Contribution of Indian Retail Industry to Indian Economy

By: EconomyWatch   Date: 29 June 2010

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Contribution of Retail:

What, How and For WhomThe presence of retail sector in India has been in limelight for the last few years. Its significance has been undoubted. Policymakers are quite optimistic that the evolution and steady maturation of organized retailing will take the economy to new highs. Besides, it will also help strengthen the linkages between the different sectors so as to break the vicious circle of poverty and ensure a bright future for the next generation. The benefit of retailing to general public includes growing awareness and brand consciousness.

Indian Retail: Past Vs Present

It is widely accepted that the retail industry has undergone a drastic change in last five years and there is yet more to come. Let us compare the image of Indian retailing in 2004-05 to that of its status in 2007-08 in the following table:

Magnification of the Indian Retail Industry

Yardstick

Situation in 04-05

Situation in 07-08

Value of retail sales

Rs. 10,20,000 crore

Rs 12,00,000 crore

Annual growth rate

5%

5.7%

Value of organized market

Rs 35,000 crore

Rs 55,000 crore

Share of organized market in the sector

3.4%

4.6%

Forecasts (after 5 years) about size of organized retail market

Over Rs. 1,00,000 crore

Rs. 2,00,000 crore

Forecasts about growth rate of organized retail market

Around 30%

Around 40%

The above table clearly shows that the retail market as well as the mindset required for it has experienced a thorough revisal in the last three years. This is just the beginning and Indians are sanguine that the sector will see rosy days in the future. This confidence has helped India acquire the No.1 position among 30 most attractive retailing destinations in the world according to the Global Retail Development Index of 2005 (by AT Kearney, India). Among emerging markets, India holds the second position after China in the list of most favored retail destinations.

The retail industry employs a huge share of the total workforce in India. It is the second largest employer after India. Presently 7 percent of the total labor force is employed in the retail sector. According to available data it is also the largest employer in the services sector and maximum growth in the non-agricultural sector has been witnessed by retail trade. According to market analysts 300 new malls, 1,500 supermarkets and 325 departmental stores are going to come up in India in the next few days. The shopping revolution that has led to this retail boom is going to continue and this is a good news for the government as well as those who wish to work in the organized sector.

Contribution of FDI in Retailing

Permitting Foreign Direct Investment in the retailing sector can have immense benefits. It can generate huge employment for the semi-skilled as well as illiterate population which otherwise can't be employed in the already confined rural and organized sector. The retail sector is highly dependent on the rural sector. Thus it can facilitate the improvement of the standard of living of farmers by purchasing commodities at a reasonable cost. It also stems out an indirect employment generation channel by training and employing people in the transportation and distribution sectors such as drivers, mechanics etc. It is also evident that real estate is a genuine challenge for organized retailing. Traditional retailers can use this situation in their favor by taking franchisees of the mega players of this industry. On the other hand, the consumer gains from the wide variety of choices and a more diversified basket of prices available under one roof. Secondly the indirect benefits like better roads, online marketing, expansion of telecom sector etc. will give a 'big push' to other sectors including the rural one itself. Last but not the least the huge tax revenue generated from these retail biggies and collected in government coffers will gradually wipe out the ugly looking fiscal and revenue deficits. Besides the transaction in foreign currencies by these MNCs will create a balance in exchange rate and will bring in stable funds in the economy as opposed to FII's hot money. This will in turn act as a boost to the developing (or 'transforming', as suggested by the USAID) economy of India.

The phobias relating to FDI in the retail sector are unfounded as neither the retailing sector in India is an infant industry, nor it can outweigh the paramount local tastes and preferences.

Let's pray that the retail sector like the IT and manufacturing sector brings happiness in the eyes of the people and help remove the regional and class-based disparities.

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