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SYNOPSIS - Synopsis-2 CHAPTER I: INTRODUCTION 1.1 A Brief History of India India is known for its ancient

Jan 20, 2020




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    1.1 A Brief History of India

    India is known for its ancient civilization and culture. The ancient history of India is very

    vast and significant. It laid the foundation of a civilization that is flourishing till today.

    The history of ancient India dates back to the time when humans set foot in the sub-

    continent. Food in ancient India was cultivated in the fertile river valleys. Rice was the

    staple food that was eaten with cooked lentils, vegetables and meat. Wheat was used to

    make flat breads known as "Chapatti". Many spices were cultivated in India and were

    used in cooking for aroma and flavor. India flourished in the cultivation of spices and

    many of them were later exported to foreign lands. There was a time when India was the

    master of the foreign trade of Europe, Asia and Africa. The matchless fertility of the

    Indian soil and numberless products of Indian arts and crafts caused enormous

    development of commerce (Prakash Chandra Prasad,2003). It was during the British rule

    that India encountered a huge drain of wealth. David Clingingsmith et al. (2005) have

    noted that ―between 1772 and 1815 there was a huge net financial transfer from India to

    Britain in the form of Indian goods. “India was a major player in the world export market

    for textiles in the early 18th Century, but by the middle of the 19th Century it had lost all

    of its export market and much of its domestic market. While India produced about 25

    percent of world industrial output in 1750, this figure had fallen to only 2 percent by

    1900.‖ When India finally emerged as an independent nation in 1947 it was a deeply

    impoverished country, subject to the whims of monsoons and periodic famine. In 1950

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    the country accounted for a mere 1.2 percent share of global GDP despite having over 14

    percent of the world‘s population. (CIA 2007). 1991 marks the turning point when India

    was forced to open itself out to the world. The ―opening‖ was not limited to the economy

    but to all other aspects of life, and the process was sped up by the fact that it coincided

    with the communications revolution — cable television, mobile telephones, and the

    Internet ( Post 1991, economic reforms have led to India

    progressing from being the 16 th

    largest economy in the world in 1990 to the 13 th

    largest in

    2005, surpassing countries such as Australia and Netherlands (McKinsey May 2007).

    As India‘s economy has grown, so too has the spending power of its citizens. Real

    average household income in India has roughly doubled over the past two decades. Along

    with rising incomes have come greater consumption and the emergence of India‘s much

    discussed ―new middle class‖ (R.K Shukla,, 2004).

    1.2 Retail trade in India

    India like Britain is a nation of shopkeepers. With over 12 million retail outlets, India

    has one of the highest densities of retail outlets in the world with one retail outlet for

    ~90 persons. (Pankaj Gupta, 2006). Till the mid 1990s retailing was a low cost

    structure, mostly owner-operated, had negligible real estate and labour costs and little

    or no taxes to pay. Consumer familiarity that ran from generation to generation was one

    big advantage for the traditional retailing sector.

    However in the past decade India has witnessed a retail boom. With the entry of modern

    retailers over the last few years, the share of organized retail has been growing rapidly to

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    reach 5% of the total market. In 2008 retailing accounted for over 10% of the country‘s

    GDP and 8% of total employment (FICCI-Ernst & Young, 2007). Further, emerging

    markets such as India and China are the final frontier for retail taking the focus away

    from saturated Western markets. The Indian retail market was estimated at $350 billion

    of which organized retail was estimated at only $8 billion. In other words organized retail

    accounted for a mere 3.5% in 2005. In 2008, the share of organized retail was 7.5 per

    cent or US$ 30 billion of the total retail market which was estimated to be around $400

    billion. India's overall retail sector is expected to rise to US$ 833 billion by 2013 and to

    US$ 1.3 trillion by 2018, at a compound annual growth rate (CAGR) of 10 per cent. Also,

    organized retail, which is pegged at around US$ 8.14 billion, is expected to grow at a

    CAGR of 40 per cent to touch US$ 50 billion by 2011 and US $107 billion by

    2013(RNCOS). In other words, organized retail is growing at a faster rate than the overall


    1.3 Factors leading to growth of retail industry

    Retailing is seen as an important sector of an economy, both in terms of contribution to

    GDP and share in the total employment. According to the 8th Annual Global Retail

    Development Index (GRDI) of AT Kearney, in 2007 the retail trade in India had a share

    of 8-10% in the GDP (Gross Domestic Product) of the country. In 2009, it rose to 12%.

    The sector is labour intensive and contributes significantly to employment.

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    The following factors have been identified as being responsible for the growth of the

    overall retail industry in India

     Growth in Private Final Consumption Expenditure

     Steady saving rates

     Rising share of organized retail

     India seen as an attractive retail destination

    1.4 Growth drivers of organized retail in India

    Indian retail is witnessing a confluence of several favourable factors such as steady

    economic growth, favourable demographics, easy availability of credit, unprecedented

    investments in infrastructure creation, and supply of real estate and malls. This, coupled

    with low penetration, creates a base for the next big leap of growth for the organized

    retailing industry. A combination of the demand and supply side factors is the key driver

    of a 42% CAGR in organized retail over FY07-11E. It is also predicted that the organized

    retail can achieve sustainable growth due to two major factors: consumer/demand side

    and retailer/supply side (Source: ICRIER Retail Report 2008, Angel Research)

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    The following factors have been identified as the drivers of growth of organized retail on

    the supply side.

    1. Easy Availability of Credit

    The Indian consumers are gradually accepting plastic money. Indians spend just 1%

    of their total purchases through credit cards, while the Koreans make one-fifth of their

    total purchases through credit cards. The world average hovers around 9%. From a

    mere 3.2 mn in 2000, the number of credit cards has grown to 22.6 mn in 2007 (Priya

    Ayyar et al,2008). This increase boosts retail spend, as it enables impulse buying and

    big ticket purchases.

    2. Real estate development

    Real estate availability is a key factor influencing the choice of the right location. It is

    expected that 315 mn sq ft of retail space will come up by FY11E, taking modern

    retail to USD 70 bn. In the next 4-5 years, the country will have over 1,000

    hypermarkets and 3,000 supermarkets (Priya Ayyar, 2008).

    3. Supply chain efficiencies

    The existing traditional supply chain in India has a minimum of five intermediaries

    between the producer and the end-consumer. Under the modern supply chain channel,

    retailers reduce the number of intermediaries to a maximum of three as compared to a

    minimum five in the traditional format by extending their presence and control to the

    wholesale operations and establishing direct linkages with the producers. Large

    players like Reliance Retail, Pantaloon Retail, and Bharti-Walmart are planning large-

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    scale investments in the back-end processes. These investments are likely to boost

    efficiency for their wholesale cash-n-carry businesses and also allow better margins

    in the front-end retail businesses.

    4. Government Regulations

    In January 2006, the Government of India relaxed FDI (foreign direct investment)

    controls on retailing to allow foreign retailers to participate directly in the Indian

    market for the first- time by allowing equity ownership in `single brand' retailing.

    As of November 2010, multi-brand retail remained closed for foreign investors, 51

    per cent FDI was permitted in single-brand retail and there were no restrictions on

    inflows in wholesale cash and carry format business.

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    1. Growing young population

    The median age of the Indian population is around 25 years, making it one of the

    youngest countries in the world compared with the US, China, and Japan with median

    ages of 35, 30, and 44 years, respectively 1 . Favourable demographics and increasing

    incomes have changed the face of Indian consumerism. W