India has emerged as the most attractive global retail destination for a second straight year, ahead of rival China which trails in fifth place, a new study by global consultancy AT Kearney said.
"India is at the peak of attractiveness for retailers right now with a US$350 billion retail market expected to grow 13 percent this year," said Fadi Farra, who headed the study by global consultancy AT Kearney.
The annual study ranks India in top spot followed by Russia in second place, Vietnam third, Ukraine fourth and China fifth, down one spot from last year.
"The Indian retail market is gradually but surely opening up while China's market becomes increasingly saturated," a trend fueled by international retailers, Farra said.
The study released late last week rates nations on such factors as market saturation, political risk and economic growth.
Besides its population of more than 1 billion, a fast-expanding middle class and a rapidly growing economy, India's retail sector is deeply fragmented, dominated by the "unorganized sector" -- small family-run stores. "Organized" large-scale retailers account for 2 percent to 3 percent of the sector compared with 20 percent in nations like China and Thailand.
This is what is making foreign companies like US-based Wal-Mart, the world's largest store chain, and British supermarket giant Tesco, among others, take notice of India, the study said.
While rules still bar foreign direct investment (FDI) in most of the sector, foreign retailers' hopes have been buoyed by a government decision in February to allow FDI of up to 51 percent in single-brand retailers such as shops selling Nike sportswear or Nokia handsets.
"This is a significant break for global retailers and will spark a flurry of investment," the report said.
But the relaxed regulations do not extend to companies that sell a variety of brands.
Last week, Commerce Minister Kamil Nath said India was working to open the "next window" in the retail sector and an announcement would be made next month.
The aim is to ensure that the entry of big players generates new jobs rather than destroys existing ones, he said, adding: "The issue is not about FDI in retail, but big versus small retailers."
Wal-Mart has announced it will open an Indian office for market research. Tesco is entering the market through a partnership with Home Care Retail Mart Pvt Ltd and expects to launch 50 stores by 2010, the study said.
Domestic conglomerates are racing to capture business. But time is of the essence for domestic and foreign retailers, the study said.