Erica Southern

Intro

An ever changing, fast growing country full of traditional values, India

is a country that is in the headlights of investors. India’s median age of its

population is 25 years old, which show’s a lot of hope for the young country’s

future. India’s economy, politics and legal system have changed much

throughout the years in regards to fashion but now domestic and

international investors are seeing India as a profitable market and want to

heavily capitalize the retail markets there. “A comparatively stable

government, an open democratic set-up, and a strong and reliable judiciary

system, add further advantage to the Indian economy”

Economic

Before the British government took over in 1858, India was the world’s

greatest economy at 32.9% GDP. Now, India has the tenth largest economy

in the world, and also has a GDP growth rate of 8%, making the country a

prime target for economic growth and investors. “By 2030, India will become

the world’s third largest economy with projected Purchasing Power Parity

GDP at $13,716 billion.” Retail is an important sector of the economy in

India, making up almost half (35%) of their GDP.

As the economy of India has shifted on a favorable scale for natives,

the changes have produced a higher disposable income for India’s citizens to

spend on goods. Unlike the older population, who has a long history of

wanting to save their money, the younger generation is changing their

shopping habits and how they treat their money. They are doing the exact

opposite and spending. This is very good for India’s economy because like

said before, the majority of the population is young and it will stimulate

economic growth within the country. In fact, according to it already has

increased spending in the country from 8% to 9% in the first decade of this

century. The Business Processing Outsourcing (BOP) has caused this new

blooming single young customer who has a high disposable income and

wants to spend it. This has increased sales in shops around BPO locations

compared to other locations.

India holds the title for the largest amount of retail outlets in the world

with more than 15 million outlets. As remarkable as that is, there are

surprisingly no global merchandising/ fashion brands that come from India.

This is a huge opportunity that India should jump on because it could

possibly raise the economic growth even more than it is now.

Legal & Politics

India has the world’s largest democracy in the world. The government wants

investors to come to India but does not want India to be taken advantage of.

Foreign retailers used to be only limited to cities with less than a million in

population, but now they are able to open stores in cities less than one

million. “Foreign Investment in India is governed by the Foreign Direct

Investment Policy of the Government of India and the Foreign Exchange

Management Act, 1999 (FEMA) Foreign investment is permitted in virtually

all activities without prior Government approvals, except for a few strategic

sectors. The FDI policy is framed by the Dept. of Industrial policy &

Promotion (DIPP) the Ministry of Commerce & Industry and the Government

of India. It is implemented by the Reserve Bank of India (RBI) for cases falling

under the automatic route; and the Foreign Investment Promotion Board

(FIPB) at the Ministry of Finance, if approval is required.”

The current policies of the FDI in retail trading are as follows:

1. Foreign direct investment can be 100 percent for franchisee and cash-

and-carry wholesale formats.

2. An investment of up to 51% with prior approval is allowed for single-

brand stores. They must sell under the same brand internationally and

branded during manufacturing.

3. Multi-brand store formats aren’t allowed, although the government is

currently deliberating allowing FDI in multi-brand large and medium

format retail stores.

Under this act and policy, many retailers have opened shop such as

Metro, a German-based retailer and also Carrefour. Carrefour has a cash

and carry format which is to the retailer’s advantage because the retailer

can make decisions without having to worry about having a mutual

agreement between them and a partner. Only business owners are

allowed to make purchases through this type of format.

The easiest way to venture into the Indian market is through

franchising, because the international retailer does not have to worry

about buying real estate and is able to test the market. If an international

company sets up a manufacturing unit in India, the government allows

them to sell their products through their own stores, franchising, local

distributor’s, or existing Indian retailers already in the country. This way

the company doesn’t have to pay import duties and fees because they

are manufactured in India.

“Although sales tax rates differ from state to state, the government

introduced Value Added-Tax (VAT) as of April 1, 2005. Rates applicable

are 4% for most essential goods and 12.5% for all other items. Besides

this, there is a Central Sales Tax (CST) of 4% in respect of inter-state sale

which is not available for set-off against final destination based VAT. In

order to implement VAT successfully, the Government should further

develop the organized retail sector in India. In addition, retailers’ margins

will not be adversely affected as no additional costs are being imposed.

The increases in prices, caused by the tax increases are typically

recovered from customers. It is also expected that in the medium term,

prices of goods will stabilize and in the longer term, business will grow in

overall terms. Overtime therefore, the VAT will be good for business.”