Big corporate houses like Tatas, Birlas, Reliance, RPG, ITC and HLL are planning to make heavy investments in the sector, says a report prepared by McKinsey and Confederation of Indian Industry (CII).

The report said that with certain structural reforms like, removing supply chain constraints, tax rationalisation and allowing foreign direct investment in the retail business, retailing in India could be as large as $450-500 billion.

According to the report, 40-45 per cent of purchases in urban centres will switch to organised channels and these channels would be able to capture a substantial part of demand from the middle income categories.

"In this aggressive scenario, the leaders in the grocery and apparel markets with market share of 5 per cent would be $2 billion and in apparel $350-400 million in sales," it said.

In order to facilitate the retail sector growth, the study suggested to enforce rent laws and develop government-owned land in prime locations into markets.

In order to encourage retail chains operating in multiple geographies the report suggested to rationalise the tax structure. "The current sales tax structure is characterised by differences in rates across states, plus imposition of an additional central levy on inter-state sales. Over and above this, octroi is levied on the movement of goods from one district to another. This regime negatively impacts retail chains as a higher proportion of their merchandise is sourced from outside the sate of operation," it said.

It also urged the government to implement a uniform sales tax regime across the country for the benefit of both consumers as well as retail chains. "The next step is to move to value added tax regime," it said.

Stressing on the need to attract foreign investment, the report said that in Thailand, seven of the top 10 retailers have foreign equity. A similar picture can be seen in other developing markets such as China, Brazil and Poland, it said adding that such joint ventures help to develop high quality retail.

Retail is considered the world's largest private industry with total sales of $6.6 trillion. With close to 12 million outlets, India has the largest retail outlet density in the world. In terms of turnover the retail business in India is estimated at $180 billion, which is largely fragmented and unorganised.