The retail sector saw a tumultuous year in 2012, punctuated by ebbs and flows in the government’s attempts to bring in laws to permit foreign direct investment (FDI) in the multi-brand sector.
The issue snowballed into a political tussle with voices raised against the move in the first-half of the year.
While FDI in the wholesale (cash & carry) segment and single-brand retail is allowed, it was only in September 2012, that 51 per cent FDI in multi-brand retailing was allowed.
The Parliament approved the FDI policies and the sector, which was stagnating due to paucity of fresh capital infusion, is likely to get a boost going forward.
Industry watchers feel that organised retail, now estimated at $500 billion, will grow at 15 per cent annually.
“The major advantage of the entry of private companies, including domestic and foreign, into the retail sector is the enhanced flow of investments in overall infrastructure and the establishment of new supply chains,” said Pranad Barua, Business Head-Apparel & Retail Business, Aditya Birla Group.
“Retail giants are able to transform the farm-to-fork infrastructure,and develop transport infrastructure”.Also, contrary to expectations that the floodgates of investments would open as soon as FDI is allowed, there are now more realistic expectations that it would be at least a year before any significant investment comes in.
“When FDI comes in, it would be an evolutionary phenomenon rather than a revolutionary one,” Kumar Rajagopalan, CEO, Retailers Association of India (RAI), told The Hindu .
Another factor would be the prevailing sky-high realty rates in major metros, which have not shaved too much off their record highs despite the economic slowdown.
“Metro realty rates have not let up and increasingly retail players will get into metro suburbs. It is typically known as the ‘doughnut’ effect, where city centres become prohibitively expensive and activity tends to fan out to the suburbs,” Mr. Rajagopalan said.
According to Mr. Rajagopalan, “everyone knows India as one of the largest markets but it is certainly not the easiest and what is called for is ‘patience capital’ of 7-8 years. Global retailers will look for a guarantee in consistency of laws”. “Going forward, India is poised to become a competitive market that will have some of the best retail players providing products and services on a par with global retail standards,” said Mr. Barua.
“We are hoping that in the coming year, consumer sentiment will gain momentum and the markets will improve”.
