Influence of Indian economic policy on strategy of retail industry

Abstract

Retail industry in India is one of most promising sectors with great potential for growth. Retail sector in India contributes 14 to 15 percent of the GDP. The retail sector is estimated to be approximately USD450 billion currently and is one of top 5 markets by value. The growth prospect is attributed mainly to the strong customer base of 1.2 billion population. India is famous for its next door kirana stores and is essentially run by its owner on day to day bases. Organised retail forms a very small proportion of the retail sector. It is estimated to be 4-6 percent presently but might be on the rise. Regulations in India allow foreign direct investment (FDI) only in single-brand retail and that was restricted to 51% ownership. As mentioned above, the Indian retail sector has mostly been unorganised with locally owned, Mom-Pop stores, single owner convenience stores, grocery stores, pavement vendors and hand-cart among others. Organised retail, on the other hand, involves trading activities undertaken by licensed retailers who are registered for different taxes that are applicable. It is mostly the corporate-backed super/hypermarkets, the privately owned large retail businesses and big retail chains. The tremendous growth prospect of the sector coupled with successfully established models of organised retail in other Asian markets such as China has paved the way in India for the establishment of organised retail. Apart from this, a number of homegrown corporate giants such as Future Group and Aditya Birla retail have furthered the cause of organised retail by setting up exclusive outlets across India. Investment Commission expects the retail sector to grow to at least three times its current size to USD 650 billion by 2015. Even though there have been developments in the retailing industry and its contribution to the economy, it has still a long way to go before it is as evolved as the rest of the world and the growth of organised retail has been sluggish comparatively. This leads to the central theme of this study. We attribute this situation currently – sluggishness in spite of incessant globalisation and liberalisation – to the absence of policy that encourages FDI in the retail. We have tried to analyse the various effects of influx of foreign direct investment in the Indian retail industry on stakeholders and the sector as a whole. The latest move of the government to allow FDI in the multi-brand retailing sector will be analysed in this study and findings of the study point will be aimed at pointing out if FDI in retail would enable India Inc. or is a disadvantage to the industry.