PRINT THIS PAGE Consumer Markets in India - the next big thing?20/09/2006. Source: KPMG.
India represents an economic opportunity on a massive scale, both as a global base and as a domestic market, says KPMG. Regulatory controls on foreign direct investment have relaxed considerably in recent years and price controls have been progressively liberalised since 1992. Regulatory controls on foreign direct investment (FDI) have relaxed considerably in recent years. However, while retailing currently remains closed to FDI, this is an area of ongoing debate. This means that foreign retailers and consumer goods manufacturers can only participate in the retail market through indirect access strategies, such as wholesaling, franchising or licensing, or by having a manufacturing base in India, or in businesses upstream of retailing. However, the Indian government has indicated in 2005 that liberalization of direct investment in retailing is under active consideration.
Price controls have been progressively liberalized since 1992, but a small number of items remain fully controlled. There are also extensive controls on packaging, labeling and certification.
Estimates of the size of the retail sector vary, with recent calculations putting the annual value of Indian retailing anywhere between US$180 billion and US$292 billion in 2003. The retail sector is largely made up of what is known in India as the unorganized sector. This sector consists of small family-owned stores, located in residential areas, with a shop floor of less than 500 square feet. At present the organized sector (everything other than these small family-owned businesses) accounts for only 2 to 4 percent of the total market although this is expected to rise by 20 to 25 percent by 2010.
Many of the companies surveyed believe that the potential size of this market is underestimated. They consider that there are considerable opportunities for organized retailers in the kind of rural territories that many companies have failed to address. A critical issue is how fast and how far the consuming class will grow. This depends both on the growth of personal disposable income and the extent to which organized retailers succeed in reaching lower down the income scale to reach potential consumers towards the bottom of the consumer pyramid.
Companies expect retail growth in the coming five years to be stronger than GDP growth, driven by changing lifestyles and by strong income growth, which in turn will be supported by favourable demographic patterns.
The structure of retailing will also develop rapidly. Shopping malls are becoming increasingly common in large cities, and announced development plans project at least 150 new shopping malls by 2008. The number of department stores is growing much faster than overall retail, at an annual 24 percent. Supermarkets have been taking an increasing share of general food and grocery trade over the last two decades.
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KPMG Corporate Finance - Global independent advisors to the middle market. www.kpmg.co.uk
© 2006 KPMG Corporate Finance
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