Will FDI 2012 revamp the Indian IT Industry?


The much discussed FDI policies of India have enjoyed a lavish attention in 2012. The controversial subject has gained hostile retorts since its declaration, attracting opposition parties declare non-confidence vote against the decision with Trinamool leader Mamta Bannerjee aggravating it with nationwide hostile rally.

International rating agency Standard and Poor’s (S&P) scaled down the country’s growth projections and warned that in the worst-case scenario it could even drop below 5%, signalling that more needs to be done to fix what’s wrong with the economy. Manmohan Singh, who saved the nation in the worst case scenario of 1991, with New Economy Policy liberalised the country to Global market. He states that the present economical situation is no less.

According to Ernst and Young, foreign direct investment in India in 2010 was $44.8 billion, and in 2011 experienced an increase of 13% to $50.8 billion. India has seen an eightfold increase in its FDI in March 2012. The recent changes on policy introduced On 14 September 2012; Government of India allowed FDI; in aviation upto 49%, in Broadcast sector upto 74%, in multi-brand retail up to 51% and in single-brand retail upto 100%.

A major section of change to occur with the new policy is in the Retail Sector, as the policy lets foreign investors to invest up to 51% in supermarkets in India (including electronic giants). But it is left for state governments to decide whether they would allow such stores within their boundaries. So far, only nine states and two union territories have agreed to allow foreign investments in retail.

With extremists posing answers that are poles apart. The question still remains the same, will India’s FDI Policy change be a good decision, or not. The Indian government has made it easier for foreign retailers like IKEA, Wall Mart Tesco and many technological superstores that can source locally from India to set up wholly-owned stores in the country. Foreign retailers owning more than 51% shareholding in stores that sell products under a single brand will have to buy 30% of the value of goods locally, but not necessarily from micro, small and medium-scale enterprises, as laid down in an earlier policy announced in December 2011.

It seems that the IT industry would soon witness better retail panoramas, with foreign retail giants entering tech-superstore market. With superior quality products and wider merchandise range, these stores would prove to be immediate threat to some vigorous tech-superstores in India like Tata Group’s Croma stores and Reliance Digital Stores. The new policy may also allow Apple to finally launch their own stores in India, a much awaited decision by the American giant.

In selective industries however, FDI will count to be terrifically beneficial where newer, better technology is needed, thus developing the technical infrastructure of the nation. It is most likely to benefit solar industry, IC chip, processor fabrication, automobiles, aeronautics, aerospace, defence etc. With a great pool of IT professionals in India, this will create better jobs thus adding to the tertiary sector and reduce our trade deficit, which is one major priority for India’s economy.

Mukul Bhatia/ITVoir NewsDesk