FDI: A game changer

It will play a very crucial role in the economic growth and development of J&K
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Efforts to transform Jammu & Kashmir (J&K) into an economically most developed geography received a shot in the arm when first of its kind foreign direct investment (FDI) saw light of the day.

J&K lieutenant governor Manoj Sinha laid the foundation stone for a Rs.250-crore mega shopping mall at Srinagar’s Sempora last week.

The 500-shop Mall, likely to be completed by 2025-26, is to be constructed by Dubai-based Emaar Group on 10 lakh square feet area. Remarkably, the Dubai-based group, which will be making a total investment to the tune of Rs. 500 crore in J&K, has also been allotted land for setting up multi-purpose infotech towers in Srinagar and Jammu.

Not only this, the Indo-UAE investor summit was also held during the same time to showcase and explore investment opportunities in the J&K and invite further FDI proposals.

Various companies from the UAE as well as India expressed interest at the investor summit in making investments across sectors such as agriculture and allied fields, cold storage chains, inland container depots, boarding schools, hospitality including hotels and super-speciality hospitals.

Of course, FDI is going to be a game changer in the economic development of the union territory as the investment will boost local economic potential and will have a greater impact on the lives of the local population.

Even as foreign direct investment (FDI) is not a new phenomenon in the country, in a geography like Jammu & Kashmir this kind of investment might leave general masses clueless for lacking its understanding in the context of the local economic landscape. So, let’s understand what foreign direct investment (FDI) is all about.

In simpler terms, FDI is a route for foreign companies to run their business operations in another country. The foreign companies bring money, knowledge, skills and technology with them. All these things sum up to bring vibrancy in the local economy and throw open job opportunities to the local youth.

To be precise, an investment for setting up foreign business operations or acquiring foreign business assets, including establishing ownership or controlling interest in a foreign company, is foreign direct investment.

Remarkably, foreign direct investment (FDI) in the retail sector has always remained in the limelight. Even as there were some controversies attached to it in the beginning, it proved a boon for the retail segment in the country after the government of India allowed FDI in the retail sector in 2006.

Currently, the retail sector of India is considered to be one of the most important emerging sectors, and therefore, the FDI in the retail sector plays a very crucial role in the economic growth and development of the country.

Pertinently, globalisation has already made economic boundaries irrelevant and FDI has emerged as a key route to reap its benefits.

Through this mode, businesses across various boundaries get easy access to new markets and marketing channels, cheaper production facilities, access to new technology, products, skills and of course financing.

The place where a foreign business house directly makes investment, can lead to a source of new technologies, capital, products, management skills etc.

Ultimately all this will translate into strong impetus to economic development of that place where foreign direct investment is pumped.

However, you cannot expect the originating country from which the investment flows, not getting benefited. Ultimately, everybody invests to earn profits.

How can FDI change fortunes? I think China is the best success story. The country permitted FDI in retail in 1992. It has since attracted huge investments in the sector without affecting either small retailers or the domestic retail chains.

The number of small retailers has doubled. Endowed with the world’s largest population, China virtually became the focal point of global corporations seeking cheap labour as well as the potential of reaching the world’s largest market of consumers.

Today China has consistently maintained its highest rank over the decade among the top 10 FDI destinations in Asia. According to a report released by the Asian Development Bank (ADB), Global foreign direct investment (FDI) flows to the Asia-Pacific region continue to recover to pre-pandemic levels, with China remaining the top destination in Asia.

So, FDI represents an opportunity for our small and medium sized businesses to become more actively involved in international business activities and garner more and more business opportunities. 

Meanwhile, there is a segment who think multi brand retailing will eliminate small scale kiryana shops. But it is not like this. In fact our kiryana shops can pick up one or two lessons from the multi brand retailers to deliver professionally.

Since the foreign retail chains do not have sufficient consumer knowledge in their operational geography like ours, the local businesses can have an opportunity to enter into strategic alliances with them for long term mutual benefits. 

So, managing FDI mode in a calibrated manner can lead to efficient development of our retail sector. In fact, the kind of business models we have in our region are going to get a push through FDI intervention.

Firstly, it will make our retail sector organized. The people associated with the sector will get an opportunity to readjust their operations on modern lines. Finally, it will be the consumer who will benefit. 

As far as FDI in the agriculture sector is concerned, it will improve efficiency in the farmer-to-consumer chain and would reduce prices for the end-users - the consumer. Above all, food safety standards would improve with better testing and aggregation facilities. Precisely, the consumer would also benefit from the wide range of choice in products.

Since FDI will get the retail sector more organized, the farmers and producers will witness substantial increase in price realisation would increase substantially through the organised retail sector. Notably, an organised retail sector would help reduce wastage and ensure food security.

In the non-farming sector, small enterprises in manufacturing in the local geography would reap the advantages of joining the organized and vast distribution network to scale up their production and cover the vast market. These enterprises would be able to go in for bulk production with guaranteed absorption of their products.

A study has revealed that small enterprises in the retail sector evolve as they add new product lines and brands, go for better displays, renovation of stores, introduction of self-service, etc.

In a nutshell, with proper checks and balances, FDI mode is going to give a boost to our business environment. Consumers will get a wide variety of quality goods at reasonable prices as they will be able to shop best global brands. Ultimate benefit of the FDI intervention into our economic sectors is going to benefit the common masses.

Meanwhile, the entry of foreign investors into J&K with their long term investing horizon vets the fact that the investment climate has improved considerably.

Just some four years ago, foreign as well as national investors were reluctant to invest in J&K. Even those who had invested here, either squeezed their operations or fled the place midway through their operations.

Now, it is fervently hoped that the FDI will be a game changer for the greater good of the society and turn the economic fortunes of the region in line with PM Modi’s dream of creating jobs and investment opportunities to make J&K one of the prosperous regions.

(The views are of the author & not the institution he works)

Disclaimer: The views and opinions expressed in this article are the personal opinions of the author.

The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.

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