The Indian Retail Market – A Gold Mine
For mot international retailers, growth in their home markets have levelled out, forcing them to look to emerging markets. Markets such as India, backed by favourable demographic profile and rising income levels – have become destinations for these retailers. This trend is expected to continue and India is likely to emerge as one of the fastest growing economies in the world.
As per estimates, the Indian retail sector was estimated at US$ 500 billion in 2012 and is likely to grow to US$900 billion by 2017, at a CAGR of more than 12%.
The retail sector comprises of 12 million traditional retail outlets as well as organised retailers. Organised retail, undertaken by the licensed retailers for branded apparels, lifestyle products, etc, is an emerging channel and offers huge growth potential due to low penetration.
Food and grocery form the largest share of the Indian Retail Market, this includes retailing of fresh fruits and vegetables, dairy products, staples, cereals, processed foods, ready to eat meals, spices and other edible products. Apparel was historically dominated by unbranded retailers selling through small garment and textile shops.
However, with the entry of foreign brands and the liberalisation of FDI regulations in single brand, this scenario has changed. Today, apparel is considered as one of the most
organised segments. In 2012, the apparels and accessories market was valued at USD 51 billion and it is growing at a healthy rate of 15% per annum.
The Advent of Foreign Direct Investment (‘FDI’)
Intermediaries and middlemen in India have dominated the value chain. Due to a number of intermediaries involved in the traditional Indian retail chain, norms are flouted and pricing lacks transparency creating greater noise for reforms
In 1997, India permitted FDI in wholesale cash and carry subject to government approval. Subsequently, requirement for approval was relaxed for FDI in wholesale cash and carry and 51% FDI in Single Brand Retail Trading (‘SBRT’) was allowed subject to government approval.
In April 2010, the government issued certain operational guidelines for Indian companies with FDI engaged in wholesale trading activities. In January 2012, the government further liberalised the policy on SBRT by increasing the FDI cap from 51 to 100%, subject to certain conditions. In September 2012, 51% FDI permitted in Multi-brand Retail Trading (‘MBRT’) (subject to Government approval) in ten states and union territories (now twelve states and union territories)favouring the MBRT.
Internationally, Retailers do not distinguish between the forms of retailing ie SBRT and MBRT, however, the Indian FDI regulations/ guidelines make this distinction. .Investment in both SBRT and MBRT are subject to a separate set of guidelines/ restrictions.
Hence, it is critical to examine the regulations governing the Indian Retail Sector.
Indian Regulatory Environment
As mentioned above, FDI under SBRT was permitted to the extent of 100% with the condition that the same required prior Government approval. However, since then, the regulations have been liberalized further as follows:
- Upto 49% – permissible under the automatic route (no prior approval of Government of India required)
- Beyond 49% – permissible subject to prior GOI approval
The liberalization comes with a set of prescribed conditions to ensure that the foreign investor makes genuine contribution to development of Indian infrastructure and logistics.
Given that India is at the cusp of consumerism and the demand for discretionary spending categories has been increasing faster than the overall consumption market foreign retailers are exploring the opportunity to enter the Indian Retail market in light of the Indian FDI guidelines.
This has provided an opportunity for Indian players to substantially enlarge their retail and consumer products business and foreign MNCs to establish their business presence in India.
Traditionally, the Indian consumption wallet has been dominated by necessities, such as food and home products. However, with changing socio-economic and demographic profile, discretionary spending has been increasing. Though food is expected to remain as the biggest part of the Indian consumption pie additional spending on lifestyle, home products, branded/ high-end apparels and luxurious products/ accessories are giving rise to the next wave of consumerism.
Further, on-line retail has also witnessed substantial growth and some of the popular Indian online retailers are Flipkart, Localbaniya, Indiatimes and Rediff Easy. It is not only the private sector but also the government sector which has woken up to the possibilities that the internet has in store. This means that today people can not only purchase clothing, utensils, furniture, electronics, books, movies, flight tickets, rent cars and thousands other products online, but they can also book railway tickets on-line.
Marching ahead along with the consumer products sector, the retail sector is also expected to tread the path of expansion. India’s vast and growing population and change in consumption pattern is seen as providing impetus to the growth of the retail sector that is already on a high growth trajectory.
Among the BRIC nations, The US and The UK
 Road to India’s consumer market (March 2013) – Ernst & Young and UKIBC report
Press Note No 6 (2013 series) issued by Ministry of Commerce & Industry, Government of India
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