FDI to be retail's next growth driver in India: Deloitte

In its latest thought leadership publication titled, Retail FDI in India, Deloitte has highlighted the growing relevance of foreign direct investment (FDI) and the government's openness on FDI in retail trade in the country.

According to the publication, the FDI-led expansion of retail would not only boost consumption but would also provide the country's mom-and-pop stores access to latest technologies that would form key to further growth of the sector.

About 70 per cent of Kirana stores in big cities and 37 per cent of Kirana stores in tier II cities want to enable themselves with new technology. Availability of latest tools brought by global entities would thus help local businesses as well.

Retail trading witnessed a year-on-year increase of 98 per cent in FDI inflows in FY19. The foreign investments increased from $224 million in FY18 to $443 million in FY19.

Poised to be the third largest consumer retail destination in the world, India is now an attractive investment destination for retail. The report underlines the need for policy to address the trends of convergence of modern retail and traditional retail and deeper penetration of organised retail in non-urban areas - both of which make India a unique market for multinational enterprises.

In turn, global brands fetch capital investment, technology strength, and infrastructure benefits for local markets; thus, bringing in new sustainable retail models for an emerging economy such as India.

Commenting on the launch of this thought paper, a Deloitte India spokesperson said, "Over time, with the help of regulatory assistance and on the back of a sound policy environment, India has moved up from rank 130 to 63 in World Bank's Ease of Doing Business Report. The country has emerged to be the only one to have improved its ranking by more than 10 points consecutively for three years. This trend has helped enhance investor confidence and propelled greater inflow of FDI in India for retail."

With greater investment, some aided with FDI, traditional retailers and Kirana stores can overcome operational challenges, such as lack of advanced technology and modern payment tools and working capital issues. This clearly brings the "best of both" to the Indian consumer, and with the advent of technology it is a win-win situation for everyone."

The study reveals various reasons for the increased inflow of retail FDI in India, including, but not limited to the new direct tax regime, local sourcing norms, timely and effective implementation of GST, and change in FDI requirements for the retail sector.

In addition to this, it paints a positive future for India's e-commerce market, which is expected to grow at a compound annual growth rate (CAGR) of 30 per cent due to growing internet penetration and increasing smartphone usage along with the rising number of online shoppers in India.