Retail Industry in India

Introduction

The 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 per cent of the country’s Gross Domestic Product (GDP) and around 8 per cent of the employment. India is the world’s fifth-largest global destination in the retail space.

Market Size

India’s retail market is expected to increase by 60 per cent to reach US$ 1.1 trillion by 2020, on the back of factors like rising incomes and lifestyle changes by middle class and increased digital connectivity. While the overall retail market is expected to grow at 12 per cent per annum, modern trade would expand twice as fast at 20 per cent per annum and traditional trade at 10 per cent# . In FY17, organised retail market contributed 7 per cent of the total sector and unorganised retail market contributed the rest 93 per cent of the sector.

Online retail is expected to be at par with the physical stores in the next five years and has grown 23 per cent to $17.8 billion in 2017.

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 Indian e-commerce markets. Indian e-commerce sales are expected to reach US$ 200 billion! by 2026 from US$ 39 billion in 2017

Luxury market of India is expected to grow to US$ 30 billion by the end of 2018 from US$ 23.8 billion 2017 supported by growing exposure of international brands amongst Indian youth and higher purchasing power of the upper class in tier 2 and 3 cities, according to Assocham.

The size of modern retail in India is expected to reach US$ 11.25 billion in 2019 from US$ 13.51 billion in 2016.

Investment Scenario

The Indian retail trading has received Foreign Direct Investment (FDI) equity inflows totalling US$ 1.42 billion during April 2000–June 2018, according to the Department of Industrial Policies and Promotion (DIPP).

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.

• Google and Paytm Mall to acquire 7-10 per cent stake in Future Retail with investment of Rs 3,500-4,000 crore (US$ 522.08-596.66 million).
• Investments by private equity firms and wealth firms in Indian retail sector reached US$ 800 million in 2017.
• India’s retail sector attracted Rs 9.5 billion (US$ 147.40 million) investments in FY18, at a growth rate of 35 per cent year-on-year from Rs 7 billion (US$ 104.34 million) in FY17.

Government Initiatives

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

• The Government of India may change the 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 per cent Foreign Direct Investment (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 the retail industry, and this trend would continue in the years to come. India's e-commerce industry is forecasted to reach US$ 53 billion by 2018. Retailers should leverage the digital retail channels (e-commerce), which would enable them to spend less money on real estate while reaching out to more customers in tier-2 and tier-3 cities.

Both organised and unorganised retail companies have to work together to ensure better prospects for the overall retail industry, while generating new benefits for their customers.

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

Exchange Rate Used: INR 1 = US$ 0.0149 as on Q1 FY19.

References: Media Reports, Press Releases, Deloitte report, Department of Industrial Policy and Promotion website, Union Budget 2017–18

Note: !- according to a joint ASSOCHAM-Forrester study paper, # - as per a report titled ‘Retail 2020: Retrospect

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