FDI policy. Year wise revised FDI inflow since 2000-2001 with expended coverage to approach 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 10000 20000 30000 40000 US $ MILLIONS Table 1. 2 Year 200001 200102 200203 200 304 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 tendency of foreign investment to exploit the pent up domestic demand 8 for consumer unchangeable goods. Further more, there is a gradual increase in the mergers and acquisitions during the 1990s which show a tendency of FDI inflows to acquire existing industrial assets and managerial control without actually engaging in fresh productive activities (Nagraj, 2006). Indias large size of domestic market seems to have been the major attractiveness for foreign firms. SHARE OF TOP INVESTING COUNTRIES FDI EQUITY INFLOWS Others France Germany Cyprus Country lacquer 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 origin 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 fork up till 1992, is the highest contributor of FDI to India. A major share of such investment is represented by the holding companies of Mauritius set up by the US firms.It means that the investment flowing from the tax havens is mainly the investment of the transnational 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 treaty surrounded by Mauritius and India stipulates a dividend tax of five 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 story Further narrowing of FDI in sub-sectors reveals the success story of the telecommunications sector. look into 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 Policy of 1994 and new Telecom Policy of 1999. Before the economic reforms teledensity was low, infrastructure growth was slow, and the lack of reforms restricted investments and adoption of new technologies.The existing legislative and regulatory environment needed major changes to facilitate growth in the sector. It was 1991 when the course of instruction was undertaken to expand and upgrade Indias vast telecom network. The programme included complete freedom of telecom equipment manufacturing, privatisation of services, liberal foreign investment and new regulation in technol ogy 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 statement called National Telecom Policy 1994 on 12 May 1994. However the 1994 policy was not sufficient to make the Indias telecommunications sector fully open and liberalised. The incumbent monopoly (DoT) was indifferent in implementing the national telecom policy effectively due to its lack of commitment. This surface 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 underground operators started operating in the basic/ busy telephony and Internet domains. Teledensity has increased, mobile telephony has established 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 services, and the tariffs for international and domestic links have seen significant reductions.Total FDI in Telecommunications sector is over US $ 15 billion. The takeover of Hutch by Vodafone is one of the largest FDI deals for an amount of US $ 11 billion. Tariff 10 rates are the lowest in the whole world and there are more than 250 million users. The retail sector in India The retail industry in India is one of the hot growing. Even without FDI driving it, the corporate owned retail sector is expanding at a furious rate. AT Kearney, the well-known international counselling consultancy, deep identified India as the second most attractive retail term globally from among thirty emergent markets.It has made India t he cause of a good deal of excitement and the cynosure of many foreign eyes. With a contribution of 14% to the national GDP and employing 7% of the total workforce (only agriculture employs more) in the country, the retail industry is definitely one of the pillars of the Indian economy. . Trade or tell on is the single largest component of the services sector in terms of contribution to GDP. Its massive share of 14% is double the figure of the succeeding(a) largest broad economic activity in the sector.The retail industry is shared out into organised and nonunionised sectors. Organised retailing refers to trading activities undertaken by authorize 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 in private owned large retail businesses. Unorganised retailing, on the other hand, 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 vendors, etc.A simple glance at the employment total is enough to paint a good picture of the relative sizes of these two forms of trade in India organised trade employs roughly 5 hundred thousand people whereas the unorganized retail trade employs nearly 3. 95 crores. presumption the recent numbers indicated by other studies, this is only indicative of the order of expansion the retail trade is experiencing, both due to economic expansion as well as the jobless growth that we have seen in the past decade.It must be noted that even up within the organised sector, the number of individually-owned retail outlets far outnumber the corporate-backed institutions. Though these numbers realise to approximately 8% of the workforce in the country (half the chemical formula share in developed countries) there are far more retailers in India than other countries in absolute numbers, because of th e demographic profile and the preponderance of youth, Indias workforce is remainderately much larger. That about 4% of Indias race 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 driven modern retailing is labour displacing to the extent that it can only expand by destroying the traditional retail sector. money box such time we are in a position to fabricate jobs on a large scale in manufacturing, it would make gamy 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 testament be lost and only 20 lakhs new jobs bequeath be created.With their incredibly high capital FDI driven retailing units such as Wal-Mart depart be able to sustain losings for many years till its immediate competition is wiped out. This is a normal predatory strategy used by la rge players to drive out small and dispersed competition. This entails job losses by the millions. Even the organised retail sector may face serious problems and may lastly be wiped out. The FDI driven retail units will typically sell everything, from vegetables to the up-to-the-minute electronic gadgets, at extremely low prices that will most belike undercut those in nearby local stores selling similar goods.They would be more presumable to source their raw materials from abroad, and procure goods like vegetables and fruits presently from farmers at pre-ordained quantities and specifications. This means a foreign company will buy big from India and abroad and be able to sell low naughtily 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 completely decay the already established supply chain.In time, the neighbouring traditional outlets are also likely to fold and perish, given the predatory pricing power that a foreign player is able to exert. As Nick Robbins wrote in the context of the East India Company, By controlling both ends of the chain, the company could buy cheap and sell dear It is true that it is in the consumers best interest to master his goods and services at the lowest possible price. But this is a countenance for the individual consumer and it cannot, in any circumstance, override the responsibility of any troupe to provide economic security for its population.Clearly collective well-being must 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-relate d retail chains. The government would like to improve back-end infrastructure, and ultimately reduce post-harvest losses and other wastage.There is also a general concern, highlighted by the persistence of food inflation, that intermediaries engender 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 handiness 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 assure 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 become regional and national chains, can negotiate prices more aggressively with manufacturers of consumer goods and pass on the benefit to consumers. Undoubtedly, lower prices psychologically propel 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 sector. The revenue stash away by the government can be used for infrastructure development. Also India has had several retailers with deep pockets and access to skills. That they have not been able to soak the domestic small retailer says something about consumer behaviour and small retails resilience. The argument that the advent of FDI and supermarkets will displace 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 quality standards of the protected small-scale companies become sheer even to socialist politicians and licensing was abolished. Even a modest chain of 20 0 supermarkets, to be set up all over India in selected towns and cities in the next three 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 works capital. Each supermarket may take 2 or 3 years before it becomes profitable.There is a risk that a few 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 confidence and capital. Apart from this, by allowing FDI in retail trade, India will become more integrated 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 sure as shooting has an advantage of being able to produce several categories of consumer go ods, viz. fruits and vegetables, beverages, textiles and garments, gems and jewellery, and slash goods. The advent of FDI in retail sector is bound to pull up the quality standards and costcompetitiveness of Indian producers in all these segments. That will benefit not only the Indian consumer but also open the door for Indian products to enter the wider global market. Suggestive measures to eliminate the negative effects of FDI in IndiasRetail sector FDI in the retail sector should be accompanied by policy formulations that encourage the growth of manufacturing sector in India. A growing manufacturing sector can accommodate the people who will loose 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. however import duty should be imposed to protect domestic production units. Strict labour laws should be imposed to find that no management jobs are outsourced.The government s hould also ensure the local population gets competitive wages and the working environment is proper. Jobs should be reserved for the poor people. If the lyric of operation is English then it will act as a hindrance for job creation for the underprivileged people. Hence Hindi 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 getting a fair price from the FDI driven big retail units.Strict corporate governance 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 dev eloped 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 technology scenario. Social security should be ensured through different policy measures like pension plans, employment plight programmes and free health care. Strict environmental laws should be enforced to ensure that the foreign firms do not indulge in unsustainable trade practices. remnant 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 transnational enterprises. The relationship between FDI and other macro 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 capita l 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 whiz 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 gigantic impact on Indian economy.FDI in the Indian retail sector will work wonders in terms of controlling 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 compensate 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 braggart(a) than Good? 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 Economic Growth and the Role of Foreign Direct Investment By Lakhwinder Singh 2006. Indias FDI inflows Trends and Concepts By K. S. Chalapati Rao &038 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 Peter Nunnenkamp and Rudi Stracke. FDI in India in the 1990s. Trends and issues. By R Nagaraj. Economic Reforms, Foreign Direct Investment and its Economic Effects in India by Chandana Chakraborty Peter Nunnenkamp. March 2006. China and India Any difference in their FDI performances? By Wenhui Wei. June 2005 Fact sheet on FDI in India by the Planning Commission. Data on GDP growth rate from the Planning Commisiion. Wikipedia. com Planningcommission. nic. in 16