Economics Commentary 3

Commentary topic: Wal-Mart struggling to set up India

Section of Syllabus to be covered in this commentary Section 4- 4.5The Role of Foreign Direct Investment
Economics Commentary Number: HL-3

Title of extract: Wal-Mart still lobbying for FDI in India

Source of extract: Internet:
http://articles.timesofindia.indiatimes.com/2013-10-28/indiabusiness/43463218_1_multibrand-retail-india-fdi
Date of extract: 28/10/2013
Word Count:719
Date of commentary: 06/02/2014

Article by TOI-28/10/2013

Wal-Mart struggling to set up India

Foreign Direct Investment has always been a problem for India due to its rigid
regulations. Foreign Direct Investment is the long term investment by
multinational companies in country overseas. It usually occurs by either
building new plants or by expanding the existing facilities in foreign countries
commonly known as Greenfield investment. In the Case of Wal-Mart, The
famous retail store in US, is expanding its operations (existing facilities in
India).
Why Wal-Mart wants to invest in a developing country such as India?
1. India is known to represent huge and growing markets. Access to market
for Wal-Mart will be a huge advantage to increase the number of potential
customers.
2. Cost of labour is relatively low in India. So Lower costs of production
will allow Wal-Mart to make higher profits.
3. To bypass trade barriers- Producing in countries with trade barriers
allow MNCs to bypass these and have access to local markets.
4. .India has well functioning infrastructure with good transportation and
communication access to various parts of world, which will allow WalMart to export and import goods easily.
5. India being a developed country has lower rate of tax as compared to
United States of America. An advantage in tax usually attract foreign
investors, such as in this case is Wal-Mart
Wal-Mart Coming to India: An Advantage to the Country
1. Multinational companies help improve insufficient foreign earnings for
the host developing country- Investments funds flowing into a country
from abroad appear as credits in the financial account and this will help to
improve the current account deficit. And usually multinational companies
are export oriented and this will improve the countrys export, Resulting
an increase in export revenue for India
2. Improvement in Technological, managerial and technical skills WalMart setting up in India will bring technical expertise, as well as new
production technologies and management skills in the retail sector which
will change the way the retail store is operated in India

3. Greater Tax Revenue- Wal-Mart will contribute to a larger share of the

tax revenue for the Indian Government, hence leading to investment in
the development of the economy
4. Unemployment will decrease- Unemployment is a serious cause of
concern for India and the economy faces lots of recession.Multi-National
company such as Wal-Mart , which operates in the retail sector , requires
lot of Labour. Hence,Employement will take place in India
5. Economic Growth- Increased levels of Investment in the host developing
country will increase the total output of goods and services produced and
will hence contribute to the Gross domestic product of the country.
Why Wal-Mart is still Lobbying for Investment in India , in spite of being
beneficial for the Indian economy?
Foreign Direct Investment to India has always been a debatable topic for the
economists and is not at all easy for any Multi-national company to invest in
India, due to its strict investment policies. Leading E-commerce site, Amazon is
also struggling to set up in India 1. Not many foreign direct Investments have
taken place due to rigid regulations
Reason being multi-national company to be rejected by the Government of
India to invest and set up in India is to protect the domestic and sunrise
industries. Sunrise industries are new industries which in the near future will
change the shape of the economy as these industries will grow rapidly in future.
Why to protect such Industries at the cost of FDI?
Wal-Mart is considered as the Giant in the retail sector by the US economy.
Indians speculate that in the near future, Wal-Mart, if it sets up in India, will
own the 100% market share and will destroy the domestic retail stores in India.
For every country and for a developing country such as India, domestic
industries are considered to be the most essential. If these companies are thrown
out, the tax revenue will suffer. Though FDI leads to greater tax revenue but all
its profits are sent to the home country, leading to less tax revenue for the Indian
Economy.
1 Reference article for amazon:
http://articles.economictimes.indiatimes.com/2014-0203/news/46924140_1_indian-fdi-walmart-numerous-lobbying-issues

Conclusion:
Foreign Direct Investment policy needs to revised in India and a balance should
be created between the domestic industries and Multi-National Companies from
abroad as both are beneficial for the Indian economy and none of them should
be neglected