Foreign Direct Investment in India

This academic essay focuses on the rapid GDP growth in India accompanied by record levels of Foreign Direct Investment (FDI) flowing into the country. Case studies of Flipkart and Walmart are used to evaluate FDI entry in India and discuss international strategies and implications for the host country.

Running Head: FDI IN INDIA 0
Foreign Direct Investment in India
Academic Essay: Foreign Direct Investment in India
(Student details :)
3/12/2019

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Foreign Direct Investment in India
This academic essay is mainly focused on a rapid GDP growth in India accompanied through
record levels of Foreign Direct Investment (referred as FDI) flowing into the country. In
order to critically evaluate FDI entry in India, the essay will utilize case studies of Flipkart as
well as Walmart. By using such case studies, international strategies to move into India along
with the implications of above to the host country will also be discussed (Buckley & Ghauri,
2015).
In this context, recent quick GDP growth of India has been clearly accompanied through FDI
in the country. For an example, in the year 2018 world’s largest retailer, Walmart has
acquired Indian e-commerce giant, Flipkart for a 77% stake (Hill & Hernandez, 2008). In
addition, India as the 3rd most attractive FDI destination in the world is having a favourable
foreign investment setting. In this context, Indian policy structure offers clear guidelines for
the FDI entry, liberty of location, technological inclination, production as well as capital
repatriation. Furthermore, in terms of applying economic theories and principles, India has
considerably reduced international trade restrictions which encouraged FDI inflows; hence
economy growth opportunities have been expanded (Competition Commision of India, 2018).
Additionally, several aspects which will be considered include country’s role in the global
economy, Wal-Mart’s motivation to enter India, concerns arising, and India’s FDI regulations
and restrictions (Live Mint, 2019). Thus, with the help of this essay major feature of the
world economy and FDI trends will be critically assessed and identified. Moreover,
comparative advantage along with the trade models to analyse India’s role in global economy
will be employed as well.
In order to discuss FDI in India, first the concept and features of global economy, FDI trends
and triad economies needs to be elaborated. Features of new global economy include more
alternatives for production, extension of small firms into big, chances to evolve new markets
and inter-connected new networks. Moreover, liberalisation and free trade should also be
promoted in grow national and global economies – such as the situation for India.
Globalisation of economic activities and international trading will further allow different
countries to enter into new markets to develop new businesses (Barnes et al., 2004).
In addition, for the globalization especially financial globalization, economies of all global
countries are becoming places full of mutual influence, interdependence and mutual

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promotion. In this context, triad economies are a concept about US, EU, Japan being the
world’s great economies. Hence, up to a certain degree, the estimation of global economy is
now becoming the economic estimate of such 3 greatest economical entities of the US, EU
and Japan (Buckley & Ghauri, 2015). On the other hand, FDI in India will lead to a huge
employment opportunities’ loss. For an example, small retailers as well as small store owners
will likely to suffer with a huge loss in business as the giant retailers along with the
supermarkets such as Walmart; Carrefour will replace such small retailers at a large extent
(The Economic Times, 2018).
Now, the question arises about FDI and recent FDI trends which can be easily answered as
FDI refers to a direct investment which any foreign business makes in other country, through
an act of obtaining that company or through growing few existing businesses in that country.
Besides, recent FDI trends are all about foreign capital and funds which brings to any country
where the foreign direct investment is to be made. Moreover, FDI enables the exchange of
qualified skill sets, info and expertise, employment opportunities while also leads to an
upsurge in the overall productivity levels. For instance, several Asian progressive economies
such as China, South Korea have also considerably experienced hikes in their economies
because of the higher proportion of FDI within their economies. Additionally, through an
economic perspective, the FDI can also be referred as the measurement of foreign ownership
of national productive assets counting organizations, factories and land (Compact, 2009).
Being the largest democracy and third largest economy, India is consistently showing growth
in performance with its abundantly high-skilled manpower. Hence, the country offers
enormous opportunities for investment, both foreign and domestic (Barnes & Hunt, 2013).
Investment in the country is easily possible both by resident and non-resident Indian entities.
In this way, FDI in this essay can be defined as while a non-resident invests in an Indian
company then it is known as Foreign Direct Investment in India. Indian Government has
embarked upon many important economic transformations since mid-1991 having a view to
assimilate with the global economy (Zott et al., 2011).
As per the recent sources, India is the 3rd most attractive FDI site of the world, after the
United States and the China as they are ranked at 1st and 2nd positions. India has a highly
favourable foreign investment setting which offers freedom of access, investment, site,
technological choice, import and export as well. Indian policy structure also apparently offer
guidelines for the access, liberty of site, technological preferences, production, along with the

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capital repatriation (Hill & Hernandez, 2008). Indian FDI policy also provides a well-
balanced package of fiscal incentives that is explicitly aimed to enhance the flow of FDI
within the country (Vijayasri, 2013).
Indian economy’s role in global economy can be seen as the country established around
US$25 billion of FDI during 2007-08 years; the number rose to US$27 billion during the year
2008-09 (Vijayasri, 2013). The above is highlighting India’s capability to sustain durable as
well as attractive investment irrespective of the world market slowdown. Besides, multi-
national organizations have also taken benefit of the country's progressively prosperous
customer market. During the initial 9 months of the year 2009, FDI curved in from 26 % to
$21.4 billion by $29 billion a year ago. In this way, a total FDI inflow in India since 2001 to
the fiscal year 2009-10 has crossed the $100 billion streak. Moreover, total number of foreign
technical partnerships has been growing with the rise of FDI (Vernon, 2017). Thus, these data
and figures resulting from studies of Indian economy and market are showing that role of the
country’s economy is very big (Forbes, 2019).
Wal-Mart has motivated to business in India because of the several reasons. Indian nation is
one of the most attractive retail markets worldwide, as per its size, growth rate. Hence, Wal-
Mart saw foreign investment as an opportunity to partner with a company which is leading
the revolution of e-commerce within the market. In this context, Wal-Mart’s CEO and
president declared that Indian economy has the potential to reach at the first powerful
economy position in the world from the perspective of retail market and sales. Walmart got
attracted towards doing business in India as this is one of the greatest countries among Asia’s
largest economies (Becker et al., 2013).
In India, Wal-Mart strives to enhance the quality of life for people such as employees,
customers and communities by utilising in-kind donations, financial contributions, and
volunteerism (Forbes, 2019). Wal-Mart is the company which supports resourcefulness
emphasized on increasing opportunities within the areas of environment sustainability, skills
training, women empowerment as well as community development. Moreover, Wal-Mart’s
motivation of entering into India for doing business through international trades includes
country’s suppleness towards consistent growth and development (Brooks & Dunn, 2011).
There are definitely some important cultural considerations which are to be considered by
Wal-Mart for doing business successfully within the country. India being a strong
sustainability supporter nation, owns a sustainable agriculture along with adopting many

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sustainable practices (Burn & Barnett, 2000). Wal-Mart should be committed towards
refining the livelihoods of small- as well as medium-sized agriculturalists while growing
global economies. Wal-Mart must support agriculture based culture of the country by
providing support to such farmers from global sourcing program, technical assistance as well
as training sessions in order to increase Indian farmers’ income (Cavusgil et al., 2014).
One more aspect of Indian culture to be considered by Wal-Mart while operating into the
country is that India strongly supports women empowerment. Wal-Mart should set out to
enhance sourcing from women-owned businesses to empower women with the utilisation of
training and promoting diversity within the country. India believes in sustainable employment
opportunities while significantly growing economic opportunities for Indian women all
across the country (Competition Commision of India, 2018). Hence, Wal-Mart needs to
consider this cultural preference of the country as well. On the other hand, out of all
important cultural considerations huge cultural diversity residing in the nation has to be
considered by the Wal-Mart. In this context, Indian population consists of people of diverse
culture which further generates diverse demands and needs to be fulfilled. In this way, when
Wal-Mart is functioning in India then the company needs to look out for the different ways to
fulfil different demands of diverse cultural people of India (Crowne, 2008).
There are some major concerns about unhealthy competition caused from acquisition of the
Flipkart by the Wal-Mart. As per the Indian policies about multi-brand physical retail,
concerns are that Wal-Mart is side-stepping the Indian FDI laws through taking over an
online-retail company Flipkart (Forbes, 2019). In addition, All India Online Vendors
Association (referred as AIOVA) expressed concerns that Wal-Mart will take their own
labels to India through Flipkart (Live Mint, 2019).
Efficient leaders of the country expressed their concern about the deal from the perspective of
unhealthy competition as Walmart requires expanding up their e-commerce business while
India is the last big prize out there. Hence, this acquisition deal made a lot of sense by Wal-
Mart’s perspective. People are giving opinions like the Flipkart acquisition has given Wal-
Mart an enormous strategic opportunity by helping the foreign company to kill two birds with
one stone. It means that great leaders are praising the act while big global competitors of the
Wal-Mart are criticising the acquisition act by giving statements like Wal-Mart has entered
into Indian market for only their own benefits and this deal is not beneficial for Indian nation
(Hill, 2008).

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Another major concern rose after acquisition deal is that, Amazon being a chief Walmart
competitor in the U.S., was also Flipkart’s major competitor in India and hence Amazon was
running to acquire Flipkart as well. In this way, acquisition of the Flipkart by the Wal-Mart is
a great way of Walmart to compete in front of Amazon within the international market
through a great leadership position. In addition, Flipkart’s acquisition by Wal-Mart may lead
to unhealthy competition for Flipkart’s Indian suppliers from the American imports and
Chinese imports as well (Enterslice, 2017).
Indian Govt. FDI rules, regulations and restrictions are as discussed in this paragraph. India’s
FDI rules allows 100 % FDI in the marketplace model of e-commerce, in which it defines
FDI as a tech-platform which further inter-connects buyers and sellers. In addition, India does
not allow FDI in inventory-driven models of e-commerce. It means that an inventory model
of e-commerce is used by the Walmart and Amazon in the United States, where the products
and services are usually owned by an e-commerce business, which sells directly to the retail
consumers (Cavusgil et al., 2014). The restriction of Indian FDI suggests that Amazon and
Flipkart can operate only within the marketplace model of e-commerce in India (The
Economic Times, 2018). Existing rules and regulations of FDI set by the Indian Govt. state
that e-commerce businesses cannot workout ownership on the products sold on the online
marketplace (Competition Commision of India, 2018). The new FDI rules of India state that
the inventory of any seller or vendor will be controlled by a marketplace when the vendor
buys more than 25 per cent of their inventory from the market-place (Compact, 2009). FDI
restrictions of India would not allow sellers over Flipkart and Amazon to make wholesale
purchases by the big units of the companies (Burn & Barnett, 2000). Moreover, some equity
interest restrictions are also there such as new rules now restrict any firm in which an e-
commerce firm and their group companies own a stake from vending on the online platform.
The above restriction of Indian FDI causes a problem for Amazon, which had been gathering
up stakes offline from Indian retailers for boosting their market shares (The Economist,
2018). In this way, the Indian FDI regulations and restrictions have been updated as more
strict rules and gateways for the FDIs from all over the world. Besides, Indian FDI rules and
restrictions never been compromised with the Wal-Mart acquisition, but now the government
has become more stricter in terms of implementing FDI rules and regulations over
international trades and businesses (The Economic Times, 2018).
As it is well-aware that international trade as well as FDI are the two majorly important
international economic activities which integrates the global economy. Integrating global

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economies is known as globalization which can only achieved with an increase in the
flexibility of factors related to production across various countries. In this way, in this recent
era FDI has become an essential part of any firm’s strategy for expanding their international
business (Sen, 2010).
In this context, an attempt of introducing new rules, regulations as well as recent FDI
restrictions for the global business by the world economies by the India can be seen as an
anti-globalization act. As we discussed in the previous sections of the essay that, Indian FDI
rules and restrictions have been updated as stricter and tough gateways for the international
trades who wants to take comparative advantage of the country’s marketplace while coming
to India hence host country’s effects on international firms can be taken as little bit
challenging and negative. In addition, globalisation supports free trade, privatisation,
increased collaborations, economic reforms and liberalisation hence making FDI rules stricter
will definitely leave negative impacts over international trade businesses and theories like
comparative advantage while staking into another countries (Shenkar et al., 2014).
In conclusion, the essay has successfully demonstrated a critical understanding of a wide
range of international business theories of international production. With the help of this
essay we applied a number of perspectives within critical evaluation of implications. All
essay arguments, supportive statements, facts, figures and data are evidence-based from an
extensive reading. In addition, the paper has successfully identifies and critically assessed the
key features of the Global Economy, the ‘Triad’ economies, as well as FDI trends. In this
paper, we have employed comparative Advantage along with the related international trade
models to analyse India’s role in the globalisation and growing global economy. With the
help of such analyses, evaluations and research over international trade theories and FDI,
essay has critically evaluated Wal-Mart’s international strategy for moving into India. On the
other hand, the implications of acquisition of the Flipkart by the Wal-Mart to the host country
have also been discussed. Finally, implications of India’s FDI restrictions and regulations
over globalisation and countries’ economy have been successfully discussed in detail to offer
a detailed research over FDI in India for the readers of this essay.
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