The indications are that India's consumer confidence is returning, providing a much-needed stimulus to the retail market.
India's spending spree to resume
MUMBAI // India's retail industry, the world's fifth largest, has been buffeted by the economic slowdown this year as the country's free-spending middle class tightened its purse strings. But there are indications that consumer confidence is returning, providing a much-needed stimulus to the retail market that is expected to grow next year to more than US$400 billion (Dh1.46 trillion), India's Associated Chambers of Commerce and Industry has forecast.
Banks, capital goods, engineering, fast-moving consumer goods, software services, oil, marketing, power and telecommunications companies are tipped to lead the way. The Indian retail market is estimated to grow from $385bn in 2007-08 to $405bn by 2009-10, and to $573bn by 2012-13. The sector has been growing at a compound annual growth rate of 28 per cent for the past five years and provides employment to 8 per cent of India's working population.
"The retail sector is witnessing exponential growth with development taking place not only in major cities and metros but even in Tier 2 and Tier 3 cities in India," says Swati Piramal, the president of thechambers. India already has one of the largest number of retail outlets in the world and plans are afoot for more than 100 malls, representing 2.7 million square metres of retail space, to be opened next year.
Domestic players such as Pantaloon Retail India have ambitious expansion plans. It intends to invest $77.8 million this financial year to add up to220,000 sq metres of retail space at its existing operations. Wills Lifestyle, another retail giant, plans to open 100 stores in the next three years. Foreign retailers are also showing an interest in the Indian market despite government restrictions that limit foreign direct investment to 51 per cent in the single-brand retail segment.
But that has not deterred Australia's Retail Food Group, which plans to enter India this year with a revenue goal of $87m from the country within five years. In 20 years, the company expects their Indian operations will be bigger than its Australian business. Lifestyle International, a part of the $1.5bn Landmark Group based in Dubai, plans to have more than 50 stores across India by between 2012 and 2013. These would include 35 Lifestyle stores for apparel, cosmetics and footwear, and 15 outlets for home furnishings.
India's retail market has been ranked this year's most attractive emerging market for investment by the consultancy AT Kearney. The retail trade comprised between 8 and 10 per cent of the country's GDP in 2007. With the development of the organised retail segment, its share rose to 12 per cent last year. In recent years, thanks to a booming economy, millions of middle-class Indians shed the spartan lifestyle of previous generations.
In the past few years, Indians have enjoyed some of the world's largest salary gains. Last year, salaries rose by an average of 15.1 per cent, the steepest rise in Asia. Growing incomes spawned a generation of high-spending middle-class Indians. But as the recession from the West knocked on India's doors last year, the middle class, facing the dour prospect of job cuts and a crimp in salaries, cut back.
Subhiksha Trading Services, a retail giant based in Chennai, announced bankruptcy this year and closed all of its 1,600 stores because of a severe liquidity crunch. Others such as Vishal Retail, a north Indian retail chain, announced corporate debt restructuring, and Reliance Retail, run by Mukesh Ambani, and Pantaloon, led by Kishore Biyani, reduced operations and scaled back expansion plans. But now as India's economy emerges from the shadows of the recession, the middle class is likely to be spending again. Less than 30 per cent of India's 1.2 billion people are classified as middle class, which the National Council for Applied Economic Research defines as earning between $4,500 and $22,000 a year.
This group accounts for 75 per cent of the consumption of major consumer goods, including cars, air-conditioners, television sets, washing machines and refrigerators. Consumption rose to 17tn rupees (Dh1.34tn) and was expected to peak at 70tn rupees by 2025. India, say experts, is in a virtuous long-term cycle in which rising incomes lead to increasing consumption that, in turn, creates more business opportunities and employment, further fuelling GDP growth and reducing poverty.
"Private consumption has already played a key role in India's growth than it has in that of other developing countries," said a report by the consultancy McKinsey India. "The sheer buying power of the emerging middle class will drive the economic engine." @Email:firstname.lastname@example.org