Academic journal article Asia-Pacific Business Review

FDI Retail Sector in India: Opportunities and Challenges in the Present Scenario

Academic journal article Asia-Pacific Business Review

FDI Retail Sector in India: Opportunities and Challenges in the Present Scenario

Article excerpt


An important aspect of the current economic scenario in India is the emergence of organized retail. There has been considerable growth in organized retailing business in recent years and it is poised for much faster growth in the future. Major industrial houses have entered this area and have announced very ambitious future expansion plans. Transnational corporations are also seeking to come to India and set up retail chains in collaboration with big Indian companies. However, opinions are divided on the impact of the growth of organized retail in the country. The important role of FDI in supplementing domestic resources and in ensuring employment generation in the development of an economy is unquestionable. (Retail industry report (2006), Dinlersoz, (1999), and Rao (2006)). At present, India's retail market is largely unorganized, with an estimated 15 million tiny outlets catering to the individual needs and employing the second largest number of people after agriculture. The organized retail giants targeting the 300 million in the "middle classes" and the 200 million in the rural areas, who form a consumer market worth more than $100 billion. Even though India has the highest number of per capita outlets- 6-per1000 populations; it has the lowest retail power. The retail outlets are dominated by grocery in both the urban and rural areas and this represents 71% of the retail market in the rural market.

Organized retailing should be given policy support and time by the government to establish itself firmly. Investments into the Indian retail sector are estimated at Rs. 20,000 crore (Rs. 200 billion) by 2010. According to Sreejith and Raj (2007) the organized retail segment is growing at the rate of 25-30 per cent per annum, revenues from the sector are expected to triple from the current US$ 7.7 billion to US$ 24 billion by 2010 and making it among the fastest growing industries in the country. Study conducted by the Indian Council for Research on International Economic Relations (ICRIER, 2008) shows that organized retail, contributes only 4.0 % at present in india, while in USA and Taiwan it is about 85% and 81% respectively (see Fig.1), It will grow by 25-30% every year and become Rs.100,000 crore (Rs.1000 billion) by 2010. With the growth of malls, multiplexes and hypermarkets, the consumer is being exposed to a new kind of shopping experience and services which is quietly and surely redefining her expectations from shopping. India is having a more than 30% young population and the younger generation, which was comfortable with the buy--today, pay-later concept would drive the retail boom. This can be understood simply by seeing the growth of No. of credit card by more than 35% in last few years. The younger generation is taking loans that did not exist a few years ago, another important thing for retailers is that around 45% of credit card spends are on consumer durables, apparel, footwear and music products that land themselves to organized retailing. (CII -Mc Kinsey report 2005).

Organized Retail

India is the 'second most attractive destination' globally from among 30 emergent markets for foreign direct investment. It provides India the cause of good deal of excitement and the cynosure of many foreign eyes. With a constitution of 14 % to the national GDP and employing 7 % of the total workforce in the country, the retail industry may definitely be one of the strong pillars of the Indian economy. At present the share of organized retail in India is very less and there is a wide scope for growth available in near future (see Table1 and Figure1).


In the era of the organized retail boom in India still 85% organized retailing has so far been concentrated in the metros. It would also percolate to tier II cities with population of 5-10 lakh, the contribution of these cities in organized retailing sales would grow to 20 25%. …

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