EMIS Emerging Market Information Service India Retail Sector | Page 5

Retail Sector Highlights
Importance of Retail
In FY 2012, organized retail represented some 8% of the USD 430 bn Indian retail industry, CRISIL said in Sep 2012. The total retail sector accounted
for some 25% of GDP, while organized retail contributed some 2%, Technopak figures showed. The food and grocery segment accounted for more
than half of the retail market, but claimed organized retail sales of between 2% (CRISIL) and 11% (Deloitte). The retail sector is one of the biggest
employers in India with a nearly 24-million workforce, Technopak said. The country was the world’s 12th-largest consumer durables market in FY
2012 and is forecast to rank fifth-largest by FY 2025, IBEF said in Aug 2013.

FDI Policy
In Aug 2013, the Indian government relaxed the rules for Foreign Direct Investment (FDI) in multi-brand retail in an attempt to woo investors, as no
foreign multi-brand retailer has set up shop in India since 51% FDI in multi-brand retail was first permitted in the country in Sep 2012. FDI in multibrand retail is a state subject and as per the policy, e-commerce is not allowed as an alternate channel as it can serve the customer beyond the
physical location of the store, Deloitte India commented. Political changes in the state and central governments and the USD/INR currency
fluctuation pose risks to foreign investment in retail in India.
Challenges
States in India differ in terms of culture, language, socio-economic development and spending power, so international retailers would need to
customize their offerings to suit regional tastes, Deloitte India said. The choice of real estate suitable for large retail operations is very limited, which
will be a major challenge to the corporatized retail’s ability to grow, Technopak pointed out. Real estate limitations may also give a boost to informal
retail channels. To meet the FDI policy guidelines on sourcing and improve margins, foreign retailers would need to work with local manufacturers
to create India-specific private label brands.
Way Ahead

Domestic retailers should focus on expanding their footprint not only in metropolitan areas, but also in towns with population of less than one
million. Although foreign retailers have been allowed to operate in smaller cities since Aug 2013, they may reasonably be expected to prefer larger
ones, leaving smaller urban and rural areas to domestic companies. While foreign retailers hunt for suitable retail spaces, domestic ones can apply
accommodation flexibility and use their exclusive insight into the Indian consumption patterns to gain an edge over their global competitors. Issues
that both local and foreign retailers will face include transportation and electricity supply challenges as well as finding skilled manpower.

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