According to a report by Deloitte in India, FDI in multi-brand retail is expected to be announced within next six months to a year. This has boosted the expectations of the foreign players who are interested to enter the domestic market. With total retail spending estimated to double in the next five years, the report suggests that foreign retailers, who have been patiently waiting in the wings should begin the groundwork for their India foray.
“One aspect seems to be clear: – there will be no `one-shot, big-bang’ kind of approach towards introducing FDI in multi-brand retail. Instead, we could expect a phased liberalization approach with a number of conditions laid down, at least initially, for foreign retailers to enter India”, said Rajan Divekar, Senior Director, Deloitte in India. “These conditions would be intended to assure the opposition parties, the local retailer lobbies, the farmer and trade unions, etc that the government has adopted a ‘balanced/mid-way’ kind of approach after due consideration of the views of all stakeholders involved.”
Of the various conditions that are being discussed for entry, the most significant, from a foreign retailer perspective are the minimum investment threshold for entry, and the permissions/support required from local state governments to enable foreign retailers to set up business in their respective states.
Amongst the larger and important states (from a retail market perspective), Maharashtra, New Delhi, Punjab, Andhra Pradesh, Tamil Nadu, West Bengal and Gujarat are likely to support the policy faster than other states such as Karnataka and Uttar Pradesh.
Although all the retail segments offer growth opportunities for foreign retailers, the largest opportunity in terms of potential market size and scalability is in grocery retailing, particularly for the supermarket and hypermarket formats. The food and grocery segment is the highest contributor to the retail sector (60 percent) with minimum penetration of organized retailing. However, the large population of ‘mom-n-pop’ or ‘kirana’ stores and a few established organized players are likely to be a force to reckon with for new foreign entrants in the grocery sector. Penetration of modern retail is maximum (23 percent) in the clothing and fashion segment, which is 10 percent of the total retail sector. Besides, organized retail in beauty, wellness and electronics through specialty stores is growing at a rapid pace.
The Indian retail market is currently estimated at USD 396 billion and is likely to grow further at 12% to increase to USD 574 billion by 2015. It is the second largest employer after agriculture, employing more than 35 million people with the wholesale trade generating an additional employment of 5.50 million.
Deloitte provides audit, tax, consulting and financial advisory services to public and private clients spanning multiple industries.