MUMBAI: Recent decisions by the Indian government to relax rules around foreign direct investment and sourcing in the retail sector are expected to accelerate the growth of organised retail and to push its market share to 10% by 2020.
Single-brand retailers previously had to seek government approval for investment above a 49% ceiling, but this has now been lifted to 100%, a move which is likely to encourage more overseas brands to enter the market.
That has been given an additional boost by the easing of sourcing requirements, which had meant retailers had to source 30% of products locally for five years after the opening of their first Indian store; but now that figure can be offset against their global sourcing from India.
Rating agency Crisil forecast that these changes will lift the share of organised retail in the country from 7% in the 2017 fiscal year to 10% in 2020 – one percentage point higher than the 9% it had earlier been predicting, the Economic Times reported.
“Global single-brand retailers facing growth headwinds in their key geographies will now be more than keen to peg a tent in India,” said Anuj Sethi, a senior director at Crisil Ratings.
“And those already present could step up investments,” he added. “The previous sourcing norms were a bottleneck to scaling-up of operations.”
Crisil anticipated the effects of the government’s move will be most keenly felt in those categories that already constitute almost half of organised retail, namely apparel, luxury goods, home decor, footwear, and electronics.
And the creation of a better operating environment for single-brand retail will also speed up the rate at which new stores are opened.
While domestic organised retail may face more competition, Sethi argued that foreign retailers would bring supply chain efficiencies that would benefit the whole sector over the medium-term.
Sourced from Economic Times; additional content by WARC staff