Experiencing the Indian retail boom

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: In July 2006, it was reported that Wal-Mart Stores Inc. (Wal-Mart), the world's largest retailer with annual revenues of $ 312.4 billion, had received permission from the Indian government to set up two liaison offices in India. These offices, expected to become operational by October-November 2006, would explore market opportunities for Wal-Mart in India and focus on expanding its supplier base. Although these offices could not undertake business operations in India, analysts saw this as part of the retail giant's long-term plans for establishing operations in India.

The Indian retail sector is in the midst of a boom. A report by KPMG, India and the Federation of Indian Chambers of Commerce and Industry (FICCI), estimated the retail market in India to be around US$ 200 billion, of which organised retail accounted for US$ 6.4 billion. Organised retail was expected to increase to US$ 23 billion by 2010. A healthy 7%-8% economic growth, increasing disposable incomes among the middle class, changing consumer tastes and preferences, and a young population with a propensity to spend, were some of the key factors driving growth in the organised retail market in India.

Given the attractiveness of the Indian retail sector, foreign retailers like Wal-Mart, Carrefour SA, Europe's largest retailer, and Tesco Plc, the UK's largest retailer, were keen to enter this growing market, despite the Indian retail sector being closed to foreign direct investment (FDI). In February 2006, the Indian government had announced its decision to allow FDI of upto 51% in single brand retailing. Wal-Mart had said that India was high on its priority and that it was closely monitoring the government's policy on FDI in the retail sector.

In July 2006, the Investment Commission suggested that 49% FDI be allowed in the Indian retail sector without any restrictions on the number of outlets or location of stores. The Indian retail boom and the Investment Commission's suggestions renewed the debate on the issue of allowing FDI in the retail sector.