Government proposes FDI in multi-brand retail trade

The government has suggested a gradual opening of the multi-brand retail sector to foreign direct investment (FDI) to spur competition and boost productivity across various sectors of the economy.

In a second discussion paper on 'Foreign Direct Investment (FDI) in multi-brand retail trading', released today, the Department of Industrial Policy and Promotion (DIPP) said competition within the host country sector is a critical driver of improvements in sector performance as a result of FDI.

Quoting various independent and government-sponsored studies, the department said the potential impact of FDI can be greater because of the combination of scale, capital, and global capabilities, which allow MNCs to close existing large productivity gaps more aggressively.

It said FDI can be a powerful catalyst to spur competition in industries characterised by low competition and poor productivity.

The release cited the examples of consumer electronics in Brazil and India, food retail in Mexico, and auto in China, India, and Brazil, to drive home the point.

Competition is also key to diffusing FDI-introduced innovation across an industry, it said.