Monday, 15 January 2018

FDI will bring fierce competition in Indian markets

Photo Courtesy - Deutsche Messe AG/Lars Kaletta

The decision taken by Indian cabinet to bring in 100% FDI in single brand retail will spark fierce competition in FMCG and electronics sector. India’s FDI policy is likely to increase exports in a long-term horizon and bring in high pay jobs in Tier 1 and Tier 2 cities.

The Union Cabinet chaired by PM Modi has given its approval to a number of amendments in the FDI Policy. These are intended to liberalise and simplify the FDI policy so as to provide ease of doing business in the country. In turn, it will lead to larger FDI inflows contributing to the growth of investment, income and employment.

Foreign Direct Investment (FDI) is a major driver of economic growth and a source of non-debt finance for the economic development of the country. The government has put in place an investor-friendly policy on FDI, under which FDI up to 100%, is permitted on the automatic route in most sectors/ activities. In the recent past, the Government has brought FDI policy reforms in a number of sectors viz. Defence, Construction Development, Insurance, Pension, Other Financial Services, Asset Reconstruction Companies, Broadcasting, Civil Aviation, Pharmaceuticals, Trading etc.

Measures undertaken by the Government have resulted in increased FDI inflows into the country. During the year 2014-15, total FDI inflows received were US $ 45.15 billion as against US $ 36.05 billion in 2013-14. During 2015-16, the country received total FDI of US $ 55.46 billion. In the financial year 2016-17, total FDI of US $ 60.08 billion has been received, which is an all-time high.

Keys decisions by Cabinet
  • 100% FDI under automatic route for Single Brand Retail Trading
  • Foreign firm can invest up to 49% in Air India
  • 100% FDI under automatic route in real-estate broking services.
  • Amendments in the definition of medical devices.

Hits and misses

FDI in single- brand retail trading has been key issues of Left and opposition parties since 1992. The fear raised by many vouches for an opinion that Indian companies are weak in comparison to MNCs. Well, the reasoning is becoming untrue for few sectors like FMCG. Indian brands like Patanjali, Britannia, Parle, DMart, Big Bazaar and Reliance has a wide-spread brand presence in major Indian cities. International brands which may enter India through FDI namely Walmart, Lotte, Mondelez would find it difficult to enter Indian markets with the bang. They may likely to take a safer M&A route to establish a base in the country.

Electronics is one such segment where Indian companies have failed to grasp consumer attention. Indian manufacturers are finding it almost impossible to counter MNC giants like Apple, LG, Sony and Samsung in high-end products. Chinese companies namely Xiaomi, Oppo, Haier has been a choice recently for Indian middle-class consumers. Apple, Xiaomi etc would open new stores in India. By 2020, Make-In-India electronics products will likely be a global norm. Foxconn, the maker of iPhone has decided to invest in mega-factory in JNPT CEZ, near Navi Mumbai.

Industry rumours suggest that the government of India has tweaked FDI in aviation to welcome investments in debt-ridden Air India. Tata Sons and Singapore Airlines are likely to buy Air India. It is yet unclear whether the national career would retain its name. With Air India acquisitions, Vistara would be India’s largest aviation company.

Fierce competition between ‘Desi vs Videshi’ brands will continue to benefit consumers. Patanjali and Jio have made a significant market share in FDI dominated businesses. Indian brands, over the years, have proved that they are no longer weaker than their international competitor.

- Chaitanya Kulkarni 

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