Amazon.com Inc has secured approval to stock and sell food and groceries in India.
It is the first under the policy allowing 100% foreign direct investment (FDI) in food retail chains.
What is FDI?
It is an investment made by a company or individual in one country in business interests in another country.
FDI are distinguished from portfolio investments (FII) in which an investor merely purchases equities of foreign-based companies.
What about FDI in India?
Economic liberalisation started in India in wake of the 1991 economic crisis and since then FDI has steadily increased in India.
In 2015 India overtook China and the US as the top destination for the FDI.
Measures taken by the Government are directed to open new sectors for FDI.
There are two routes by which India gets FDI.
Automatic route - By this route FDI is allowed without prior approval by Government or Reserve Bank of India.
Government route - Prior approval by government is needed via this route.
The government currently allows 100% FDI in the food retail business.
What are the implications of the currrent move?
The government’s approval for Amazon could be a good opportunity to scrap the confusing conditions that prevail in the retail investment policy.
Big-ticket retail FDI has the potential to significantly expand the market for goods and services.
FDI inflow comes with the latest technologies, products and processes.
It helps farmers to some extent.
A food store would generally prefer to have a tie-up with a group of farmers to pick up their produce as it ensures them steady and quality supply while ensuring they have control on the prices.
