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The Retail Sector In India And FDI

Written by: Amritesh Mishra - Student of BSL LLB, ILS Law College, Pune
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The Retail Sector is the largest sector in India after agriculture, accounting for over 10 per cent of the country’s GDP and around 8 per cent of the employment. India has the most unorganized retail market in the world. Most retailers of the unorganized retail market have their shop in the front and house at the back. The Retail Industry in India is today amongst the fastest growing industries with several players entering the market. Currently, the organized retail sector accounts for only 2 per cent indicating a huge potential market opportunity. India is being seen as most attractive market by retail investors from all over the world.

Flashback
The traditional format of retailing was of neighborhood ‘KIRANA.’ With the passage of time chain stores run by Khadi and Village Industries Commission came up. Textile companies like Raymonds, Grasim, Bombay Dyeing etc witnessed the opening of retail chains. Later Titan by opening watches showrooms successfully created an organized retailing concept. And since late 1990’s, new companies like- Big Bazaar, Food World, Subhiksha, Crossword, Planet-M etc came up with modern retailing concept.

Modern Retail Structure

It includes-
Malls like Ansal Plaza (New Delhi), Nucleus (Pune), Centre Stage (Noida) etc
Discount Stores like Brand Factory, Loot, M&B Factory, Subhiksha
Department Stores like Shoppers Stop, Big Shop, Central
Hypermarkets/ Supermarkets like Big Bazaar
Convenience Stores like Spencer’s Daily, Tru Mart, Choupal, More
Multi Brand Outlets like Globus

Growth of Retail Sector

The following are the reasons for growth of retail sector in India-
Increase in disposable income of consumers
Increase in consuming desire
Low share of organized retailing

Purchasing power of Indian urban consumer is growing and branded merchandise in categories like Apparels, Accessories, Food, and even Jewellery, are slowly becoming lifestyle products. Retailers are taking benefit of this growth and accordingly are aiming to expand.

Indian retail is expanding at a fast pace. India's retail industry, which is currently valued at nearly $350 billion, is expected to double in size by 2015. The Indian Retail Industry is gradually moving ahead towards becoming the next boom industry.

Modern Large-Format retail, efficiently connects the producers and the consumers and is helpful to both in the long run. In India there is a huge wastage of fresh fruits and vegetables. In this scenario, the Large-Format Retail provide all important infrastructure to carry the farm produce to the consumers with lesser wastage. In this way the farmers get better returns and the consumer better quality and price.

Most competitive spot in modern retailing

The most competitive spot in modern retailing is undoubtedly the food and mobile. In both, there is a cut throat competition. The players try to offer the lowest possible price to drive sales. The major players in food retailing are- Kishore Biyani’s Food Bazaar, Piramyd’s Tru Mart, Reliance Fresh, Aditya Birla Groups More, ITC’c Choupal, Subhiksha. The players in the newly discovered and fast growing mobile retailing based on modern retailing formats include- Vodafone-Essar’s Mobile Store, Spice Telecom’s Hot Spot, Future Groups M- Bazaar, Subhiksha Mobile.

Expected Investments
Sources say-
Reliance Retail will invest US$5.5 billion by 2010-2011.
Bharti-Wal-Mart will invest US$2.5 billion by 2015.
Future Group (Pantaloon Retail) will invest US$260 million by 2008.
Metro AG is investing US$400 million over the next three years.

Targeting an emerging segment of night shoppers, New Delhi-based round-the-clock convenience chain Twenty Four Seven Retail Stores Pvt. Ltd plans to invest US$200 million in the next five years.

FDI in Retail Sector

FDI in retail trading is not encouraged in any form. Trading is permitted under automatic route with FDI up to 51% provided it is primarily limited to export activities, and the undertaking is an export house/trading house/super trading house/star trading house. However, under the FIPB route 100% FDI is permitted in case of trading companies for the following activities:
• exports;
• bulk imports with ex-port/ex-bonded warehouse sales;
• cash and carry wholesale trading;
• other import of goods or services provided at least 75% of it is for procurement and sale of goods and services among the companies of the same group and not for third party use or onward transfer/distribution/sales.
A few foreign retail names appearing in the market like Marks & Spencer, Benetton, Lifestyle are in the nature of franchisee.

An Overview of the Most Talked About Bharti & Wal-Mart Deal

Wal-Mart and Bharti Enterprises have signed an equal joint venture cash-and-carry and retail back-end operations deal.The deal completely falls under the automatic route and does not need FIPB approval. Bharti Enterprises will invest $2.5 billion to be made before 2015 into the front-end of its retail venture, covering a floor space of 10 million sq ft. Wal-Mart sources $600 million worth of products from India now, and 90 % of the products on offer in the Bharti-Wal-Mart stores will be sourced directly from domestic farmers. The joint venture, will be called as Bharti Wal-Mart Private Ltd, would open 10 to 15 cash-and-carry, or wholesale, facilities in India over seven years, which would sell groceries, consumer appliances and fruits and vegetables. The first store is targeted to open by the end of 2008. The venture would employ about 5,000 people in 7 years.

To Conclude
Investing in organised retail sector in India is a beneficial scheme for an investor. The Retail Industry is going to be the next boom industry after I.T.

The author can be reached at: amirtesh@legalserviceindia.com / Print This Article

Related Articles:
Foreign Direct Investment in India
Foreign Direct Investment In Telecommunications Sector In India
Options Available For A Foreign Entity To Invest In India
Summary of The Consolidated FDI Policy
 

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