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Retail Market

Indeed, the retail sales market in India is valued at an estimated Rs15. 5trn (US$350bn) in 2005 (See Table 1), accounting for 46. 7% of GDP. Year-on-year sales expanded by 10. 9% in local-currency terms, driven by strong economic growth and rising incomes, while the weakness of the US dollar contributed to high growth in US dollar terms. Over the period 2001-05, the retail market grew at an average annual rate of 9. 1% in rupee terms and 9. 5% in US dollar terms. The retail sector is the second-largest employer in India after agriculture and employed 42 million people in 2005.

However, retailing remains largely undeveloped in India, but this is changing quite rapidly, as the government liberalizes the sector and opens it up to foreign investment. Organized retailing, which is characterized by the presence of franchise and chain outlets, large premises and supply-chain management, constitutes only about 3% of the retail sector and tends to be concentrated in major cities. Organized retailing is, however, expanding rapidly and could account for 20% of all retail sales by the end of the decade, according to industry analysts (EIU Viewswire, 2 March 2006).

About one-third of households in India can afford (usually inexpensive)

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white goods, such as washing machines, refrigerators and air-conditioners. However, consumers are price-conscious, and demand for many white goods is restrained by long replacement cycles in urban areas. Most consumer durables are manufactured in India. Moreover, the increasing public demand for convenience and service is expected to fuel growth among large retailers, most of which are expanding rapidly. Foreign entry into the retail sector is heavily regulated, but the government is lifting restrictions on wholesale cash-and-carry operations and single-brand retailers.

The U. S. Department of State Commercial Guide for India (2001) had provided that India has adequate laws and regulations governing commercial transactions. Central and state governments regulate the prices of “essential” products, including food grains, sugar, edible oils, basic medicines, energy, fertilizers, water and many industrial inputs. Many basic food products are under a dual pricing system—at fixed prices through government distribution outlets, at market prices on the open market.

Regulation of drug prices has been a concern for U. S. pharmaceutical firms in India, though the number of regulated drugs has been sharply reduced. The Indian government is revising the 1956 Companies Act, which governs competition laws and commercial practices The Indian Parliament in May 2000 passed the Information Technology Bill, 2000 to provide the legal framework for India’s growing E-Commerce sector. Indeed, the Euromonitor International (12 November 2006) agreed that India is ripe for a retail revolution. The retail sector should be worth more than US$300 billion in five years.

Presently, there are more than 12 million shopkeepers who account for 97% of all retail sales and opposition to liberalization of the sector is strong. However, the government seems determined to move ahead. The government is working – with some success – to raise levels of investment. Still-strong business confidence, accelerating industrial production, widespread capacity constraints, and robust expansion of capital goods production imply that investment is unlikely to decelerate before 2007. Despite this progress, total investment remains only about half the level of China and FDI inflows are about a tenth of those going to China.

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