Growth of Tier 2, Tier 3 cities giving a big boost to retail

Published: December 6, 2019 2:09:27 PM

Growth of housing hubs has also resulted in the concurrent need for retail business including food, entertainment, merchandise and auto.

retail, retail in India, Growth of Tier 2 Tier 3 cities, FDI, GST, Chandigarh, Bengaluru, Hyderabad, Bhubaneshwar, Pune, Jaipur, TrivandrumBrick and mortar retail business has penetrated into Tier 2 and Tier 3 cities, which have expanded across the country over the past 10 years beyond all predictions.

Retail business is one of the fastest-growing segments of Indian economy which contributes to around 15 per cent of the country’s overall Gross Domestic Product (GDP) and employs nearly eight per cent of the work force in both the unorganised and organised sectors. It is expected to touch a figure of over USD 250 billion over the next two years, as per various studies conducted by private institutions and financial companies.

While steady growth of e-commerce over the past few years has been a big factor to push retail business into hitherto unknown markets in rural and hinterland parts of the country, expansion of suburbs and housing hubs has resulted in the concurrent growth of malls and shopping complexes that allow playing fields for both domestic and international players. The retail sector is expected to grow at a rapid pace over the next decade given the slew of policies and initiatives that have been implemented by the Central government from time to time. Retail business is one of the areas of the Indian economy that also has the potential for huge employment opportunities in the near future.

One of the major steps taken by the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) government after assuming power at the Centre was to allow 100 per cent Foreign Direct Investment (FDI) in e-commerce retail. The policy decision which was taken in March 2016 has better enabled e-commerce platforms to sell products of international brands through their portals without necessarily bearing the burden of selling merchandise themselves. Around half-a-dozen major e-commerce players in the country have benefitted since then from the policy initiatives by way of investments by renowned international retail brands.

The introduction of the Goods and Services Tax (GST) by the Central government across the country in July 2017 has ensured that there are no cascading taxes upon retail products across various states. A degree of uniformity was brought in the pricing of retail goods following the introduction of the GST which has been seen by big players in the sector as a step in the right direction.

Brick and mortar retail business has penetrated into Tier 2 and Tier 3 cities, which have expanded across the country over the past 10 years beyond all predictions. A number of industries in the service sector have relocated or expanded to cities, including Chandigarh, Bengaluru, Hyderabad, Bhubaneshwar, Pune, Jaipur and Trivandrum. It has resulted in the expansion of the real estate business into these untapped markets to cater to the floating population. Growth of housing hubs in these areas has also resulted in the concurrent need for retail business including food, entertainment, merchandise and auto. This has resulted in the growth of large numbers of malls and commercial shopping establishments that allow retail space to investors.

By the sheer virtue of its population, the biggest chunk of which falls in the productive age group, India is one of the largest retail business markets across the globe and also a top choice for investment by both domestic and international players in the business. More than 65 per cent of the country is below the age group of 35 years which makes them both consumers and potential workforce in the retail sector. A majority of this population has, by virtue of high-paying employment opportunities, been blessed with disposable income.

While examining the growth of retail business in India, the stellar role played by Internet-enabled smartphones and the easy availability of credit through institutional channels cannot be ruled out. Internet-enabled smartphones have helped in the penetration of e-commerce platforms into rural areas of the country which was a previously an untapped market. Credit cards and plastic money have helped retail business to flourish at clicks of mobile phone buttons.

With various under-construction road infrastructure projects across the country set to change the face of connectivity, brick and mortar retail business is expected to flourish over the next decade. Housing hubs are gradually getting occupied, which is giving rise to the need for malls and shopping complexes that offer retail products under one roof. The growth of retail e-commerce has benefitted the logistics and warehousing sector in the country. This sector which is at present is hovering around USD 180 billion is set to cross the USD 250 billion mark over the next three to four years, as per some studies.

As per one study, neighbourhood kirana stores or mom-and-pop shops account for the maximum retail business in the country in the unorganized sector. It is for the government and industry bodies to organise the huge disorganised chain of these stores in one link to streamline retail business in the country and maximise returns. This would require innovative concepts and models by the big retail brands across the globe. The growth of online grocery stores across the country indicates that e-commerce can be suitably used to tap into the huge market occupied by kirana stores to cater to daily household needs. Policy interventions by the government are required in order to organise this sector for profitability.

Prohibitive cost of real estate is another big challenge for further expansion of retail business in India. Industry bodies need to get their heads together to find models and solutions to ease real estate prices for retail business because both businesses go hand in hand. The government of India aims to make the country a USD 5 trillion economy by the financial year 2024-25 and the retail sector is expected to play a key role in order to achieve this target.

(By Abhishek Bansal, Executive Director, Pacific Group)

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