Investment Opportunities in India

November 23, 2012

Major Government initiatives and investments in Retail Industry of India

Retailing in India is one of the pillars of its economy and accounts for 14 per cent to 15 per cent of its gross domestic product (GDP). The Indian retail market is estimated to be US$ 450 billion and one of the top five retail markets in the world by economic value. India is one of the fastest growing retail markets in the world, with 1.2 billion people.

Indian retail industry, considered as a sunrise sector, offers huge growth potential. The sector is expected to grow almost three times its current levels to US$ 660 billion by 2015, according to Investment Commission of India.

The foreign direct investment (FDI) inflows in single-brand retail trading during April 2000 to June 2012 stood at US$ 42.70 million, according to the latest data released by Department of Industrial Policy and Promotion (DIPP). Cash and carry represents an opportunity worth around Rs 8,250 billion of the Rs 27,500 billion annual retail businesses in India.

Major Investment in Indian Retail Sector

Some of the major investments in Indian retail sector are as follows:

  • Max Hypermarket India has partnered with French retail giant, Auchan Group to open franchise hypermarket stores in India. The existing stores of Max Hypermarket will be rebranded as ‘Auchan’ and shall operate under a franchise agreement. Max Hypermarkets and Auchan plan to open 12-15 new stores in a year across various geographies in India
  • Sahara India plans to enter the retail sector and will invest Rs 3,000 crore (US$ 542.50 million) initially to set up the business. The company will start its retail business under the ‘Q’ brand name and plans to expand its reach in nearly 1,000 cities and towns by 2013
  • BhartiWalmart plans to invest Rs 104 crore (US$ 18.81 million) in expanding its outlets across the country. In all, BhartiWalmart has about 17 stores in India

Government Initiatives

The Government of India is playing a vital role in making the Indian retail industrythe most lucrative for non-resident Indians (NRIs) and person of Indian origin (PIOs). Some of the major initiatives by the Government are as follows:

  • The Government of India has allowed 51 per cent foreign direct investment (FDI) in multi-brand retail and 100 per cent FDI in single-brand retail
  • DIPP is likely to consider relaxing the sourcing norms for global retailers to establish shops in India, as IKEA is asking for further relaxation of mandatory conditions
  • The Union Ministry of Finance has provided relief to the Rs 18,000 crore (US$ 3.25 billion) software industry by replacing a multi-level structure of tax deducted at source (TDS) on distributors with a single TDS. This would be deducted by the first distributor—one who directly purchases packaged software from a developer

The federation has welcomed the new FDI in retail announced by the Government of India. The Government has announced its decision to allow 51 per cent FDI in multi-brand retail and 100 per cent FDI in single-brand retail. In addition, the Government has also opened up the aviation sector and put up four PSUs for disinvestment.

The ISF said that FDI in retail sector will have a much wider impact on organised employment as compared to what happened in the IT sector over a decade ago. The federation also said that these measures will open doors for low-skilled people.

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October 30, 2012

FDI in retail sector to create 10 million jobs in India

India has emerged as the fifth most favourable destination for international retailers, outpacing UAE, Russia, Indonesia and Saudi Arabia, according to A T Kearney’s Global Retail Development Index (GRDI) 2012. “India remains a high potential market with accelerated retail growth of 15-20 per cent expected over the next five years,” highlighted the report.

The foreign direct investment (FDI) inflows in single-brand retail trading during April 2000 to June 2012 stood at US$ 42.70 million, according to the latest data released by the Department of Industrial Policy and Promotion (DIPP). Cash and carry represents an opportunity worth around Rs 8,250 billion (US$ 154.45 billion) of the Rs 27,500 billion (US$ 514.84 billion) annual retail business in India. Online retail business is another format which has high potential for growth in the near future. India’s e-retail industry is likely to touch Rs 70 billion (US$ 1.31 billion) by 2015, up from Rs 20 billion (US$ 374.43 million) currently, as per an industry body report.

The recently announced FDI guidelines in the Indian retail sector are likely to create 10 million jobs over the next 10 years, according to Indian Staffing Federation (ISF). The report also mentioned that the new job opportunities in the sector will make it the largest sector in organised employment.

The federation has welcomed the new FDI in retail announced by the Government of India. For the record, the Government has announced its decision to allow 51 per cent FDI in multi-brand retail and 100 per cent FDI in single-brand retail. In addition, the Government has also opened up the aviation sector and put up four PSUs for disinvestment.

The ISF said that FDI in retail sector will have a much wider impact on organised employment as compared to what happened in the IT sector over a decade ago. The federation also said that these measures will open doors for the low-skilled people.

It is believed that logistics and supply chain companies are also expected to make rapid progress considering the fact that they will be the link between small manufacturers, farmers and the organised retail chains.

The close integration within the organised retail chains will support the small producers in gaining access to the latest processes, systems and technologies available in the market.

With increasing disposable incomes, expansion of stores and supporting economic factors, retail sector in India is expected to grow to about US$ 900 billion by 2014, according to a report by global consultancy and research firm, PricewaterhouseCoopers (PwC).

The next generation of India’s retail environment is favourable for the rise of luxury goods. Consumer markets in emerging market economies like India are growing rapidly owing to robust economic growth. The retail sector in India is highly competitive because of ever changing consumer preferences and the need for marketing differentiation. The retail enterprises need to focus on costs throughout the consumer value chain because of proliferation of new products and categories and ever increasing demands to optimise value chains.

June 14, 2012

Investment opportunities in Indian Retail Sector

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.

Outlook

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.

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