Demographic Environment

As the world’s second most-populous country, India’s estimated population was around 1.29 billion in July
2016. Thanks to the baby boom generation, India is now a world economic power. Our country now has a
larger proportion of working-age people as compared to dependents (children and elderly). Approximately
64% of the population is in the 15-64 age group. India has the third largest scientific and technical work
force in the world. This segment has the potential to transform and drive the entire Indian economy. This
demographic bonus, if continued for a few more decades would propel India from the position of an
economic power to that of an economic leader before it starts aging.

With an interesting mix of cultures, India has a growing workforce that can work at nearly one-fourth the
manufacturing labor costs of China. Manufacturing labor costs in India is at 92 cents an hour while the
same in China is pegged at an average of US $3.52 an hour (an analysis by Boston Consulting Group).
India’s youthful population, one of the world’s largest markets, is highly perceptive to opportunities due to
an increased access to mobile phones and the internet. As a result, there is an increase in the literacy and
educational rates. More people are migrating to the cities from rural areas in search of work. According to
an estimate, though 70 per cent of Indians are in rural areas, around ten million migrate to the cities every
year in search of work. Indian demographer K.S. James expects this trend to continue due to a continuous
agricultural crisis and the rising aspirations of the educated rurals. With growing urbanization, there is an
increase in awareness, ipso facto an increase in overall consumption.

In addition, life expectancy has improved from 38.7 years and 37.1 in the 1950s to 64.4 and 67.6 years,
respectively, for men and women as found in a survey in 2011. Infant mortality has also plummeted from
between 200 and 225 in 1947 to around 44 per one thousand live births in 2013. This just grows to show
an increasing awareness about the various aspects of life such as health, nutrition and hygiene.

Now, India is still predominantly rural with 67.2% of the total population residing in rural areas as of 2015.
However, the urban population is expected to increase at over double the population growth, approximately
by 39.4% from 2015-2030 to total 583 million in 2030. The rural population is expected to peak in 2028 at
nearly 894 million before falling by 0.1% (up to 2030) when it will account for 60.5% of the total
population. Asia Pacific’s population will be predominantly urban by 2030 with 54.5% of its population
living in an urban setting. By 2030 India is projected to be home to three megacities: Mumbai, Delhi and
Bangalore. Currently, India’s 10 major cities are relatively well dispersed geographically. Mumbai is the
largest city and is expected to increase in size by 9.7% in 2015-2030 to have a population of 13.8 million
in 2030, which will make up 2.4% of the urban population. While the populations of all 10 major cities are
set to expand rapidly in 2015-2030, Bangalore and Surat are set to increase at the fastest pace of 25.2% and
26.1% respectively. The strong economic success of both cities encourages inwards migration.

Consumer spending in India has almost doubled, from US$549 billion to US$1.06 trillion from 2006 and
2011. In a CNBC article, Sunil Devmurari, country manager for India at Euromonitor, said this is just the
beginning —

“250 million people are set to join India’s workforce

by 2030. As a big chunk of the population shifts into
the working age group, the offshoot of that is an
increase in disposable incomes and conspicuous
consumption. This is the most exciting aspect of
India’s demographic dividend,” Devmurari said.
Economic Environment

India's gross domestic product (GDP) grew by 6.3 per cent in July-September 2017 quarter as per the
Central Statistics Organisation (CSO). According to Bloomberg consensus, corporate earnings in India are
projected to grow by over 20 per cent in FY 2017-18
supported by normalisation of profits, especially in
sectors like retail, banks and automobiles.
Between April-June 2017, the tax collection figures
Quarter indicate a steady trend of healthy growth show
an increase in Net Indirect taxes by 30.8 per cent and
an increase in Net Direct Taxes by 24.79 per cent year-
on-year. The total number of e-filed Income Tax
Returns rose 21 per cent year-on-year to 42.1 million
in 2016-17 (till 28.02.17), whereas the number of e-
returns processed during the same period stood at 43
million.
With over 4,750 technology startups, according to a report by NASSCOM, India remains the third largest
country when it comes to startups. Moreover, by 2020, India's labour force is expected to touch 160-170
million, on the current rate of population growth, an increased labour force participation, and better access
to higher education among other factors, says a study by ASSOCHAM and Thought Arbitrage Research
Institute.
With an improved economic scenario, there have been various investments
in various sectors across the economy. The M&A activity in India increased
53.3 per cent to US$ 77.6 billion in 2017 while private equity (PE) deals
reached US$ 24.4 billion. India's gross domestic product (GDP) is expected
to reach US$ 6 trillion by FY27. We stand to achieve a superior upper-middle
income status that can be credited to digitisation, globalisation, favourable
demographics, and economic reforms.
Owing to a shift in consumer behaviour and expenditure pattern, India is
poised to be the third largest consumer economy. By 2025, its consumption
is expected to triple to
US 4 trillion dollars,
according to a Boston Consulting Group (BCG)
report. It is estimated that we will surpass USA to
become the world’s second largest economy by the
year 2040 in terms of purchasing power parity (PPP),
according to a report by PricewaterhouseCoopers.
The newly introduced GST is said to be one of the
biggest tax reforms since independence. GST will
subsume almost all the indirect taxes levied by state
and central government, making a significant impact
across industries. The retail sector, particularly, is going to enjoy the positives of GST as it will bring down
total indirect taxes, increase supply chain efficiency and facilitate seamless input tax credit. After
implementation of GST, state boundaries will become redundant when it will come to taxation and
documentation. Vanishing state boundaries will reduce the complexity for retailers and increase the
distribution reach as well as efficiency. This may also result in a change in the modus operandi of the
businesses working on thin margins. Also, a steep rise in demand for goods maybe observed as a result of
re-stocking by wholesalers and retailers. Moreover, the markets will be unified, thus, widening of potential
markets for the retailers — perhaps offering the biggest benefit to retails.
Technological Environment

The internet has been one of the most transformative innovations of the modern era. The advent of the
digital era spawned new scales and sped up real-time communication for consumers and businesses.
Especially, in terms of consumers, this connectivity forever changed the dynamics of our lives — how we
work, play, shop, eat, read and many more. Despite its social reach and impact, it is sometimes impossible
to fathom that the internet only emerged as a technology for the masses within the last decade. Since then,
the number of internet users has more than doubled. With the introduction of competitively priced
broadband and 4G technologies, India is one of the countries which has been buoyed by expansion of
internet access to emerging markets.

In 2015, the Indian e-commerce market was estimated at US$19.2 billion. It is expected to more than
double over 2015-2025. A growing online consumer base, changing lifestyles, as well as innovations
in digital payment options, are factors driving the growth of internet retailing. As the world moves
towards accepting a more shared and a truly globalised marketplace, the e-commerce retailing
industry is on the verge of consolidation. Global interest from retailers like Alibaba, Amazon and
Walmart is gathering steam. The opportunities for India’s logistics industry are growing with an ever
growing demand. India’s logistics industry is poised to be amongst the fastest growing performers in
the world over the 2015-2025 period with the aggressive growth of e-commerce retailing.

The logistics and transportation costs for the retail industry are currently as high as 16% of total costs.
In comparison, it accounts for only 10% in China. High logistics costs arise from a number of factors
that can range from a weak infrastructure to a lack of standardised industry optimisation technologies.
Infrastructure-related issues are to be smoothened if e-commerce logistics are to be optimised to
international standards by resolving a number of operational issues such as lengthy turnaround times,
low credit card penetration, shortage of personnel, and thefts.
The success of several technological start-ups like FarEye or BlackBuck are merely two examples of
companies that have emerged in an effort to standardise processes and avoid higher costs. Innovations
in supply chains and distribution channels to optimise spending is amongst the most sought -after
technologies. BlackBuck’s Bengaluru-based platform start up is backed by Tiger Global and Accel
Partners. FarEye, another technology start-up selling logistics management software, received
USD3.5 million in funding from SAIF Partners. The success of these start-ups only goes to show how
logistics optimisation-related technologies are in great demand in India, something that can work
heavily in favour of Future Group. Also, since e-commerce is expected to grow over 200% in the next
decade, heavy investments to the tune of over USD 7 billion is supposed to be made in controlling
logistics, improving warehousing and infrastructure improvements. The growing e-commerce
industry will ensure that the online retailing logistics industry in India and third party logistics market
receives a strong push and grows by an approximate 9% in value terms.

As a country that houses an increasingly digitally-savvy youth population and expecting millions
more to come online, India is undoubtedly one of the most promising digital markets not just in Asia
but also in the world. However, poor digital infrastructure hinders realization of the country’s digital
potential. With the government constantly looking to enhance digital payments and implementing
projects to increase rural broadband coverage, India’s digital landscape is going to be expansive and
intensive. These trends are reflected in the Digital Connectivity Index. Of the top 10 markets with the
highest current scores on the Digital Connectivity Index, all are developed markets. The highest ranked
emerging market is the United Arab Emirates, which is well known for its high standard of living and tech
adoption.
Legal and Political Environment

The revenue and profitability of the retail is affected by political factors like government policies and
regulation. The political environment, in fact, impacts the economic environment of a nation as well as its
attractiveness to international businesses. With political stability comes trust of the investors and as a result,
better business opportunities. Political disruption leads to the disruption of supply chain, sales and profits..
Moreover, political issues, if not tackled promptly and properly, have the potential to become hindrances
to smooth business operation. The anti trust issues have continued to trouble Amazon and the issue seems
to have reignited with Trump as president. In nearly all the nations, the business environment is affected
by the political landscape irrespective of it being a democracy or not. Now, the general consensus of
analysts says that the Asian economy is growing at a rate faster than other parts of the globe. However, we
know the government and bureaucratic red tape (especially in the case of India) can become a big problem.
For International retailers it can be quite a difficulty to expand their interests into the Asian countries. India
is still suffering from difficult laws and restrictions on Foreign Direct Investments. All these factors can
make it difficult for the retail brands to operate profitably in such an environment.
However, the political environment of India has improved considerably post liberalisation. The inflow of
foreign direct investment and the political environment of the country is expected to have positive
relationship. If the political environment is stable so will be the economy, thus an increase in the inflow of
foreign capital investments.
When it comes to the legal front, India’s performance has been dismal and on a deteriorating trend.
According to the rule of law index given by World Bank, India’s score has declined from 0.26 in 1995 to
-0.11 in 2011. This shows the inability of the Indian government to implement the reform laws properly
at the ground level.
Another main issue that continues to sting the Indian political and legal system is corruption. Making
India a corruption free country continues to be the main agenda for government that comes into power.
However, much improvement remains to be seen in the situation despite taking several measures.