Investment growth in India is related to the growth of the economy. India has one of the fastest growing retail markets in the world. The Indian Retail industry has grown at a CAGR of 14.6 per cent for the period FY07-12. With the increase in internet usage, retailing has become more popular as people can get what they want and what they need right at their doorstep. The biggest advantage of going to online retail stores is the price point analysis, massive discounts and fast service.
The contribution of food & grocery segment of Indian retail industry is estimated to have remained the highest at 58 per cent of the total retail sales during FY12, clothing & footwear segment remaining the second-largest contributor occupying 10.5 per cent share and entertainment, books & sports goods equipment segment is estimated to have outperformed the other retail segments, registering a CAGR of 21.3 per cent during the period FY07-12.
In India retail sector is divided into two classes:
Organised Retailing is the one, where trading activities are undertaken by licensed retailers. These are the retailers who are registered for various types of taxes like sales tax, income tax, etc. These include hypermarkets, retail chains and privately-owned large retail businesses. The organised sector accounts for only 2 per cent of the total trade.
Unorganised Retailing refers to the traditional forms of low-cost retailing, such as local kirana shops, owner-operated general stores, paan shops, convenience stores, etc. The sector constitutes almost 98 per cent of the total retail trade in India.
Investment in Retail
FDI in “single-brand” retail: The Indian government has removed the foreign direct investment of 51 per cent in single-brand retail outlets and opened the market fully for foreign investors by allowing the FDI of up to 100 per cent in this area. The retail store with foreign investment can only sell one brand. For example, Nike could only sell the products under the Nike brand.
FDI in “multi-brand” retail: FDI in multi-brand retail generally refers to selling multiple brands under one roof. Currently, this sector is limited to a maximum of 49 per cent foreign equity participation. For example, Wal-Mart, which helps in keeping food and commodity prices under control, shopper’s stop, etc.
There are huge business investment opportunities in the retail sector in India. The future of Indian retail industry is very bright because of various trends like- rise in purchasing power of Indian consumer, greater proportion of working women, entry of foreign players in Indian market, private labels, penetration of organised retailing in tier II & III cities, capex plans, etc.
Major challenges in the organised retailing are issues pertaining to – real estate availability, legal and regulatory framework, bank finances for investment, shrinkages, supply chain management, etc.
In the next budget, the retail sector is expecting fiscal incentives that will enable the more growth of this sector. So, there is huge business potential in the retail sector.