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  3. New FDI rules may increase organised retailers' market share to 10% by 2020: Crisil

New FDI rules may increase organised retailers' market share to 10% by 2020: Crisil

16 Jan 2018 Evaluate

Credit ratings agency, Crisil Ratings in its latest report has said that the government’s recent move to permit 100% foreign direct investment (FDI) in single-brand retail under the automatic route is expected to increase the market share of organised retail in India from 7% to 10% by financial year 2020. Before the change in rules, it had expected the market share of organised retailers to grow to 9% by fiscal 2020, based on healthy revenue growth of about 18% of organised brick and mortar (B&M) retailers.

As per the report, better operating environment for single-brand retail would also mean the pace of store additions will be faster than the annual 10-12%. It also pointed out that the effects of the government’s move will be more pronounced in apparel, luxury goods, home decor, footwear, and electronics, which make up about 45% of the organised retail revenues. It noted that global single-brand retailers facing growth headwinds in their key geographies will now be more than keen to peg a tent here and those already present can step up investments. It added that the previous sourcing norms were a bottleneck to scaling up of operations.

The ratings agency further said that while FDI approvals under the automatic route will lower the time to commence business, the relaxation of 30% local sourcing norms for the first five years by allowing inclusion of incremental sourcing for global operations will also provide sufficient time for new entrants to set up and stabilise their sourcing base. It stated that this could mean increase in competition for domestic organised brick and mortar retailers. However, more foreign retailers vending their ware will also lead to sharper focus on, and improvements in, supply chain efficiencies which will benefit the sector over the medium-term. It believes that healthy growth prospects for the sector and benefits of scale and focus on profitability, will help offset the impact of higher capital spending over the medium-term.

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