Despite being Restricted, Why India's Retail Sector is Still Attractive for Foreign Investors?

By - CEM Team

Retail industry in India appears to be getting a transformational push with the collaboration between the organized, unorganized and online retail growth.

Retail is one of the biggest employer and contributor to the country’s GDP. With the demographic dividend and changing population base of the country, retail is subject to continuous change. Not only there is a significant estimated growth in the domestic segment; the behaviour and lifestyle changes in consumers in Tier II, III cities and rural areas have started carving and providing a glimpse of the future of retail in India.  Single-brand retail, cash-and carry, and e-commerce retail models are finding increased business opportunities in Indian market.

Last year, even the government of India has tied up with Snapdeal to sell tribal products online. The industry aims to serve better services in the future as with the initiation of online segment and the positive development in the offline segment, the demand for both domestic and international sector presumes to upsurge.

As per latest industry data, India’s retail market is expected to reach a market cap of $1.3 trillion by 2020 from $600 billion in 2015, driven by rising incomes, urbanization and attitudinal changes in consumers. With India’s GDP expected to grow at 8% for the next 3 years, these factors are most likely to be unaffected if not grown exponentially. With current retail sales worth $925 million, India’s retail market has had 5.8% annual growth in India between 2010-2014.  It is statistics like these that has compelled foreign players like Walmart to make plans of adding 50 wholesale stores to its existing 20 in India in the next 5 years.

The future group plans to increase the number of stores in India from its current 500 to 4000 in the next 5 years.
Consumption in India is expected to increase from $1 trillion in 2015 from $3.6 trillion in 2023, the main driver of this growth being the average Indian consumer. As per industry estimates, housing and consumer durable sector in India is expected is expected to grow 4 times by 2020. The penetration of refrigerators, for example, in India is 18% today much lower than 70% in China and 65% in Brazil, leaving room for significant potential. The apparel sector in India grew by 3.3 times over the last 10 years. Processed food is currently less than 10% of retail sales in India, which by 2020, is expected to rise to 20%-25%.