Foreign direct investment is the best way of transferring business knowledge from the developed to developing countries. FDI consists of not only technology defined in the conventional sense of production processes for existing and new products, but also organizational, managerial, marketing, distribution, procurement and logistics knowledge and systems. The Indian retail industry is 5^th largest in the world. Currently more than 80% of the retail industry is concentrated in large metros. The unorganized and self-employed retail around 10 million constitutes around 96% of the market. One should assess the pros and cons of FDI in retailing over the next 10to 20 years. This article focuses on a critical analysis on the efficacy of implementing FDI policy in retail sector in India. There is no denying that foreign capital will flow into the country and the economic agenda of the Government is intact. However the adverse implication felt over long time in terms of job loss and displacement of small retailers and traditional supply chains. A large number of countries have expressed negative impacts of multinational retail chains. Therefore, it is important to the policy makers to learn such experiences from past in India and other countries. Government should adopt a cautious approach towards allowing FDI in retail sector.