Setting up shop

Despite a restrictive regulatory regime and deep political sensitivities, now is the time for foreign retailers to establish a foothold in India

Ben Frumin in New Delhi explains

Against the colossal backdrop of a Bollywood film poster stand a group of college students tucking into McAloo Tikki burgers, one of McDonald’s attempts to capture a distinctive local flavour that will appeal to its wealthy clients. And McDonald’s is far from the only retail outfit vying for a share of the affluent Indian consumer’s disposable income. Numerous international retailers including Starbucks, Tesco and Ikea have also expressed a keen interest in expanding into the Indian market.

According to the Associated Chambers of Commerce and Industry of India (ASSOCHAM), the country’s retail sector is growing by as much as 28% a year. In 2007 the industry was worth US$300 billion and it is expected to rise to US$365 billion this year and US$440 billion by 2010. And still, about 95% of India’s retail sector remains unorganized, mostly comprising of small, cluttered neighbourhood shops and street vendors that aren’t even registered for sales and income taxes.

But organized retail is growing fast, from one million square feet in 2002 to nearly 14 million square feet last year, according to ASSOCHAM, and with it, opportunities for foreign investors. “With [the] involvement of big corporate houses and a liberalized FDI policy, this sector is being gradually organized and therefore considered a lucrative investment possibility for foreign companies,” says Sunaina Kapoor of PSA Legal, a law firm in New Delhi.