Foreign Direct Investment (FDI) in India Assessment Answers

FOREIGN DIRECT INVESTMENT (FDI) IN INDIA
Introduction
Foreign Direct Investment (FDI) is the investment for the augmentation of the parent company in the host country. The expansion is sustained by acquiring the enterprises of the host country or inaugurating the subsidiary company in the host nation (Vyas 2015). The globalization has served the developing and developed countries by insisting the route of FDI for the enlargement of business and its transactions worldwide. FDI has a concrete influence on the commercial growth of the host countries and has resulted in the competition in global organizations. FDI designates the diverse benefits to the host country on the facets of employment and innovations in the inflated market of the host country (Prakash and Kumar 2017). Flipkart is announced as the pioneer service conquering the large market share of India in the domain of e-commerce. The figures predicted the sale of 80 million Flipkart products across the planet (Flipkart 2019). Walmart is a pioneer retailer headquartered in Arkansas, USA, since its endowment in 1962 (Bhandari 2017). The fortune Global list had marked Walmart as the largest company on the planet with a revenue of 500 billion in the year 2018 (Kalyani 2018). Apart from the astonishing figures of revenue, Walmart has been marked as the biggest employer on the planet with the numbers of 2.3 million workforces in the private sector (Kalyani 2018). Walmart has the unusual figures of the 4.516 units administering worldwide (Bhandari 2017). The figures count the 6290 international stores, 4,516 stores operating in the U.S. and Samaposs Club approximating to 647 (Bhandari 2017). Walmart holds twenty stores in India in the wholesale business that serves under the reputed brand Modern Price Wholesale (Bhandari, 2017).
Walmart and FDI trends in India
The world is embracing the globalization through the liberalization of foreign policies, but investment has always been a concern for India to entice foreign investors. Globalization can be stated as the amalgamation and integration of the economy of the nation with the economies of the world (Chadchan and Shankar 2018). India has marked its presence in attracting the foreign companies on the scale of globalization, as a outcome of the integration of Indian economy with the pioneer world economies i.e., BRICS (Chadchan and Shankar, 2018). As a result of the policy reform in 1991, LPG policies have a significant impact on the FDI in India and India is marked as the third fastest growing economy in the world (Fortune 2018). The economic reformations has lead India on the path of liberalizatiom and has favoured the globalization policies and its segments in India (UNCTAD 2012).
The inflated figure of the GDP of India had added to the depreciated poverty and had resulted to address India as an engaging destination for the foreign direct investment (FDI). The contemporary survey of UNCTAD manifested India as the next favored destination for the FDI following mighty China (Vyas 2015). India is marked as the worldaposs largest democracy and stands seconds as the densest and populated country in the world (Bhandari, 2017). The dense population has a significant impact on the nominal GDP of India and is the cardinal reason for being ranked 148 in the world (Bhandari 2017). The unemployment rate in India was approximated to 8 in the year 2013 (Bhandari 2017). The foreign direct investment (FDI) in India was three hundred ten million dollars in the year 2013 and India was ranked 20 in accordance with the FDI received in the world (Bhandari 2017). The figures for the trade deficit were approximated to 91.47 billion in the year 2012 and India stood 190 in the same year (Bhandari 2017).
India has underlined the notable change in accosting the foreign investment and can be segmented to pre-liberalisation and post liberalization of Indian economy. In Pre-Liberalisation period the FDI framework was drafted through the enforcement of the Foreign Exchange Regulation Act (FERA) in the year 1973 authorizing the 40 of the foreign equity in the joint venture (Vyas 2015). Moreover, the FDI prosperity of other nations urged the government of India to devise the liberal policies gratifying the FDI and head to the endowment of the special economic zones (SEZs) in India (Vyas 2015). The Post-Liberalization period is identified with the liberalization of the Indian economy and unprecedented reforms in 1991 as a proposition to integrate the Indian economy with the economies of the world (Vyas 2015).India is projected to the fifth position in the domain of the consumer market by the year 2025 in the world (Bhandari 2017). The introduction of Walmart in the Indian retail sector will add to the business of Walmart (Gopalakrishna et al. 2016). Walmart has seen tremendous business growth in India despite all the rules and regulations governing the foreign direct investment in India (Bhandari 2017). Walmart is a reputed name in the and has got the expertise in retail business management. Apart from this, inventory management and information management of the retail business has the signature expertise of Walmart globally (Bhandari 2017).
There exist two routes for foreign direct investment in the Indian territory. The former is the automatic route and the latter holds the government route for the investment in India (Vyas, 2015). The automatic route does not necessitate the foreign investors for the procedural consent of the government or the head bank of India i.e. Reserve Bank of India for the stake in the Indian market (Vyas, 2015). The government route directs the requisite approval of the government of India aided by the Foreign Investment Promotion Board (FIPB) and Finance Ministry of India.
The findings of numerous studies have indicated the growth of the retail sector in India (Gupta amp Sahay, 2015). The studies suggested of the seventy percent of the growth would be contributed by the developing countries and the India and China are marked for the sole joint contribution of forty percent of the worldaposs growth (Gupta amp Sahay, 2015). The sheer size of the Indian market and the inflated purchasing power of the middle class is the dominant factor for making India an ideal destination for the foreign direct investment (Vikram and Mittal 2013).
The middle class in India is being characterized as the driving factor of the Indian economy and is held responsible for demanding the products that value the invested money . The middle class holds the consumer household base of 75 million and young consumer base of 300 million, leading to the top ten rank of India in the GRDI list (Gupta amp Sahay, 2015). The opportunities and resources pulling the foreign direct investment in India range from stable policies to the abundance of natural resources in India (Prasanto 2018). The stable economic and social policies of India have retained foreign investors across the globe (Muchinguri 2018.). The business is inaugurated with the hefty investment and the fluctuating policies have a sheer adverse impact on the enterprise. The distinct factors like subsidies, interest loans and so on have branded India as the ideal destination for the FDI (Barick and Kapil 2018). The exclusions of particular taxes and conferring subsidies to the foreign investors serve as an aid for the growth of the Indian economy. Further, the affluence of the skilled and unskilled workforce at reasonable terms and cheap credit makes India a convenient destination for foreign investors. Further, the steep development of the special economic zones rendering efficient transportation and legal system have assisted India for drawing the foreign direct investment in the nation. The explicit scope of unexplored customer markets comprising the middle-class people makes India as the cardinal destination for the FDI (Jagdish and Devnarayan 2019). And the last but not least, the immense availability of natural resources like coal and iron have served the Indian economy for engaging foreign investors (Vyas, 2015).
Merger and Acquisition lead to a competitive edge in the market and is used as a strategic tool to captivate the sheer share in the market. The Walmart- Flipkart deal was the historic deal in the market of E-com with the Walmart acquisition of 77 percent shares of Flipkart with a compensatory amount of 16 billion (Kalyani, 2018). The deal has caused the shrinkage of Walmart stocks, but the remarkable acquisition was taken to acquire a large market share in the Indian market (Kalyani, 2018). The Walmart-Flipkart deal is a long term engagement in the Indian market and is leading to a robust strategy against the Amazon (Saraswathy 2019).
The acquisition of Flipkart by the giant retailer had lead to an authentic conflict with the renowned company Amazon in the Indian market. The proportion of the Indian market in terms of population and potential with the shifting habits of consumers in India had been the predominant reason for the acquisition of Flipkart. The year 2017 was noted with the figures of 21 billion allocated on e-commerce, India became the 10th largest e-commerce market in the planet (Kalyani, 2018). The cardinal reason following the acquisition is the impression of the Amazon in the Indian market, that stood as the chief rival of Walmart globally. The market figures were estimated to grow at the astonishing figures of 30 from the current 2-2.5 in the span of 10 years (Kalyani, 2018). Further, the market capitalization was the chief motive behind the acquisition of the Flipkart to compete with the Amazon that had a market cap of 680 billion (Kalyani, 2018).
The social factors like family, status and small groups had a significant influence on the conduct of the consumers. The other advocating factors pointing to consumer perception falls in the division of culture and demographics of the country. Culture can be pronounced as the aggregate of values and beliefs prevailing in society as an outcome of social and cultural interactions. The contemporary growth of India in the sector of retail had been influenced by the consumersapos taste and preference for meatless products. The sheer challenge for the Walmart prevails in the management of acute heterogeneity and cultural differences of India. Walmart had to draft strategies to cater to the diversified culture and social values across India.
Comparative advantage theory benefits the enterprise as they become the lowest production of the goods as compared to the competitors. Walmart had a sheer comparative advantage over Flipkart on the facets of reputed brand and the pricing strategies of the Walmart (Oppong, 2018). The retail sector of India contributes to the twenty percent of Indiaaposs GDP and eight percent of the employment in India in the year 2012 (Gupta amp Sahay, 2015). As per the figures, the retail sector of India was dominated by the food articles and in the organized sector of retail, the segment of apparels conquered the retail share in India (Gupta 2018). The FDI theory of internalization illustrates the immediate operations of foreign investors in the host country market by incorporating excess control over the market (Oppong, 2018). Walmart had begun exploiting the retailers in the Indian market as the consequence of the acquisition of the triumphant e-commerce enterprise of India. The historical move had a significant impact on the competitive edge of the local retailers in the Indian market, but the acquisition would be significant movement in the progress of the Indian economy (Oppong, 2018). Food articles and the grocery products compounded seventy percent of the market and were the reason for the two third share in the retail business in India (Gupta amp Sahay, 2015). By the year 2016, Reliance Retail emerged as the potent competitor to Walmart with the disclosure of one hundred wholesale stores of Reliance Market in India (Gupta amp Sahay, 2015). With the Walmart notification for the online platform to the Best Price customers, the Reliance Retail came as the influential rivalry with the announcement of Business to Business model of e-commerce in its operations (Gupta amp Sahay, 2015). The unorganized retail sector was the cause for the robust competition arose in the organized sector of retailing (Bhattacharyya 2012). The unorganized sector holds the low cost of operation and labor, that provides a competitive edge to the unorganized retailing over the organized sector of retailers in India (Gupta amp Sahay, 2015).
The sparse infrastructure and the obstacles in the supply chain is one the cardinal challenge for the retailers approaching the efficiency. The insufficient highways and ports hamper the efficient delivery of good to the end consumers. The poor infrastructure is the root of the accelerated costs of logistics and the slow growth of the economy of India. Apart from this, the shrinkage in India had approached the figure of 2.38, indicating the concern of higher investment on surveillance and increases the budget of operations (Gupta amp Sahay, 2015). India being the wretched country demands the foreign direct investment for the growth of the economy, but is insensitive to the trust adhesive factors of the FDI (Bhandari, 2017). Further, the assorted needs and preferences of consumers had put tremendous pressure on the merchandise of retailers in India. Apart from this India is chronicled for the exceeded period of gestation to approach the break-even point of retail business operations (Gupta amp Sahay, 2015).
The laws governing foreign direct investment in India is segmented on the basis of single stores and the multi-brand stores. The single brand retail stores like Nike permits the hundred percent ownership of foreign subsidiaries (Bhandari, 2017). Apart from this, commanding more than 51 ownership in stores the foreign investor is bound to source more than thirty percent of their goods locally from India (Bhandari, 2017).
The year 2012 authorized the foreign investors to hold up to fifty-one percent of ownership in the multi-brand stores of retailing such as Walmart (Bhandari, 2017). The sourcing guidelines for multi-stores are alike as single stores in India. The foreign ownership in India is 100 for the wholesale businesses but they are compelled to do the business with the retailers and not the usual public (Bhandari, 2017). Apart from this, the foreign investors are forced to invest fifty percent of the foreign direct investment in the infrastructure in India primarily the back-end operations (Bhandari, 2017).
The laws overseeing the FDI in India is drafted by the central government with the intervention of state government for determining the location of wholesale or retail business. The additional condition binding the foreign investment in India is the population that demands to be a minimum of 1 million for the FDI investment (Bhandari, 2017). The lawyers of Walmart have pointed India as the county on the high risk of corruption.
Apart from this, the predictability of the reversal of the policies is concerning determinant for the investment in India. Further, the stateaposs law of just 12 states authorizes the foreign investment to initiate stores in the states with the influential block in the predominant states like Uttar Pradesh and Tamil Nadu (Gupta amp Sahay, 2015). The e-commerce trade for foreign investors is restrained to the Business to Business speculation in the single-brand stores of the retailing sector. Further, the tax regime of India is the utmost concerning factor for the foreign investors heading to the differing rates of tax for the different states (Gupta amp Sahay, 2015). The dispersed tax rates lead to inconsistent margins to the same products across the distinct states.
Conclusion
The ferocious competition among the global players had concluded to the foreign direct investment (FDI) in the new segments of the Indian market. The sharp rivalries would supply the Indian market with the new class of merchandises online that were earlier compromised at the offline stores. Further, the players will bridge the gap of world-class commodities in the Indian market with the influx of global sellers in the confined market of India. Apart from this the rivalry of the key opponents will head to the investment in the supply chain infrastructure and would result in the efficient shipments of the delivered products (Kalyani, 2018). The investment of Walmart will cause employment and sufficient logistics in India and would serve the benefit to the customers correlated to price and the availability of differentiated goods in the Indian market.












References
Barick, G. and Kapil, S. 2018. Pre-Acquisition Performance Analysis of Indian Target Firms. IUP Journal of Applied Economics, 17(1), pp. 17-39. Available at http//search.ebscohost.com/login.aspxdirecttrueampprofileehostampscopesiteampauthtypecrawlerampjrnl09726861ampAN128049168amphDNwCWjHiOA8PJVL2B3JX6eQX9cnziM2veC01EGEKaPOclWxihz2F8URRkIHh2fLY6zoHRsqClvSkiVVBp9yCqzFA3D3Dampcrlc
Bhandari, N. C. 2017. Walmart-Bharti joint venture Formation, breakup, amp strategies. Academy of Strategic Management Journal, 16(1), pp. 209-224. Available at https//www.abacademies.org/articles/walmart-bharti-joint-venture-formation-breakup-strategies-1939-6104-16-1-112.pdf
Bhattacharyya, R. 2012. The opportunities and challenges of FDI in retail in India. IOSR Journal of Humanities and Social Science, 5(5), pp. 99-109. Available at https//pdfs.semanticscholar.org/1066/3ee6202c28c856557918a6191f0aee1e39b0.pdf
Flipkart. 2019. About us. Online. Available at https//www.flipkart.com/about-usotrackerundefined_footer_navlinks Accessed on March, 11, 2019
Fortune. 2018. Walmartaposs 16 Billion Flipkart Buy Is Part of a Global Strategy. Hereaposs What Could Happen Next. Online. Available at http//fortune.com/2018/05/10/walmarts-16-billion-flipkart-buy-global-strategy-sainsbury/Accessed on March 13, 2019.
Gupta, A. K. and Sahay, A. 2015. Wal-Mart India The strategy for growth. Journal of Indian Retail, 1(1). Available at https//www.researchgate.net/publication/281747159_Wal-Mart_India_The_Strategy_for_Growth
Gopalakrishna, P., Subramanian, R. and Fleischmann, D. 2016. Walmart in India. Journal of the International Academy for Case Studies, 22(3), p. 99. Available at https//www.abacademies.org/articles/volume-22-issue-3.pdfpage107
Gupta, R. K. 2018. Imapact of FDI on indian retail sector. Shodh Chetna, p. 90. Available at http//shodhchetna.com/BookPDF/HF190106143343667.pdfpage90
Jagdish, P. and Devnarayan, P. 2019. Role of FDI in the process of Economic Development. Advances in Management, 12(1), pp. 1-3. Available at http//search.proquest.com/openview/687d3e25e92a9acf42e67f7bd4ea2c08/1pq-origsitegscholarampcbl2030322
Kalyani, P. 2018. Walmart and Flipkart The biggest deal in Indian e-com startup market. Journal of Management Engineering and Information Technology (JMEIT), 5(4). Available at https//www.researchgate.net/publication/327402976_Walmart_and_Flipkart_The_Biggest_Deal_in_Indian_E-com_Startup_Market
Muchinguri, T. 2018. Investment promotion Foreign direct investment determinants and policy framework analysis for India lessons for Zimbabwe (Doctoral dissertation, University of Cape Town).
Oppong, C. 2018. An Overview Of Most Used Foreign Direct Investment Theories. Archives of Business Research, 6(3), pp. 73- 78. Available at http//scholarpublishing.org/index.php/ABR/article/download/4221/2626Prasanto, R. 2018. Press reader. Online. Available at https//www.pressreader.com/ Accessed on March 12, 2019.
Prakash, P. A. and Kumar, S. G. 2017. The effect of macroeconomic indicators on foreign direct investment of brics countriesAn insight into econometric models. Journal on management studies, 3(1), pp. 440-446. Available at http//ictactjournals.in/paper/IJMS_Vol_3_Iss_1_Paper_4_440_446.pdf
Saraswathy, B. 2019. The Flipkart-Walmart deal in India A look into competition and other related issues. The Antitrust Bulletin, 64(1), pp. 136-147. Retrieved from https//journals.sagepub.com/doi/abs/10.1177/0003603X18823619
Vikram, S. and Mittal, M. P. 2013. FDI In multi-brand retail sectorA study regarding Indian context. Asia Pacific Journal of Marketing amp Management, 2(7), pp. 121-131. Available at http//4dinternationaljournal.com/wp-content/uploads/2015/11/Paper-4.pdf
Vyas, V. A. 2015. An analytical study of FDI in India. International Journal of Scientific and Research Publications, 5(10), pp. 198-226. Available at http//citeseerx.ist.psu.edu/viewdoc/downloaddoi10.1.1.736.72ampreprep1amptypepdfpage209














 

Looking For Complete Assignment Sample Get It On WhatsApp