Introduction

Retailing defines the direct interface between the manufacturers and the end users who are
basically individual consumers. The retail business owners stock up all goods after
purchasing it directly from the manufacturers and then sell it to individual customers keeping
a profit margin for themselves. Of late the retailing industry in India has bloomed with much
coveted success causing positive impact on the national economy. It accounts for 1415% of
its Indias GDP. The Indian retail market is estimated to be US$ 450 billion. As per the recent
revelations by the popular International Management Consultancy AT Kearney, India has
been considered the second most lucrative destinations of the world for retail business.

Factors influencing growth of retail sector in India:
There are various factors that influence the growth of the retail sector in India. In this report,
we will be discussing the three most important factors. They are:
1. Government policies
2. Competitiveness in the Indian economy
3. Consumer welfare
1. Initiatives taken by Indian Government to Encourage Retail Sector
The first thing that comes to mind when we think about the policies of the Indian government
in encouraging the retail sector in India is Foreign Direct Investment (FDI). The Indian
Government allows 51% FDI in Multi Brand Retail Trading (MBRT) and 100% FDI in
Single Brand Retail Trading. FDI is good for the economy of India since the entry of foreign
brands into the Indian market will bring with them many benefits like improving the forex
position of India, employment generation, and increase in tax revenues, etc.
Foreign chains have to source at least 30% of their products at local level which can be met
over a period of 5 years initially and after that it has to be met on yearly basis. Global chains
will need to invest only 50% of the initial compulsory investment out of $100 million in
establishing the warehouses and cold storages in India. Apart from this, half of the overall
investment done by foreign retail players in India has to be in developing back end
infrastructure.
The 2013 budget announced the continuation of the Technology Upgradation Fund Scheme
in the Twelfth Five Year Plan and Rs 24 billion allotment for technology up gradation. This
encouraged investments in power loom modernization.
Gradual liberalization of FDI policy for retailing in India has increasingly propelled global
retailers to evaluate a foray in the Indian market. Furthermore liberalization/ modifications in
the policy could result in speeding up the process of setting up and expansion of operations in
India.
2. Competitiveness in the Indian Economy
Competitiveness gives rise to efficiency. If there is no competition there will be a tendency to
just be complacent and many companies have lost out the market because of this.
The retail sector in India is ever expanding and many new players come into this sector on a
regular basis. Therefore, the competition in retail sector is increasing day by day. This is a
good sign for the Indian consumer, because this increased competition will also give rise to
better quality of product. The Indian consumers are becoming value oriented in terms of
improved availability and quality, pleasant shopping environment, financing option, trial
rooms for clothing products, return and exchange policies and competitive prices. They want
more value for their money. If there are two companies competing in the same segment, the
consumer will obviously prefer the company that is giving more value for the money that
they are spending. So the companies will have to raise the quality of their products and bring
in more value adds into their product to survive in the market. This has created a rapid
growing opportunity for organized, modern retail formats to emerge in recent years and grow
at a fast pace which in turn leads to economic growth.
Organised retailers face immense competition from the unorganised retailers or kirana stores
(mom-and-pop stores) that generally cater to the customers within their neighbourhood. The
unorganised retail sector constitutes over 94% of Indias total retail sector and thus, poses a
serious hurdle for organised retailers. During the economic crisis of 2008, the traditional
kirana stores adopted various measures to retain their customers, which directly affected
organised retailers. Generally, it has been observed that customers shop impulsively and end
up spending more than what they need at organised retail outlets; however, in kirana stores,
they stick to their needs because of the limited variety. During a downturn, many customers
may not like to spend more as is evident from the past few months trend that shoppers are
increasingly switching from organised retail stores to kiranas.
Also, India is growing tremendously in terms of technology. The new companies that come
into the retail sector in India are better equipped technically than the older players in the
sector. There is a very high need for the old retail firms to upgrade their technical knowledge
to compete with these emerging market players.
Consumer Welfare:
Due to the competition in the retail sector, nowadays the Indian consumer has a lot of options
to choose from. He has various brands to choose from. Also, since the market is not
monopolised, the cost of the retail goods too have reduced to a great extent and hence it is
allowing the consumer to save money.
Also because of the competition in the Indian retail market, the quality of the goods available
to the consumer has increased and this allows the consumer to get maximum value for his
money.
Also the retail sector is producing a lot of employment opportunities for the rural areas.
Hence, the quality and standard of living of the people in rural areas have also improved. Due
to this they tend to spend more and so the money comes back to the retail sector.
There is need for a large consumer survey in India, which focuses on the likely impact of FDI
retail policies on consumers. Since India is not a homogenous market, a larger sample size
will help to capture more variations in consumers shopping behaviour and perceptions across
different regions of India. This will also help to draw up state-level retail policies.











PESTEL FRAMEWORK
POLITICAL ECONOMIC SOCIO-
CULTURAL
TECHNOL
OGICAL
ENVIRON
MENTAL
LEGAL


I
N
D
I
A
N

R
E
T
A
I
L
Change of
government,
hence new
policies

Taxation
Policy-VAT

Strong
opposition to
FDI in India

Indias relation
with other
countries

Fair trade laws

Interest Rates
& Monetary
Policies

Taxation

Exchange
Rates

Inflation Rates

Inequality in
income

Foreign
Investments
Income
distribution

Lifestyle
changes
between urban
and rural
population

Living and
working
conditions

Fashion
changes

Affordability


Growth of
e-commerce

New
inventions

Exchange
of technical
know-how

Latest
technology
and
software
upgradation

Government
spending on
research

Infrastructur
e
developmen
t
Seasonal
products

Waste
disposal

Pollution
problem

Noise
control

Environmen
-tal
Clearances

Availability
of resources
Legal
policies
and
trading
regulation
s

EU and
Internatio
nal laws

Trade and
Product
Restrictio
ns

Licence
issuing
authority
are
corrupted
so many
licence are
used for
illegal
purposes