Retail FDI in India

SUMMARY Retailing increases strongly in India to pre-crisis level Retiling in India increased strongly in 2010, with a similar growth rate to 2007, before the financial crisis. The driver of such strong growth was modern retailers expanding their reach further across India, particularly as the leading retailers could negotiate better rental prices after the global financial crisis. Nonetheless, inflation played a part in the strong growth, as the average inflation rate in 2010 was 13%, which was the highest over the review period. Inflation helped to drive current value sales growth, particularly in food/drink/tobacco specialists and independent small grocers, which account for the bulk of the retail landscape in India. FDI in multi-brand retailing is a hot topic In 2010, foreign direct investment (FDI) in multi-brand retailers attracted a great deal of attention to market players, as the government brought up the issue of opening up the market for international retailers to invest in India. This initiative drew a mixed response, ranging from criticism amongst the opposition parties and independent players, to support from international retailers, which are eyeing up retailing in India; particularly international retailers such as WalMart, Tesco, Metro and Carrefour, which invested in cash and carry in the review period. Discussion is still ongoing, with a discussion paper organised by the DIPP (Department of Industrial Policy and Promotion) for political debate in parliament. Inflation drives sales in grocery retailers Grocery retailers saw faster growth than non-grocery retailers after the financial crisis in 2008. This led the value share of grocery retailers to increase to 68%, which was the same as the share in 2005. In 2010, inflation was the main driver of value sales in grocery retailers, as it was stubbornly high, which drove up the prices of essentials such as dairy products, pulses and vegetables. Nonetheless, non-grocery retailers remained buoyant, seeing double-digit growth,

supported by the growth of department stores, jewellers and clothing and footwear specialist retailers, as well as electronics and appliance specialist retailers. Modern grocery retailers are niche, but growing strongly Modern grocery retailers such as Future Value Retail and Reliance Retail are still small in India, yet they increased strongly over the review period. Modern grocery retailers managed to carve out a 1% share of grocery retailers in 2005, but doubled this in 2010, despite a slowdown due to the global financial crisis. Niche brands such as electronics and appliance specialist retailers Next and Croma, homeshopping formats such HomeShop18, and direct selling companies such as Amway India increased strongly to tap into the growth of the Indian economy in the review period. Opportunity awaits retailers With discussion about FDI in multi-brand retailers, the direction is moving towards the gradual opening up of the market; this is creating a great deal of excitement globally amongst multinational retailers, due to the prospects for growth in the Indian economy. Furthermore, an increase in the number of middle-income households is projected, which will lead to higher disposable incomes in the forecast period. However, significant investment will be needed to develop Indias infrastructure before these multinational players can enjoy the fruits of their investment.