The Indian retail trading sector is in for a shake-up, with the government planning to carve out a new category -- organised retail business -- where foreign direct investment can be allowed. This will ensure that entrants in the sector do not drive neighbourhood stores out of business.

India represents an economic opportunity on a massive scale, both as a global base and as a domestic market. Indian Retail sector consists of small family-owned stores, located in residential areas, with a shop floor of less than 500 square feet. At present the organized sector accounts for only 2 to 4% of the total market although this is expected to rise by 20 to 25% on YOY basis.

Retail growth in the coming five years is expected to be stronger than GDP growth, driven by changing lifestyles and by strong income growth, which in turn will be supported by favourable demographic patterns and the extent to which organized retailers succeed in reaching lower down the income scale to reach potential consumers towards the bottom of the consumer pyramid. Growing consumer credit will also help in boosting consumer demand.

The structure of retailing will also develop rapidly. Shopping malls are becoming increasingly common in large cities, and announced development plans project at least 150 new shopping malls by 2008. The number of department stores is growing much faster than overall retail, at an annual 24%. Supermarkets have been taking an increasing share of general food and grocery trade over the last two decades.