Evaluating the Consumer Market: Key Sectors in India
DELHI – Several key growth sectors and industries make India an increasingly appealing destination for foreign companies seeking out new markets for their products and services. While FDI caps and restrictions can impede direct access to some key business sectors in India, the incoming BJP-led government has hinted at possible changes to the country’s FDI policy—most notably in multi-brand retail, e-commerce, railways, defense, and construction.
India’s Retail Sector
For many foreign companies, the opportunity to capture a share of India’s rapidly growing retail sector is the most compelling reason to explore options for exporting to and investing in the country. With more than a billion potential consumers, a growing middle class, steadily rising household income, and an organized retail market valued at more than US$30 billion, India’s retail market is among the most underpenetrated and promising in Asia. According to some analyses, increasing income levels combined with moderating savings will cause India’s consumer market to quadruple over the next two decades.
Between 2010 and 2012, India’s retail industry grew at around 10 percent per year, and is expected to maintain a compound annual growth rate (CAGR) of close to 19 percent through 2015—ultimately reaching a total value of US$800 billion in 2016-17. Organized retail, which currently constitutes around 8 percent of the total retail market, is expected to grow significantly faster than traditional retail and account for 20 percent of the retail market by 2020.
Within India’s retail market, food and grocery currently comprises the largest market segment at around 60 percent, followed by apparel, (8 percent), and mobile and telecom (6 percent). In organized retail, apparel dominates at 33 percent followed by food and grocery (11 percent), mobile and telecom (11 percent), and consumer electronics (8 percent).
While raising FDI caps in single and multi-brand retail to 100 and 51 percent respectively and loosening investment restrictions have eased some barriers to market entry, reaching India’s underpenetrated rural retail market remains the ultimate challenge (and prize) for many companies.
Underdeveloped infrastructure, an overall high cost-to-serve, and unreliable payment and delivery options continue to hinder access to rural consumers. However, this may change soon. Rapidly rising internet and smartphone penetration rates across India are driving the demand for easier access to organized retail in rural areas and better options for payment systems and delivery methods.
The Retailers Association of India (RAI) is the principal organization through which retailers in India communicate their concerns to the government, and the India Retail Forum and IndiaRetailing.com can serve as additional resources for companies exploring their potential in the sector.
This article is an excerpt from the July 2014 edition of India Briefing Magazine, titled “Passage to India: Selling to India’s Consumer Market.” In this edition of India Briefing Magazine, we explore several key growth sectors and industries that enhance India’s appeal to foreign companies seeking out new markets for their products and services. For overseas firms exploring the diverse range of options available for accessing and selling to the Indian market, we outline the fundamentals of India’s import policies and procedures, as well as provide an introduction to the essentials of engaging in direct and indirect export, acquiring an Indian company, selling to the government, and establishing a local presence in the form of a liaison office, branch office, or wholly owned subsidiary.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
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