The Indian retail industry has presently emerged as one of the most dynamic and fast paced industries as several players have started to enter the market. It accounts for over 10 per cent of the country’s gross domestic product (GDP) and around eight per cent of the employment in India. The country is today the fifth largest global destination in the world for retail.
Several corporates have planned to exploit the opportunities in the Indian retail space, such as Reliance Industries Ltd (RIL), which has lined up capital expenditure of Rs 1.8 trillion (US$ 29.41 billion) for the next three years for its petrochemicals, telecom and retail ventures.
With the growth in the retail industry, the corresponding demand for real estate is also being created. Further, with the online medium of retail gaining more and more acceptance, there is a tremendous growth opportunity for retail companies, both domestic and international.
In 2013, the Indian retail sector was estimated at US$ 520 billion and was among the largest employers in the country. By 2018, the Indian retail sector is likely to grow at a compound annual growth rate (CAGR) of 13 per cent to reach US$ 950 billion. Food and grocery is the largest category within the retail sector with 60 per cent share followed by the apparel and mobile segment.
Organised retail, which constituted seven per cent of total retail in 2011-12 is estimated to grow at a CAGR of 24 per cent and attain 10.2 per cent share of total retail by 2016-17, according to a study titled 'FDI in Retail: Advantage Farmers' conducted by an industrial body.
India has about one million online retailers - small and large - which sell their products through various e-commerce portals. Presently, these online retailers have started to use the medium of online mobile apps to increase their reach to the customers. Several e-commerce firms - Myntra, Flipkart, Jabong, etc., have launched their own mobile apps. Flipkart plans to use their US$ 1 billion funds raised to acquire companies in mobile applications.
According to the TCS Gen-Y 2013-14 survey, a total of 68 per cent of teenagers shop online, while 91 per cent own mobiles in smaller metros. Mobile phones and tablets were the most popular gadgets among teenagers, highlighted the survey.
The foreign direct investment (FDI) inflows in single-brand retail trading during the period April 2000 - July 2014 stood at Rs 842.53 crore (US$ 137.70 million), as per data released by the Department of Industrial Policy and Promotion (DIPP).
Some of the other notable investments and developments in the Indian retail sector in the recent past are as follows:
The Government of India has taken several initiatives to boost the Indian retail sector. For instance, the Ministry of Labour, Government of India has recently signed a Memorandum of Understanding (MoU) with Flipkart to provide short-term training to its new employees through its skill development initiative.
The changes in foreign direct investment (FDI) norms along with the relaxation of certain regulations by the government are also seen as positive moves to attract more foreign investments and enhance foreign trade. The government has allowed 100 per cent FDI in Single-Brand Retail Trading (SBRT) and 51 per cent FDI in Multi-Brand Retail Trading (MBRT).
In the Union Budget 2014-15, the Government of India announced a reduction in the excise duty from 12 per cent to six per cent on footwear with retail price exceeding Rs 500 (US$ 8.17) per pair but not exceeding Rs 1,000 (US$ 16.34) per pair.
The Government of India has also proposed the Goods and Services Tax (GST). Once implemented it will simplify the supply chain and bring down prices. This will help to boost the Indian retail sector.
It has also formulated specific regulations for foreign investors; for instance, global chains planning to set up cold storages and warehouses in India will now need to invest only 50 per cent of the initial compulsory investment of US$ 100 million.
Driven by a combination of demand, supply and regulatory factors, the Indian retail sector is set to grow rapidly with a gradual shift toward organised retailing formats. Organised retail penetration is expected to increase from 7.5 per cent in 2013 to 10 per cent in 2018 at a robust CAGR of 19-20 per cent during that period.
Tier-II and Tier-III cities such as Jaipur, Nagpur, Ludhiana, Vadodara, Aurangabad, Kochi, etc., are emerging as the new ‘hot spots’ of consumption. Organised retailers are increasingly setting up stores in these smaller cities with increasing focus on profitable growth in the sector. E-commerce is also expected to be the next major area for retail growth in India. Along with this, achieving profitable growth and inventory management are also some major areas of focus in the times ahead for the retail companies in India.
Exchange Rate Used: INR 1 = US$ 0.0163 as on September 25, 2014
References: Media Reports, Press Releases, Deloitte report, Department of Industrial Policy and Promotion website, Union Budget 2014-15