Foreign Direct Investment in Retail Sector: Few Issues
| In applying transaction-cost logic to political aspects of the reform process in transition economies, scholars characterize three phases in the formation of interest groups under information asymmetry: ex ante, interim, and ex post. At the ex ante stage, each individual is uncertain about his own type as well as the types of others because there is no private information. At the interim stage, each individual knows his own type, but not the type of others. The ex post stage is when all players' types are publicly revealed. In India's case, one might start from the interim stage because of the existence of powerful incumbents, both private firms and policy-makers. Policy reforms would mean a fall in monopoly rents to incumbents and a decline in the rent-seeking powers of government agents. To illustrate this, when partial reforms for entry of transnational corporations (TNCs) in a few sectors were initiated in the mid-1980s, a few Indian industrialists organized themselves as the so-called "Bombay club" to block the reforms in the name of nationalism. However, the reforms continued in a slow fashion. Competition from TNCs in sectors such as two-wheelers and automobiles forced the Indian firms to upgrade technology and organization which led to decline in costs, prices, and consequent expansion of markets. Consumers, workers (increase in wages owing to increase in productivity), local firms (increase in total profits), and TNCs benefitted from this. Over time, several Indian firms themselves have become multinational firms. |
Project Team
Murali Patibandla
Sponsor
IIM Bangalore
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Foreign Direct Investment in Retail Sector: Few Issues
| Project Team: | Murali Patibandla | |
| Sponsor: | IIM Bangalore | |
| Project Status: | Ongoing (Initiated in 2012) | |
| Area: | Strategy | |
| Abstract: |
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