Indian retail market to reach US $1.3 trillion by 2020

India's retail market is expected to expand at US $1.3 trillion by 2020 and the GDP is set to grow at 8% over the next three years, making it the world's fastest-growing major developing market, a consultancy firm has forecast.

The current retail sales in India is worth US $925 billion and had grown at 5.8% on compounded annual growth rate in 2010-2014, A T Kearney said in a report on the 2015 Global Retail Development Index.

"Consumer and investor sentiment have seen an uptick, as the pro-reform government under Prime Minister Narendra Modi sets out on an ambitious goal of improving its Ease of Doing Business ranking from 142nd to 50th in the next two years," it said.

"India's retail market is expected to grow to US $1.3 trillion by 2020, and GDP is expected to grow at 8 per cent over the next three years, making India the world's fastest-growing major developing market," the report said.

India has risen five positions to rank 15th in the latest edition of the index, the London-based consultancy firm said.

"India represents a good opportunity for international retailers in single-brand retail, cash-and carry, and e-commerce, as the country appears to be on the cusp of a strong growth phase over the next five years," it said.

The tipping point for brick-and-mortar retail continues to be the opening up of Foreign Direct Investment (FDI) norms in multi-brand retail, a move that is not expected in the near-term.

After two years of dormancy, Walmart will open a new outlet in Agra this year and plans to add 50 wholesale stores to its existing 20 in the next five years, the report said.

Many single-brand retailers such as Japan-based Asics, Danish retailer Bestseller, and French fashion brand Sisley are breaking away from franchisee tie-ups with Indian partners to go solo.

Nike, which has about 400 franchise locations in India, filed an application in September to open company-owned stores, said the consultancy in the report.

Meanwhile many new entrants remain undecided between partnerships with local companies versus company-owned stores.

IKEA which also sources locally, plans to open its first solo store in Hyderabad.

H&M, a Swedish multinational retail-clothing company, will also enter India alone with plans to open an initial 50 shops.

India has four times the population of the United States but just one-tenth of the mall space. Many malls are also of poor design and lag behind global standards, the report said.

The dearth of quality space in core areas is prompting some retailers to look online instead.

E-commerce recorded impressive 27% growth in 2014 to reach US $3.8 billion, led by online retailers such as Amazon, Flipkart and Snapdeal.

However, this market still has a long way to go as online remains just 0.5% of the total retail market, Internet penetration is just 20% of the population and infrastructure needs to improve significantly.