Indian Retail

Tarannum M Sarwar
October 11, 2006
1. An Overview of the Retail sector:
The Indian retail sector is highly fragmented with 97% of its business being run by the unorganized retailers like the traditional family run stores and corner stores. The organized retail however is at a very nascent stage though attempts are being made to increase its proportion to 9-10% by the year 2010 bringing in a huge opportunity for prospective new players 1. The sector is the largest source of employment after agriculture, and has deep penetration into rural India generating more than 10% of India's GDP 2.

Source: Ernst &Young, The Great Indian Retail Story, 2006.
A look at the statistics shows that the retail sector in India is worth USD 394 billion and is growing at the rate of 30% annually. An ICRIER study has found that retailing ($180 billion) contributes to 10 per cent of GDP and employs 7 per cent (21 million) of the workforce 3. According to AT Kearney, India is given the top ranking as the next foreign investment destination, as markets like China become increasingly saturated 4. India is the 4th largest economy as regards GDP (in PPP terms) and is expected to rank 3rd by 2010 just behind US and China1. Over the past few years, the retail sales in India are hovering around 33-35% of GDP as compared to around 20% in the US. The table gives the picture of India's retail trade as compared to the US and China.

Source: Economist, Let gradualism guide FDI in retail, 2006.
The last few years witnessed immense growth by this sector, the key drivers being changing consumer profile and demographics, increase in the number of international brands available in the Indian market, economic implications of the government increasing urbanization, credit availability, improvement in the infrastructure, increasing investments in technology and real estate building a world class shopping environment for the consumers 4. In order to keep pace with the increasing demand, there has...