Though the foreign direct investment (FDI) limit in single brand retail was raised from 51 per cent to 100 per cent in January 2012, investments have failed to pick up in the subsequent six months. This despite the country witnessing an overall FDI inflow of $16.74 billion during the first six months.
During the first six months, the share of FDI in single brand retail fell from 0.03 per cent in December 2011 to 0.02 per cent in June 2012. The most contentious issue was the condition on ownership and sourcing, but with these issues resolved, an improvement in FDI inflows should be visible over the next six-12 months.
With the Government's recent announcement on FDI in retail, research firm Knight Frank has said in a report that the retail industry in India needs strong back-end support and permission for foreign investment in a phased manner, which will help address the technology and experience gap that the industry is currently witnessing.
The report adds that the impact of big foreign retail players on domestic unorganised players is expected to be positive, ensuring that they move to a higher equilibrium of efficiency in the medium- to long-term horizon.
However, although weakness in the economy, as reflected in the macro economic data, still prevails, sentiment has certainly changed in the last few weeks, the report adds. However, this sea-change in business sentiment has not come easy.
While the recent measures will boost sentiment in the real estate sector, the relaxation in FDI limits would have a direct impact on the commercial real estate market. The entry of foreign retailers would not just address the high vacancy in retail real estate, but also help in the growth of such developments in the future, the report has noted.
Commenting on the performance of the top five Indian retailers, the report adds that Pantaloon, Shopper’s Stop and Trent have emerged as the largest retailers, registering a five-year average annual growth rate of 30 per cent, 27 per cent and 26 per cent respectively between 2007-2012.
Operating profits grew at an annual rate of 34 per cent during 2007-12, while the operating profit margin increased from 7.9 per cent in 2007 to 9.3 per cent in 2012 indicating healthy business operations.
The report adds that given the robust GDP growth as projected in the 12th Five-Year plan, inefficient unorganised players are likely to be pushed out of the retail market and absorbed in other economic sectors.