Despite India’s decision to permit foreign direct investment (FDI) in multi-brand retail through joint ventures in September 2012, the anticipated surge in FDI has failed to materialize even after a year. This stagnation has raised questions and sparked discussions regarding the underlying reasons behind the lackluster performance in attracting foreign investment in this sector. Various factors contribute to this phenomenon, encompassing regulatory constraints, infrastructural bottlenecks, apprehensions among local stakeholders, and the complexities of the Indian market landscape. Understanding these impediments is crucial for policymakers and stakeholders alike to devise strategies that can unlock the potential of FDI in multi-brand retail and stimulate economic growth.
Tag: Investment models.
Decoding the Question:
- In Introduction try to write the definition of Joint- Venture.
- In Body,
- Discuss why FDI has still not picked up in the multi-brand retail sector.
- Try to conclude the answer with suggestions.
Answer:
A joint venture (JV) is a business arrangement in which two or more parties agree to pool their resources to accomplish a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profit, losses, and costs associated with it. However, the venture is its own entity, separate from the participants’ other business interests.
In 2012 the Government allowed 51% FDI in the multi-brand retail sector but it has not picked up since then.
There are various reasons behind it, which include:
- Euro Crisis: The Euro crisis, a current account deficit of over 4%, double-digit inflation, corruption in governance and a failing political system. It would not be unfair to say that these factors have combined in varying degrees at different times to lead to the conclusion that the globally-acclaimed India growth story seems to be heading for an unhappy ending.
- Unclear Policy Framework: As it has been said that unclear policies or an environment of confusion lead to unattractive offers to foreign investors to invest In India in the multi-brand trade sector.
- Politicization: As many political parties are claiming that if FDI is allowed in the multi-brand retail sector, it will lead to economic colonization of India. (Currently, FD in this sector is allowed to 100%, with 51% MSME content compulsory).
- Bureaucratization: Getting approval from various government departments, including state-level approval, is another problem to not picking up FDI in this sector.
Hence, to promote FDI in the multi-brand sector, first, we need to improve ease of doing and its various sub-categories. This may lead to increased job creations, consumer as king can become true if this FDI takes place and achieves its intended objectives.
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