Realty, retail sector to buoy economy: Study

The real estate and retail sectors will drive the Indian economy over the next five years, a Merrill Lynch survey said.

The survey predicts that organised retail, which accounts for just two per cent of the $ 200 billion sector, will grow from $ 4 billion to $ 15 billion by 2010. The real estate sector in the same period is expected to grow from $ 12 billion to $ 50 billion.

"The ongoing buoyancy in consumption thanks to rising income levels have created a strong demand for quality housing and value-added products, providing a platform for rapid growth of the retail and real estate sectors, which could emerge as the fastest growing sectors in the coming years," it said.

The report said growth in the retail-sector would be driven by a combination of attitudinal shifts, rising incomes and a surge in mall construction.

It predicted that a growing preference for value-added products and services among the "young middle class" in the age-group of 20-34, will support the mall culture.

According to an NCAER study, the Indian middle class, pegged at 57 million households in 2001-2002, is expected to rise to 153 million by 2009-2010.

The number of malls in the country, the Merrill Lynch report said, could go up from 40 to 250 by 2010. It predicted that by 2010, almost 50 million square feet of retail space will be available.

The report, however, cautioned that growth would be dependent on government allowing FDI in the retail sector and providing the necessary supply chain infrastructure. It said that the high cost of real estate in the country could also affect the sector adversely.

The report predicted a 25-30 per cent growth in the $ 12 billion real estate sector and said that it could grow to $90 billion in the next 10 years. It said that growth in retail would in turn spur the real estate sector.

The real estate sector could expect to grow further given the recent developments such as 100 per cent FDI for townships of 25 acres as opposed to 100 acres earlier.

The report said that reforms in real estate - such as computerisation of real estate records, repealing of the urban land ceiling act and the rationalisation of property tax - would also spur growth in real estate.

It pointed out that for every Re 1 spent on construction, 75-80 per cent is added to the GDP. Construction is the second largest employer in India after agriculture.