Emerging Market India Says Let Them Come

Narendra Modi, India’s business-friendly Prime Minister, is putting forward the first tangible reform agenda next month, and it will be big.

India will allow global online retailers to start selling their own products in the country. This will further open up the protected domestic retail market.

Due to the influences of a handful of traders inside India, the country hasn’t been able to fully open the retail market to foreign investment or foreign companies. This has held back economic development inside India.

Online retailers have only been able to provide their platforms for local retailers to sell local third party goods.

With the coming reform, foreign online retailers such as Amazon, Ebay, Wal-mart and Google will be able to leverage on their own supply chains to source foreign and domestic goods. This change will lower the transaction cost and price of retail goods, and increase consumer choice inside the country.

It will be HUGE!

Despite all the complaints about India’s poor infrastructure and social problems, India’s economy will be huge!

The economy will expand 80% between now and 2020. Its stock market should very much reflect that growth.

India’s retail sector will be huge!

Right now, the sector is worth US$500 billion. This is 27% of the entire economy. While India will be powered by strong investments, which will bring fixed investments to more than 35% of GDP in 2020, India will also pursue a consumption-led model.

Private consumption currently accounts for 60% of the entire economy. This high level of consumption will mean that a rise in disposable income and further market liberalisation in the consumer sector will lead to strong growth for the sector and for the country.

The retail sector will at least double by the end of this decade. It will account for US$1 trillion or more of India’s economy.

India’s ecommerce sector will be huge!

The sector is less than 1% of GDP right now, accounting for only US$15 billion. By 2020, India’s ecommerce sector will account for no less than 4% of GDP, which will be US$136 billion. That’s nine times the size it is now. The ecommerce sector will grow at an average rate of 34–38% per year in this decade.

In a three year investment cycle ending in 2012, roughly US$2 million was provided as first round venture capital to ecommerce startups in India. This figure will grow comparably to the size of the market, some 9–10 times more than now by 2020. This will mean more startups and more growth from firms in this sector in India.

Western companies with a growing portfolio in India could benefit from its growth too. Some local names you need to get used to are: Flipkart, the country’s largest e-retailer; Snapdeal and fashion retailers Myntra and Jabong.

Read the rest of this article at Money Morning