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Indian Retail – Heading for a Balanced Growth

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The growth of the Indian economy is now manifesting itself in the growing purchasing power of its citizens. The demand for a variety of goods, both consumables and durables, is expectedly growing significantly. Easier availability of goods, consequent to lowering of import duties and liberalization of trade regulations has also added to the appetite for purchases. A ten to twelve per cent increase in the economy’s disposable income and a much higher one in urban areas is also reflecting itself in the way goods and services are bought and sold.

Modern retailing or organized retailing, in contrast to the traditional small & stand-alone stores which dominate the Indian market, is growing today by over 25% annually. There are clear indications that this growth rate would be there for several years to come, as the Indian middle-class continues to grow by 20 to 25 million annually. Though households falling in this category may not be wealthy or rich, they constitute India’s aspiring class and given their characteristics and age profile, bring considerable incomes to the market place.

It is a known phenomenon that the young tend to have a high propensity to consume and do not save for the rainy day. Popularization of plastic money, i.e. credit, debit & other basic cards and easier availability of credit, for durables as well as many consumer goods, has added to the retail boom of the country. It is this class, which is going to be propelling the Indian retail transformation for some time to come.

There would be a real revolution in the Indian retail industry, if the changes being witnessed in the metropolitan and other tier-one towns percolate to all the 784 urban settlements, with populations above 50,000 persons. This is likely to happen as the real estate prices in the large metropolitan towns are increasingly becoming prohibitive and consequently giving distinct advantage to those who are already in the business of retailing, viz., the traditional mom & pop stores. Rural and semi-urban incomes are also expectedly to grow much faster in future, once the agriculture growth rate pushes up. Our civic laws concerning construction and property development also need to be re-looked, as the earlier convenience-stores get replaced by shopping malls and other formats of organized retail trade.

With the entry of many large Indian players into the retail trade, things are certainly hotting-up and the consumer can look forward to having a much wider choice and greater ease in shopping. The need, however, is to have a higher degree of competition amongst the organized retailers so that the customer can get value for his money and be the ‘sovereign’. This is, however, not to undermine the role which the large players are likely to play in improved logistics and bringing in state-of-the-art technology, both in their front-end as well as the back-end operations which support the modern retail chain. The positive effects on agriculture, particularly in post-harvest operations including developing of cold chains are also being anticipated, with the entry of many large players into organized retailing. As is widely known, less than one percent of food & grocery retail in India is organized and herein lies the greatest challenge for modern retail.

It appears that the Indian format of retailing is going to retain its own touch, with numerous small retailers and other traders being located in the city centres and the large organized retailers coming up in the suburbs of the metropolitan cities. This way, benefits of both could be available to consumers, who would have the choice of stocking up for a week or two by going to the suburbs, but at the same time depending upon the next door shop for the daily household needs of fresh fruits, vegetables and other knick-knacks. This might well be the happy balance, which is being sought in our country.

Secretary to Government of India
Department of Industrial Policy & Promotion,
Ministry of Commerce and Industry

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