Currently, India is at the 63rd position in the World Bank’s Doing Business 2019. It is the world’s fifth-largest global destination in the retail space. The future of the industry is bright because of rapid urbanisation and demand for products.
India’s retail sector is growing faster than any other industry. It is also a fast-paced industry. 10 % of India’s GDP and 8% of employment come from it. Retail reached US$ 950 billion in 2018 at a CAGR of 13%, and is expected to reach US$ 1.1 trillion by 2020. The retail market is only expected to grow in the future with new players constantly emerging. Retail has also benefited from the expansion of e-commerce.
According to the India Retail and E-commerce Trends Report 2022, this discontinuity experienced by both buyers and brands has accelerated e-commerce adoption and growth while disrupting both traditional retail and organised brick-and-mortar business models, making e-commerce the modern retail industry’s backbone.
Influence of E-Commerce
E-commerce in India is also thriving due to the rapid increase in internet users. In the next few years, the Indian e-commerce market will be one of the largest. Currently, it ranks 73rd in the UNCTAD Business-to-Consumer E-commerce Index 2019. Online shopping has the biggest impact on retailing today.
Due to low rates and increasing choices, this trend will likely continue. E-commerce will hold 7% of the retail market by 2021. With e-commerce, retailers are able to reach more customers at the same time in different cities. By taking advantage of new trends, traditional retailers can also benefit from the relationship between e-commerce and traditional commerce. For eg. A partnership between e-commerce and traditional retailers, JioMart supports small businesses.
FDI in The Retail Sector
Retail is growing within the country, which attracts foreign investors. Indian retail sector is a little restricted to foreign direct investment. In 2006, it was eased. Retail was underdeveloped before that. As a result, the government policies aimed to protect small business owners, thus keeping foreign investors out. The Indian economy gradually opened up after 2006. The government has liberalised the policy.
Today-
- FDI up to 100% for cash and carry wholesale trading and export trading has allowance under the automatic route.
- FDI up to 100% will permit in Single-Brand Product Retailing or SBPRT. No government approval will require FDI up to 49% in SBPRT. Any investment beyond 49% requires government approval.
- FDI up to 51% in Multi-Brand Product Retail Trading or MBRT is allowed. It is subject to Government approval and other conditions. It involves sales of multiple brands to retail customers.
FDI in E-Commerce
Under the FDI Policy, e-commerce refers to the activity of buying and selling of products on an e-commerce platform.
In India, e-commerce is divided into two models, namely Market Model and Platform Model. The Platform Model has buyers and sellers interacting, but does not own any products. Another model is the Inventory Model, where the online platform owns the products it sells and ensures that they are delivered to the customers.
E-commerce has several FDI restrictions. FDI is allowed in the market model, but not in the inventory model. There is still a restriction in the e-commerce space, since FDI will not be liberalised to protect the interest of traditional retailers. Companies with different market models have adopted several alternatives to overcome this hurdle.
- Trading Platform Model – Here, the online platform acts as a trading platform where the manufacturers advertise their products on the online platform. The consumers then buy the products from the advertised catalogue. The manufacturers have an inventory of their own which they just have to display on the online platform.
- Investment in wholesale trading companies – An investment in a wholesale company that collaborates directly or indirectly with an e-commerce company.
- Investment in companies providing technology – This model is where investment is made into companies providing technology to e-commerce platforms.
These models have to comply with the FDI Policy.
Laws Affecting The Retail Industry
There are a number of laws and regulations governing the retail sector, including safeguarding consumer interests, retailers, sales and constructive competition. Retail laws include –
(i) Consumer Protection Act, 2019
Consumer Protection Act, 2019 protects the interests of consumers in the retail market. Ensures timely resolution of consumer disputes. Consumers rely heavily on retailers for products and services, sometimes legal disputes can arise between the two parties. The Consumer Protection Act helps resolve such disputes.
Under the Consumer Protection Act, the Central Consumer Protection Authority form which acts as the sole regulator of all transactions among consumers and retailers. It empowers to protect the interests and rights of various consumers through the rules and authorities of the act. It can conduct investigations in matters where consumer rights are violated, keep a check on unfair trade practices, imposing penalties, etc.
E-commerce is increasing in retail, as discussed earlier. The Consumer Protection Act, 2019 also includes several rules that protect consumer interests in e-commercial transactions. To prevent unfair practices in the e-commerce sector, the central government can also make rules and regulations. To regulate only online transactions, the government has drafted the Consumer Protection (E-Commerce) Rules, 2020. Due to the increase in internet users each day, this sector is growing at a rapid pace.
The act also includes the concept of “Product Liability” where the manufacturer or seller is responsible to pay compensation for any product or service provided by them if a consumer suffers loss or damage resulting from a defective product or deficiency in service.
(ii) Sales of Goods Act, 1930
In the retail sector, there is always the process of selling and purchasing goods. Thus, the laws related to this sale and purchase are codified under the Sales of Goods Act, 1930. These include laws related to agreements or contracts between a seller and a buyer.
Under the act, a contract for sales of goods forms where a seller forms a contractual relationship with the buyer where the seller transfers property or goods to the buyer for a price. Moreover, after the essential conditions are fulfilled and the ownership transfers to the buyer, the contract becomes a sale under this act.
In the e-commerce sector, most commonly a vendor agreement is between the seller who is providing the goods and the buyer. The business owner, or the e-commerce platform, in this case, hires a person who is the owner of goods and forms a contractual relationship. Here, an agreement to sell forms where the seller agrees to transfer ownership of goods on a stipulated date, time in the future.
(iii) Competition laws
With so many retailers entering the market, there is bound to be constructive competition among them. To oversee honest competition in the market, competition laws will be enacted. Assuring freedom of trade in the market for other retailers is a goal of the Competition Act, 2002. In India, several issues can affect the retail sector, including:
1. Anti-competitive agreements
A contract that prevents, restricts or distorts competition. This is prohibited by the Competition Act, 2002. The act prohibits agreements that have an appreciable adverse impact on the Indian market in relation to production, supply, distribution, storage, acquisition and control of goods. It is important for retailers to be aware of the competition law implications of their agreements. Under the Competition Act, the same norm applies to retail via e-commerce.
2. Abuse of Dominance
An enterprise that can operate independently is in a position above its competitors. To beat the competition, the enterprise engages in predatory pricing. In addition, it can be considered an abuse of a dominant position. Recently, the European Union began investigating Amazon for distorting competition and violating EU antitrust guidelines. Third party sellers who sell their products on Amazon and run their own businesses say Amazon uses their data for its own purposes. Sellers have been accused of monitoring their activity. In the EU, fair competition conditions are required.
E-commerce is growing rapidly, and competition law regulators are concerned. Furthermore, the parity clause is one of the main concerns. Platforms compel sellers to give the lowest or best price, preventing them from giving a better price to their own website or to competing platforms. Platforms take incentives from sellers for every sale through an agency model. Parity clauses remove competition between platforms for commissions. It also prevents the seller from rewarding a platform with lower commissions. This has restrictive effects.
Parity clause, at the same time, also has some pro-competitive effects. It prevents freeriding by the sellers, fluctuating pricing and causes price uniformity on different platforms. So the context of the market and an assessment of the parity clause has to be made. This to see if it has any adverse effect on the Indian market. If it is to have an adverse effect, then it can be considered as anti-competitive.
FAQ:
Which is the largest retail sector in India?
The largest retail sector in India is the unorganised retail sector, which includes small, independent stores and traditional markets. These businesses often dominate due to their widespread presence.
How big is the retail sector in India?
The retail sector in India is substantial, with millions of retail outlets. It encompasses both organised and unorganised retail, making it one of the largest contributors to the country's economy.
What are the 7 retail sectors?
The seven major retail sectors in India include food and grocery, apparel and clothing, electronics, home and furniture, beauty and personal care, jewelry, and e-commerce. Each sector caters to different consumer needs and preferences
What is the percentage of the retail industry in India?
The retail industry in India accounts for a significant portion of the country's GDP, contributing around 10-12% of the total GDP. This percentage reflects the sector's substantial economic importance.
What is the current status of retailing in India?
The current status of retailing in India is dynamic and evolving rapidly. There is a notable shift from traditional to organised retail, fueled by e-commerce growth. The sector is characterised by increased competition, innovation, and changing consumer behavior, making it a vibrant and competitive market.
Conclusion
The retail industry in India is growing fast. This growth has been accelerated by the e-commerce industry. India offers a great opportunity for retail businesses. Before starting a retail business, there are several things to consider. Furthermore, such as investment policies, regulations, market status, etc. In addition, legal and business experts can easily assist in addressing these factors.
Also, Read:
