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The government's plans to open up the retail sector for foreign firms remained in cold storage this year, while domestic companies strengthened their foothold in the sensitive industry despite agitation by smaller traders.
Although political opposition stopped the government from allowing greater foreign investment, yet the world's biggest and second-biggest retailers Wal-Mart Stores Inc of the US and French firm Carrefour found a way out to establish their presence in the $330-billion lucrative industry.
The action-packed year, however, began on a wrong note for global players wanting to enter India with UPA chairperson Sonia Gandhi expressing concerns over the government's foreign direct investment policy in retail. In a letter to Prime Minister Manmohan Singh, she asked the government to address issues raised from many quarters on the impact of these supermarket chains on the livelihood of small stores.
While this was music to the ears of opponents of FDI in retail, especially the Left parties, the commerce ministry pressed ahead with plans to increase FDI limit to 51% in specific categories like electronic goods and sports items although the cabinet's note in this regard is yet to be cleared.
The government is expected to examine FDI in multi-brand products only after it receives reports from Indian Council for Research on International Relations and the National Council for Applied Economic Research. Currently, 51% FDI is allowed in only single brand retailing.
"The year has been a mixed one for the retail industry. There was not much progress on further relaxation on FDI policy and the 'big vs. small' debate has taken a larger political shape," said Asitava Sen, vice president (retail and consumer goods), KSA Technopak.
Realising the potential of the organised market, domestic players such as Reliance Retail, Aditya Birla Retail, Essar, Future Group and Shoppers Stop continued to expand amid opposition from political parties and small traders.
International consulting firm Ernst & Young predicted that the organised retail market in India will touch about USD 30 billion size by 2010. India also remained as the most attractive retail market for the third year in a row in an index prepared by another consulting firm AT Kearney.
The year began with telecom giant Bharti Enterprises announcing a roadmap for its retail business. Bharti, which has tied up with Wal-Mart for back-end operations, will invest USD 2-2.5 billion by 2015. Toward the end of the year, Carrefour said it will foray into both wholesale and retail business by 2009 through different entities.
Rival Mukesh Ambani-led Reliance Retail, which had opened its first speciality store 'Reliance Fresh' last year, went on an overdrive by opening different formats, including a Hypermarket in Ahemadabad and speciality stores for footwear, jewellery, books, music, apparel and others as a part of its Rs 25,000 crore (Rs 250 bn) investment plan till 2011.
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Such was the attractiveness of the Indian retail market that even global IT giant Microsoft launched its first shop-in-shop pilot with Tata Group firm Infiniti Retail's multi-brand consumer durables retail format - Croma.
Not to be left behind, rival Apple Inc entered into an exclusive marketing and distribution deal with Reliance Retail through 'iStore by Reliance Digital'.
Pioneer of organised retail in India, Kishore Biyani's Future Group carried on with its expansion plans aiming at a revenue of Rs 30,000 crore (Rs 300 billion) by 2010. The group announced a new format, KB Fair Price Shops, on the lines of local kirana stores, a clever move to prevent any protests.
The sector also attracted other homegrown corporate. These included tractor-to-software group Mahindra & Mahindra, realty firm Parsvanath and two-wheeler maker Hero Group. Aditya Birla Group acquired Andhra Pradesh-based Trinethra Super Retail Ltd, while rumours were also afloat about Subhiksha promoters selling a stake in the southern India-based firm.
FMCG major Dabur also set up a subsidiary to run its branded stores with an initial investment of Rs 140 crore (Rs 14 billion) for opening retail stores to sell health and beauty products. RPG Group-owned Spencer's embarked on a new branding strategy and trim the number of its current retail formats, with plans to invest up to Rs 2,500 crore (Rs 25 billion) till March 2009.
Besides, private equity investments and public issues gained momentum and M&A activities picked up during the year. Indiabulls Wholesale Services, the retail arm of Indiabulls Real Estate acquired 63.92% stake in Piramyd Retail at an enterprise value of around Rs 208 crore (Rs 20.8 billion). On the other hand, some retailers like Koutons and Vishal Retail came out with initial public offers to fund their expansion activities.
"PE and IPOs will fund growths in the sector. On the back of the huge growth in organised retail, investments in the sector are likely to increase from $3 billion in 2006 to over $25 billion by 2010," Ranjan Biswas, partner and national leader for retail and consumer practice, E&Y, said.