A. Foreign Direct Investment in the Retail Sector
Retailing in India, though one of the stabilising and rapidly expanding sectors of the economy of the country, is a very vibrant industry. As mentioned in various market reports, it went up to estimated USD 3,600 billion by 2020, which amounted to about 10 percent of the GDP of the country. The industry India is at the top of five destinations of retail investment anywhere in the world.
1. Breakdown of Retail Sector and FDI Policies
Indian retail sector is complex in nature and various sub-sectors have different policies of dealing. Notably:
Wholesale Trading: Since 20192020, India has opened 100 percent foreign direct investment under automatic route in wholesale trading. FDI however can be subjected to the nature of the customers to whom goods are sold whether being businesses or end-users.
Single Brand Retail Trading (SBRT): The Indian government has approved 100% foreign direct investment through the automated route of SBRT as long as the products are branded in the similar fashion on a global scale.
Multi Brand Retail Trading (MBRT): MBRT will need prior government approval because it would imply sales of more than one brand to the customers.
Retail investments in India present existing rules that are sharply limited by stringent regulation rules, particularly in the case of foreign retail players. The legal position needs to be understood and it has been through our experience to advise some of the best and known brands that it is a necessity to follow a sector specific compliance strategy.
FDI Caps & Routes for Retail in India
100% FDI – SBRT (Automatic Route)
100% FDI – Wholesale Trading (Automatic Route)
51% FDI – MBRT (Government Route)
2. Recent Trends and Investments
Different government and industry organizations have carried out an analysis of the retail sector in India; they have estimated that this sector will surpass USD 1.5 trillion by 2030.
Some recent major developments include:
AP Group had launched a Just Cavalli, an Italian brand of clothing, in India, proposing more than 200 stores all over India.
Mi India also declared that it will invest USD 13.62 million to strengthen the retail infrastructure, and help vendor partners.
Lenskart, designer homegrown eyewear store has raised USD 220 million from unknown investors abroad.
As a preparative measure before IPO, Delhivery, a logistic company received more than 100 million USD of capital provided by a FedEx subsidiary.
On the outbound retail acquisition trend, Byju, an Indian edtech unicorn spent USD 2.2 billion in 2021 to acquire In India and outside of it.
3. Leading Foreign and Domestic Investors
Some of the global giants have invested billions of dollars in the Indian market through retail and the Indian corporations have started acquiring assets abroad as well. This bilateral flow of investments reflects the robustness of not only Indian retail sector but also its globalized nature.
B. Key Players in the Indian Retail Market
The Indian retail industry has major players in most categories including apparel, electronics, food & grocery, personal care, and online retail.
Top Category: Apparel & Footwear
Substantial investment is given to this category and the consumer activity in this segment is highest. Prominent players in the game include company like Aditya Birla fashion and Future Lifestyle fashions.
Category-Wise Market Leaders
You are welcome to complement this section with a table or a chart presenting the market share in:
Electronics
Food & Grocery
Online Marketplaces
Apparel and Footwear
Home & Lifestyle
C. Regulatory Framework & Policy Landscape
Key Laws Governing Retail in India
Essential Commodities (Amendment) Act, 2020
Consumer Protection (E-Commerce) Rules, 2020
Foreign Exchange Management (Non-Debt Instruments) Rules, 2019
Consumer Protection Act, 2019
Clarifications on FDI in SBRT by DIPP
Recent Policy Updates
A new policy on e-commerce is in the works within the government, as there must be a policy that can regulate and promote fair trade.
Most recently online retailing (B2C e-commerce) also became open to 100 percent FDI subject to a number of conditions regarding inventory and marketplace rules.
The policy efforts are trying to persuade the e-commerce marketplaces to market the Make in India products, mainly during the global supply chain interruptions.
D. Noteworthy Legal Controversies
1. Amazon vs. Reliance – Battle for Future Group
In a high-stakes dispute:
Amazon holds a 49 percent shareholding in Future Coupons; this is indirectly having a shareholding of 3.58 percent in Future Retail.
The Reliance Retail made an acquisition deal with Future Group, which provoked a legal contest.
Amazon had turned to SIAC (Singapore International Arbitration Centre) that gave a judgment in its favor.
Indian judicial institutions stated that the SIAC interim order was enforceable in the country under the Arbitration and Conciliation Act even in the Supreme Court.
This move caused a 3 percent decline in Reliance stocks and this created a ripple effect in the financial position of Future Group.
2. Walmart and Bharti Enterprises Split
However, the entry of Walmart, to India was through a joint venture with Bharti Enterprises through a cash and carry system. Nevertheless, the alliance was destroyed by 2013 because of:
Internal policy concerns,
Regulatory ambiguity, and
Walmart’s global legal issues, including alleged violations in other jurisdictions.
Walmart is expected to re-enter the business due to liberalized state level policies (post-2016) given that Indian states are gradually opening their markets to foreign retailers.
E. Growth Opportunities in Retail
1. Post-Pandemic Recovery
In January 2021, a 93 percent rebound of the sales to levels before the pandemic was registered as stipulated in the Retailers Association of India. Particularly sectors such as:
Consumer Durables saw a 15% rise
Quick Service Restaurants (QSRs) grew by 18%
2. Simplified Tax Regime – GST
Retail taxation has been simplified through the transition of India to Goods and Services Tax (GST). It substituted several indirect taxes and:
Applies a destination-based approach (tax is levied on goods consumption)
Provides harmony among the states
Benefits both offline and e-commerce retailers by reducing compliance complexity
F. The Road Ahead
The retail business in India is taking an exponential growth path. India also has a solid e-commerce setting and viable investment environment and will be set to overhaul the number one retail destination in the world by 2045.
The industry has predictions of an 84 percent increase by 2024 due to urbanisation, digital infrastructure and disposable income.
Retail is currently one of the foremost contributors to employment and GDP in India with its employing approximately 8 percent of the workforce.
The strength possessed during and after the pandemic demonstrates a potential of India as the global retailing giant.
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