After ruling the roost as the most attractive destination for retail investment among emerging markets for three consecutive years, India has slipped to second position behind Vietnam, a recent survey shows.

The seventh annual Global Retail Development Index (GRDI) — which is a study of retail investment attractiveness among 30 emerging markets — conducted by management consulting firm A T Kearney, promotes Vietnam to pole position after being placed fourth on the list in 2007. With its growing per capita income, relaxed regulations that favour foreign investors and increasing demand for modern retail, Vietnam has been successful in usurping India's appeal.

“India has enjoyed the peak of the index for the past few years, mainly due to a steep and consistent rise in the income levels of Indian consumers. Going forward, India's inability in opening up foreign direct investment (FDI) regulations for foreign retailers will start to hit the industry's competitiveness more than ever before,” said A T Kearney India partner Saurine M Doshi.

India, Russia and China, the top three countries in last year’s GRDI, all slipped one notch in 2008's GRDI to second, third and fourth positions respectively. While all three countries remain important investment destinations, high realty costs in large cities and growing competition have decreased their attractiveness when compared to previous years. This has forced retailers to look for opportunities in Tier-II and Tier-III cities.

Foreign players entering India today face stifling regulations, a clouded political atmosphere, soaring real estate costs and a fiercely competitive domestic retailer group, the study noted.

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