Retail Investment in India – Retail as an Investment Option

Despite the huge presence of the unorganized sector, the Indian retail industry is attractive for international players (Read: Unorganized Retail in India). It is favored over China’s among the developing countries due to a slew of laws in the communist country at various levels. Though the market hasn’t seen big time players of the developed nations yet, the fact that Indian per capita retail space is among the lowest, is expected to provoke people to look at retail as a potential business arena.

The growth of integrated shopping malls, retail chains and multi-brand outlets is evidence of consumer behavior being favorable to the growing organized segment of the business. Space, ambience and convenience are beginning to play an important role in drawing customers. With the Indian per capita income on the rise and the distribution of consumption expenditure expected to remain fairly stable, the current segments of food and apparel is likely to remain attractive. Upgradation of traditional grocery stores to present quality food products in ways and methods adopted in North America and Europe can help in communicating value and attracting customers.

Though the Indian retail industry is still a “protected industry” from the stand point of foreign direct investment (FDI), the government is expected to provide some flexibility on this front. Though FDI can help generate employment in this sector, it is likely to pose stiff competition for existing small businesses. Unlike the country’s FDI investment objective of technology transfer and export promotion of the 1980s, today’s infusion of capital – specifically in the retail segment — can bring to the table issues on size of investment, actual inflows and domestic company takeovers. Given the constraints, FDI should be viewed as a developmental resource that can help in restructuring the industry. It should be aimed at filling up the resource and technology gaps in the retail segment.

While the differing tax and licensing systems across states could raise some issues when organized retailers expand nationally, this could well protect the interests of regional retailers. But the key to success is to build a fairly extensive network of stores across the country to enable e-commerce transactions. This in the emerging scenario would help retailers to target a wider audience and maximize returns.

Strength in physical distribution will remain the backbone of any retail arrangement; however, ongoing investment in bandwidth, development of internet facilities, and increasing awareness of IT among the literate and educated population is expected to create a large base of shoppers. The minimal contribution of the organized sector is a profitable direction for potential investors. The movement of more and more people up the income brackets also indicates a good market potential.

Labor cost differential, the removal of investment restrictions and the rationalization of the tax structure can bring about best practices and the latest offerings to the Indian retail industry. Growth opportunities for the organized sector can be propelled through land reforms as well as uniformity in tax structure, which reduces the cost advantage of the unorganized sector. These measures, if rightly implemented, would provide a competitive environment for the Indian retail industry.

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  • Hossein Hojjat

    Very good, thanks a lot, I enjoyed of all your useful articles, be successful