Projecting growth in India’s economy

One of the key concerns over the last few months has been looking for ways to revive business sentiment. Restarting the investment cycle is the key to fueling Indian economic growth. Announcements from the NDA government have already created positive sentiment in the market. However, efforts to attract foreign investments and putting India back on a high growth path need to be supported by some policy amendments.

Indian GDP growth for 2014-15 is expected to be between 5.4 and 5.9 percent. Already in the second quarter, 5.7 percent growth (up from 4.6 percent in the previous quarter) was faster than expected. This is higher than the sub-five percent that has been seen in the last two years. The retail industry accounts for approximately 15 percent of India’s GDP. While the economy looks at better growth prospects over the coming years, one of the major supporting factors for the retail industry is Foreign Direct Investment (FDI).

The Department of Industrial Policy and Promotion (DIPP), the body that makes FDI policy, allowed a ceiling of 51 percent in multi-brand retail trading in September 2012 under the UPA government. As per SEBI rules, foreign portfolio investors (FPIs) can own a maximum of 10 percent of a company’s equity share as an individual and 24 percent in aggregate in Indian companies. The NDA government however is considering allowing FPIs to own a majority stake in retail companies. This would not only give more options to foreign investors, but also allow Indian retail players compete with global retail giants. The Indian retail market is expected to cross 750 billion USD by 2015 of which organized retail constitutes eight percent.