India’s retail story has just begun
The Indian retail market worth $250 billion is expected to grow at a compounded rate of 30%, in the next five years. It is fast becoming an area of growing interest among global retail companies. Wal-Mart Stores Inc., the world’s largest retailer, recently announced a joint venture with Bharti Enterprises, the parent company of Bharti Airtel Ltd, the largest mobile telecom service provider in the country. See our ‘News Makers’ section for details on Wal-Mart and Bharti Enterprises’ retail foray announcement.
The agreement is expected to catalyze the growth of “organised retail” in India, which will require investments of about $60 billion by 2010, according to estimates from Department of Industrial Promotion and Policy, Ministry of Commerce & Industry, Government of India. The segment growing at the rate of 25%-30% a year is expected to see its share in the total Indian retail market grow to 15%-20% in the next decade from the current 2%. India’s real-estate sector is expected to benefit from the retail boom as we discussed in the Special Report of Volume 2 | Issue 12 of our publication.
While global companies like Wal-Mart are lining up to grab a share of the pie, domestic companies such as Pantaloon Retail (India) Ltd, country’s leading retail company with more than 100 stores in 30 cities and Shoppers’ Stop, the largest retail stores chain in India have taken the lead in showcasing modern retail to the Indian consumer.
They are followed by India’s largest industrial conglomerate Tata Group with its subsidiary Trent Ltd that operates Westside, one of India's leading chains of retail stores for garments; Reliance Industries Ltd., India's most valuable firm with a market value of $37.2 billion and diversified Aditya Birla Group have made their retail forays respectively. While the early movers will have an advantage, the opportunities in the market are big enough to accommodate others who follow.
Indo-China trade: $40 billion opportunity
The recent visit of the Chinese President Hu Jintao to India was an expected one when viewed against the backdrop of the investment opportunities of about $150 billion in India in the next 10 years in infrastructure development, power, upgrading ports and railways.
President Hu Jintao’s visit is expected to open avenues to more than double the bilateral trade between the two countries by 2010 from $20 billion last year. The two Asian economies that were until recently seen as rivals are now turning a new leaf. As a first step in this direction, India and China had opened the trade route from Nathula Pass in Sikkim, the north-eastern border state, earlier this year.
Further, the two economies which have since long served as an important market for the developed countries will continue to increase their influence in the Global arena. The combined GDP of the two countries is expected to increase five-fold to $16 trillion per year by 2020 and share in the world GDP rise to 17% from the current 7%, according to CLSA the Asian securities brokerage division of Crédit Agricole SA, the largest banking group in France.
Economic Reforms spur FDI and industrial growth
The economic reforms that were initiated by the Government of India more than a decade back are now paying dividends. This is reflected in the increased investor confidence and growth in the Indian economy at more than 9% in the quarter ended September 30, 2006, as per estimates by the Central Statistical Organisation, responsible for coordination of statistical activities in the country.
This is the sixth quarter out of the past seven that GDP growth has exceeded 8% and was among the strongest increases the country has ever recorded. The economic reforms that included the delicensing of most industries, deregulation of industries earlier monopolized by the public sector, liberalisation of foreign trade through a steady reduction in tariffs, and freeing up of the foreign investment limits in nearly all industries have shown progressive results.
The industrial growth of India touched a decade-high of almost 11% during the first six months (April 2006 to September 2006) of the current financial year compared to 8.5% in the same period last year. Although India is known for its prowess in services, its manufacturing sector grew by 12% in April-September 2006, compared with 9.5% during the same period of last year. This growth is coming out of India’s domestic enterprise and makes the same stronger for scaling global opportunities. The increased foreign direct investment (FDI) inflow will compliment the same.
Investors’ search for investment opportunities that yield exponential returns continues to be on the rise and India’s appetite for attracting incremental investments year-on-year, probably explains the record $4.4 billion FDI received during April-September 2006. The growing trend is expected to continue as the country will attract FDI worth more than $12 billion in 2006-07 as compared to $7.7 billion the previous year, according to government estimates.
This is significant as, not only is the figure twice that of the same period last year, it is the highest recorded FDI in India during any six-month period.
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