The Survey says the strict foreign direct investment (FDI) policy in retailing is among the key reasons adversely affecting the sector.
“The retail sector was affected in 2013 by high consumer price inflation, currency fluctuation and strict FDI policies.’’ It has, however, observed that India remains an attractive long-term retail destination, indicating the current government could, in the future, ease the multi-brand retail FDI policy..
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The earlier government had in 2012 allowed up to 51 per cent FDI in multi-brand retailing, with each state government to decide if it wanted foreign entities in its area or not. Tough sourcing conditions were also imposed on foreign retailers, making it more difficult for any international major to set up business in India. Tesco of Britain is the only international retailer to have made an investment in multi-brand retailing. Walmart (US) and Metro (Germany) operate only in the cash and carry or wholesale area, where up to 100 per cent FDI is permitted.
The present government has maintained its opposition to FDI in multi-brand retail, fearing such a step would hurt Indian traders.
India’s large young population living in urban areas with rising disposable income is being seen as a primary reason why India should be an attractive retail destination.
Elaborating on the services sector, the Survey says India’s e-commerce market is expected to grow by more than 50 per cent annually in the next five years. It also sees the hurdles in online retailing – inventory management, logistics planning and resource availability are some.
The concern of consumer safeguards in e-commerce has also been raised in the pre-Budget document. The government proposes to include sufficient provisions in the ongoing amendment to the Consumer Protection Act, the Survey says. Recently, traditional retailers had complained of "anti-competitive" practices by online companies offering discounts during sales.
India’s services sector remains a key driver, contributing 72.4 per cent of growth in gross domestic product in 2014-15, according to the Survey. Services sector growth has increased from eight per cent in 2012-13 to 9.1 per cent in 2013-14 and further to 10.6 per cent in 2014-15. This is due to growth acceleration in financial, real estate and professional services.
Growth in trade, hotels, transport, communication and related services was, however, down to 8.4 per cent in 2014-15, compared to 11.1 per cent in 2013-14. The Survey indicates a pick-up in the services sector from the available for the first two months of 2015. “This momentum is expected to continue in 2015-16.”