The Indian retail sector has hitherto been highly fragmented and ailed by absence of modern practices, large scale capital and well trained human resources. But things are beginning to change. Organized retailing is rapidly emerging as one of India’s fastest-growing sectors, powered primarily by increasing consumer spending and widespread access to low-cost credit. Experts believe that a retail boom is inevitable in the coming years in view of the enormous purchasing power enjoyed by a growing number of Indians (according to one assessment 20% of India’s population earned 40% of the gross national product) and the absence of quality retail outlets in sufficient numbers (only about 3% of the population has access to modern retail outlets). A recent Pricewaterhouse Coopers study identified India as one of seven countries that offer the strongest investment opportunities for retail and consumer companies. Another report, from KPMG, expects the organized retail sector to grow stronger than GDP growth in the next five years, and, inter alia, concludes that the sheer size and potential of India’s rural market has been underestimated.

There is also speculation that one of India’s biggest companies – Reliance Industries – plans a grand entry into the retail business. It proposes to divide the country into 21 zones and target revenues of about USD 18 billion by the end of the fifth year. The business will be inaugurated in 20 A-class cities, and subsequent expansion will result in coverage of 100 places. The larger retail centres are likely to be spread over 100 acres and comprise of, inter alia, a big mall, entertainment facilities, eateries and a small hospital. In fact, Reliance’s plans are part of a growing trend amongst large Indian corporates to enter the organised retailing sector. Not to be left behind, existing retail majors are also drawing up ambitious expansion plans.

Amidst this boom, the debate persists as to whether foreign investment in retail trading should be permitted, and if so, on what terms. Opponents of foreign participation are primarily concerned about the ability of small retailers to survive the competition that large multinationals would bring and a consequent rise in unemployment. Yet, the government continues to work on modalities for permitting foreign investment in this sector as it believes that doing so will lead to introduction of global best practices, efficient deployment of resources, large scale job creation, increased economic activity, superior products, less wastage, a better price for producers, access to international markets and, of course, more choice for consumers.

The government, however, does plan to impose a few checks and balances to protect the small retailers who are also referred to as the ‘mom and pop shops’. For instance, investment is likely to be restricted to outskirts of major cities with caps on the number of outlets that a retailer can establish. Also, at least to begin with, foreign companies will be required to form joint ventures with Indian partners, source certain products locally and investment may be permitted only in the food and agricultural items business since the perception is that this sector would benefit most from foreign expertise and capital. The final contours of the policy are, however, still unclear as much depends on the attitude of the left wing parties, on whose support the ruling government is dependant. The left is opposed to any foreign participation in this sector. Informal efforts are, however, being made to persuade them to soften their opposition.

Despite the delays and uncertainty, several foreign companies have chosen the wholesale cash and carry trading as well as the franchising routes to access the Indian market. Most of them believe that doing so will give them a head start over others who enter when foreign investment is finally permitted. Besides, even in its current form, the regulatory framework offers a significant opportunity to do meaningful business in India.