As Indian consumers are increasingly adopting new products and fast-changing lifestyle the retail sector in India is poised for ‘taking off’

Although the retail sector in India is highly fragmented and consists predominantly of small, independent, owner-managed shops, it happens to be the country’s second largest employer after agriculture. The country is currently witnessing a boom in retailing, mainly on account of an increase in the disposable incomes of middle and upper-middle class households.

In the new era, retailing sector is becoming organized and lots of shopping malls are established. Four product categories have led the organized retailing wave: foods, apparel, lifestyle products, consumer durables and electronics. In recent times, several theme malls such as jewellery malls, wedding mall, electronic mall, auto mall, etc, catering to specific needs and occasions have been completed or announced. The recent development is on ‘line’ shopping mall.

Jewellery Mall: This is a specialty mall, where numbers of jewel retailers, including national and international brands operate here. Gold Souk, promoted by Aerens Gold Souk International Limited, is of approximately 1.8-lakh square feet and is India’s first mall dedicated to jewellery retailing.

Wedding Mall: Wedding mall will be a one-stop shop catering to all wedding related needs of people, from designing and printing of invitation cards to buying honeymoon packages. This mall contains a judicious mix of leading international and Indian brands and wedding-related service providers, including makers of bridal wear, clothing, jewellery, cosmetics, F&B, entertainment, decor, floral management, footwear, white goods, accessories, beauty saloons, wedding planners and travel agencies.

Real estate developer Omaxe is setting up India’s first Wedding Mall in Gurgaon. Rohtas Goel, CMD, Omaxe Construction Ltd., said, ‘Omaxe is building a fully air-conditioned 1,75,000 sq ft marriage mall, which will also have two banquet halls.

Auto Mall: This is coming up along the National Highway 8. It is Senior Builders’ auto mall exclusively for products related to automobiles.

Leading players: More and more corporate houses, including large real estate companies, are now entering the retail business directly or indirectly. One sign of the modernization of Indian retailing is the rapid growth in the number of specialty malls and theme malls. The Piramals, Tatas, Rahejas, ITC, S. Kumar’s, RPG Enterprises, Aerens, Omaxe and mega retailers like Crosswords, Shopper’s Stop and Pantaloon have taken the lead in organized retailing. RPG group dominates the organized retail sector with its Food World for food, Music World for music, Health and Glow for cosmetics, health products and medicine, and Giant hypermarkets. Lifestyle, Forum, Bigbazaar are now the leading shopping malls.

Foreign Direct Investment (FDI): Retailing is India’s largest industry contributing to 14% of the country’s GDP. It is the second largest source of employment next only to agriculture. But retailing is least evolved off all Indian Industries. The sector is bogged down by several factors such as lack of ‘industry’ status, presence of large number of intermediaries, high cost of land, and poor infrastructure.

Nevertheless, the retail sector in India is poised for ‘taking off’ to the next stage. As Indian consumers are increasingly adopting new products and fast-changing lifestyle, the retailing is set to emerge as a key driver of growth in the years ahead. The organized retail market is projected to grow at 25-30 percent a year to reach Rs 100 thousand crore by 2010.

But it is evident that for this kind of growth to be realized, the retail sector would require massive investments in the next three to five years. One option that could facilitate this kind of capital flow is foreign direct investment. FDI in retail would play a vital role in supporting the projected growth of organized retail industry in India. It is going to benefit maximum number of players in the industry.

Foreign Exchange Management Act (FEMA) provision: FEMA restricts the FDI in retail trading sector. Trading is permitted under automatic route with FDI up to 51%, provided it is primarily an export activity and the undertakings are either export, trading, super trading or star trading houses.

FDI in retail trade is not permitted at the moment, but the Finance Minister, Mr. Chidambaram, has given the indication in his Budget speech that this sector too could be opened subsequently. The Commerce and Industry Minister, Mr. Kamal Nath, has also confirmed that the matter is under Government consideration. The Reserve Bank of India monitors the automatic route while the FIPB is a part of the Ministry of Finance. The objective to put this sector under the automatic route is to make the process hassle-free for the investors, sources said.

Benefits to the country

1. Create vast job opportunities, even for the unskilled people. But jobs will be there not only in store but also throughout the entire supply chain — property, construction, security and maintenance, to name a few.

2. Opportunities in other business like house keeping, transportation, etc.

3. It will take away the hassle of numerous visits to the market. The focus will be on maximizing customer comfort and providing complimentary products under one roof.

4. Improve the competition and develop the market.

5. Investment in technology will provide the following benefits:

a. Cold storage chain solve the perennial problem of wastage

b. Greater investment in food processing sector technology

c. Better operations in production and distribution cycle

6. Better Lifestyle, in the following way,

7. Higher wages, usually paid by international players

8. More product variety

9. Newer product categories

10. Economies of scale to help lower consumer price

11. Increased purchasing power of consumers

However, the threat of foreign investment in this sector may replace the existing traditional small traders and retailers.

The author heads Best Praktizes, a financial and statutory outsourcing firm.
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Issue BG49 Apr05

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