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Cumulative FDI inflow in retail sector between stood at US$ 2.17 billion April 2000 and June 2020.

Retail Industry in India

    Last updated on Feb, 28 2021

Indian Retail Industry Report  (Size: 1.17 MB ) (November, 2020)

Introduction

Indian retail industry has emerged as one of the most dynamic and fast-paced industries due to the entry of several new players. Total consumption expenditure is expected to reach nearly US$ 3,600 billion by 2020 from US$ 1,824 billion in 2017. It accounts for over 10% of the country’s gross domestic product (GDP) and around eight% of the employment. India is the world’s fifth-largest global destination in the retail space.

India ranked 73 in the United Nations Conference on Trade and Development's Business-to-Consumer (B2C) E-commerce Index 2019. India is the world’s fifth largest global destination in the retail space and ranked 63 in World Bank’s Doing Business 2020.

India is the world’s fifth largest global destination in the retail space. In FDI Confidence Index, India ranked 16 (after US, Canada, Germany, United Kingdom, China, Japan, France, Australia, Switzerland, and Italy).

Market Size

Retail industry reached US$ 950 billion in 2018 at CAGR of 13% and is expected to reach US$ 1.1 trillion by 2020. Online retail sales were forecast to grow 31% y-o-y to reach US$ 32.70 billion in 2018. Revenue generated from online retail is projected to reach US$ 60 billion by 2020.

Revenue of India’s offline retailers, also known as brick and mortar (B&M) retailers, is expected to increase by Rs. 10,000-12,000 crore (US$ 1.39-2.77 billion) in FY20.

According to the Ground Zero Series findings of the consulting firm RedSeer, the retail sector is expected to recover ~80% of pre-Covid revenue (amounting to US$ 780 billion) by end-2020.

India is expected to become the world’s fastest growing E-commerce market, driven by robust investment in the sector and rapid increase in the number of internet users. Various agencies have high expectations about growth of India’s E-commerce market.

After an unprecedented decline of 19% in the January-March 2020 quarter, the FMCG industry displayed signs of recovery in the July-September 2020 quarter with a y-o-y growth of 1.6%. The growth witnessed in the fast-moving consumer goods (FMCG) sector was also a reflection of positivity recorded in the overall macroeconomic scenario amid opening of the economy and easing of lockdown restrictions.

Investment Scenario

The Indian retail trading has received Foreign Direct Investment (FDI) equity inflow totalling US$ 3.35 billion during April 2000-September 2020, according to Department for Promotion of Industry and Internal Trade (DPIIT).

With the rising need for consumer goods in different sectors including consumer electronics and home appliances, many companies have invested in the Indian retail space in the past few months.

India’s retail sector attracted US$ 970 million from various private equity funds in 2019.

In September 2020, US private equity firm Silver Lake announced plan to invest Rs. 7,500 crore (US$ 1.00 billion) in Reliance Retail, which marks the second billion-dollar investment by Silver Lake in a Reliance Industries subsidiary after the US$ 1.35 billion investment in Jio Platforms earlier in 2020.

Walmart Investments Cooperative U.A invested Rs. 2.75 billion (US$ 37.68 million) in Wal-Mart India Pvt Ltd. Walmart Inc. plans to increase exports from India by 3x to US$ 10 billion by 2027, up from US$ 3 billion at present.

Retail investors boosted their shareholdings in Indian companies to an 11-year high in September 2020, with first-time investors continuing to add more money into equities. According to Prime Database, shareholding of retail investors in 1,605 listed companies hit an 11-year high of 7.01% and witnessed ~3.4 million new ‘Demat’ accounts from July 2020 to September 2020.

In November 2020, OnePlus, the Chinese smartphone maker, launched ‘OnePlus Nizam Palace’ in Hyderabad, touted as its largest experience store worldwide that is spread across 16,000 sq. ft.. The company also announced plans to invest Rs. 100 crore (US$ 13.51 million) towards market penetration across the omnichannel retail business, including extension of offline experience beyond metro cities with new retail partnerships.

Government Initiatives

The Government of India has taken various initiatives to improve the retail industry in India. Some of them are listed below:

  • Government may change Foreign Direct Investment (FDI) rules in food processing in a bid to permit E-commerce companies and foreign retailers to sell Made in India consumer products.
  • Government of India has allowed 100% FDI in online retail of goods and services through the automatic route, thereby providing clarity on the existing businesses of E-commerce companies operating in India.

 

Road Ahead

E-commerce is expanding steadily in the country. Customers have the ever-increasing choice of products at the lowest rates. E-commerce is probably creating the biggest revolution in retail industry, and this trend is likely to continue in the years to come. Retailers should leverage digital retail channels (E-commerce), which would enable them to spend less money on real estate while reaching out to more customers in tier II and tier III cities.

It is projected that by 2021, traditional retail will hold a major share of 75%, organised retail share will reach 18% and E-commerce retail share will reach 7% of the total retail market.

Nevertheless, long-term outlook for the industry looks positive, supported by rising income, favourable demographics, entry of foreign players, and increasing urbanisation.

Note: Conversion rate used in December 2020, Rs. 1 = US$ 0.01357

References: Media Reports, Press Releases, Deloitte report, Department of Industrial Policy and Promotion website, Union Budget 2019-20, Consumer Leads report by FICCI and Deloitte - October 2019

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.

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