India's Retail Explosion: Boon or Bane?

The upmarket retail sector seems set for a virtual explosion with the entry of a whole host of domestic players while foreign companies are waiting and watching eagerly on the sidelines. With India being one of the biggest emerging markets, it is no wonder that retail giants like Wal-Mart and Carrefour are eager to make an entry. For the time being, however, domestic giants like Reliance, Pantaloon, ITC, RPG, Rahejas and the Bharti group have jumped into the fray. These big retail chains seem to be visible at virtually every street corner lately but the question is, what happens to the neighborhood grocer? The fact is that big retail chains have a lot to offer both the farmer and the consumer. On the other hand, the vibrant Indian trading community is going to be hard hit. Farmers are keen for big retailers to come in as they help in both marketing and processing of output without their having to go to middlemen in the mandis. Consumers similarly are reaping a bonanza as prices at these shops are at rock bottom rates since big retailers can afford to buy directly from the farmers.No wonder that there have been reports of farmers protesting in Jharkhand against efforts to stop big retailers from buying tomatoes directly from them. In contrast, there were reports from another city of small retailers protesting in front of a Reliance Fresh showroom saying it was ruining their business. Politicians, of course, are entering the fray to oppose the entry of large retail chains, but clearly economic forces are now going to play a larger role.In this context, some of the data on the retail sector in India makes for interesting reading. For instance the CII-AT Kearney retail study shows that retailing is the largest contributing sector to the country's GDP. Besides, the retail sector contributes about 10 percent to the GDP compared to 8 percent in China, 6 percent in Brazil and a matching 10 percent in the US.India is estimated to have around 15 million retail outlets, making it the country with the highest retail outlet density in the world. It also tops AT Kearney's list of emerging markets for global retailers. Currently the value of the retail market is estimated at around $270 billion with a growth rate of 5.7 percent per annum according to the India Retail Report 2007.In addition, 96 percent of the total retail trade in the country is in the unorganized sector. The size of the organized retail market in 2006 was estimated at Rs.485 billion, making up 4.7 percent of the retail market. As for job potential, the retail industry is the second largest employer after agriculture, employing about 6-7 percent of the total work force.Data clearly shows that the retail sector is not only extremely large but provides a huge amount of jobs in this country. The entry of the organized large retail chains may not have an immediate impact on the trading community. But in the long run, it is clear that small traders and retailers will be affected and the government cannot ignore the issue.While one would ideally like to take the side of the consumers and the farmers on the issue, it is evident that the muscling in of the big retailers may lead to large-scale closures of small trading outlets. And this in turn could affect many families relying on jobs in this sector.At the same time, the investments made by large food retailers in farm production could lead to tremendous savings as huge amounts of fruit and vegetables that cannot be processed are simply thrown away in India. In areas like Uttarakhand, for instance, farmers are welcoming the entry of retail chains that are putting money into proper processing and packaging facilities.The government, on its part, insists that small retailers may face competition from the big fish but have definite advantages over them owing to low overheads, local market knowledge and their engaging in services like home delivery and sales on credit. It also points to the fact that wastage estimated in the Indian food chain is around 40 percent, valued at over Rs.500 billion ($10 billion) annually. A study by the Indian Council for Research on International Economic Relations (ICRIER) has also shown that only about 2 percent of fruits and vegetables are processed in this country. In this backdrop, it is felt that there is no option but to allow big retail chains to make huge investments needed to create an efficient and modern agro processing industry.Despite these arguments, it is clear the small trading community will have to be given some form of protection in the coming years. Otherwise, not only will the small retailer gradually disappear from the city scene, but even worse, employment for thousands of people could be affected in the long run.