Foreign Direct Investment in India’s Retail Bazaar: Opportunities and Challenges

Abstract

Despite encouraging signs, India’s retail market remains largely off‐limits to large international retailers like Wal‐Mart and Carrefour. Opposition to liberalising foreign direct investment in this sector raises concerns about employment losses, unfair competition resulting in large‐scale exit of incumbent domestic retailers and infant industry arguments to protect the organised domestic retail sector that is at a nascent stage. Based on international evidence, we suggest that allowing entry by large international retailers into the Indian market may help tackle inflation especially in food prices. Moreover, technical know‐how from foreign firms, such as warehousing technologies and distribution systems, can improve supply chain efficiency in India, in particular for agricultural produce. Better linkages between demand and supply have the potential to improve the price signals that farmers receive and also serve to enhance agricultural and other exports.