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Organised retail market share to touch 10% by 2020 on new FDI norms: Crisil

This could mean increase in competition for domestic organised brick and mortar retailers

Press Trust of India  |  Mumbai 

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The recent government move to allow 100 per cent foreign capital in single-may push the market share of to 10 per cent by financial year 2020, up from 7 per cent now, says a report.

Last week government allowed 100 per cent (FDI) in single-under the automatic route from 49 per cent earlier, and also relaxed the sourcing norms.

According to Crisil, this move alone will push up the market share by 100 bps as the agency had earlier expected the market share of to grow to about 9 per cent by financial year 2020, based on healthy revenue growth of about 18 per cent.

"Better operating environment for single-would also mean the pace of store additions will be faster than the annual 10-12 per cent," said.

The impact of relaxation in rules will be more pronounced in apparel, luxury goods, home decor, footwear, and electronics, which make up about 45 per cent of the revenues, said.

"Global single-brand retailers facing growth headwinds in their key geographies will now be more than keen to peg a tent here," said Anuj Sethi, a senior director at Ratings.

"And those already present can step up investments. The previous sourcing norms were a bottleneck to scaling up of operations," he added.

While approvals under the automatic route will lower the time to commence business, the relaxation of 30 per cent 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, he pointed out.

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, he said.

Further, the report 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.

First Published: Mon, January 15 2018. 19:04 IST