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Impact of Organized Retail on Unorganized Sector in India

Impact of Organized Retail on Unorganized Sector in India



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Published by: ashishbaid20066529 on Mar 08, 2009
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Impact of OrganizedRetailing on theUnorganized Sector
Mathew Joseph Nirupama SoundararajanManisha GuptaSanghamitra Sahu
May 2008
The retail sector is expanding and modernizing rapidly in line with India’s economicgrowth. It offers significant employment opportunities in all urban areas. This study,the second undertaken by ICRIER on the retail industry, attempts to rigorouslyanalyse the impact of organized retailing on different segments of the economy. Nodistinction has been made between foreign and domestic players, in analyzing theimpact of the increasing trend of large corporates entering the retail trade in thecountry. The findings of this study are based on the largest ever survey of unorganized retailers (the so-called “mom and pop stores”), consumers, farmers,intermediaries, manufacturers, and organized retailers. In addition, an extensivereview of international experience, particularly of emerging countries of relevance toIndia, has also been carried out as part of the study.The study estimates that the total retail business in India will grow at 13 per centannually from US$ 322 billion in 2006-07 to US$ 590 billion in 2011-12. Theunorganized retail sector is expected to grow at approximately 10 per cent per annumwith sales rising from US$ 309 billion in 2006-07 to US$ 496 billion. Organizedretail, which constituted a low four per cent of total retail in 2006-07, is estimated togrow at 45-50 per cent per annum and attain a 16 per cent share of total retail by2011-12. In short, both unorganized and organized retail are bound not only to coexist but also achieve rapid and sustained growth in the coming years. This is clearly not acase of a zero sum game as both organized and unorganized retail will see a massivescaling up of their activities. In fact, the retail sector, left entirely in the unorganizedand informal segment of the economy, could well emerge as a major bottleneck toraising productivity in both agriculture and industry.One of the rather suprising findings of the study is that low-income consumers savemore than others through shopping at organized retail outlets. This is a result of targeted discount shopping. It is also seen that farmers gain considerably from directsales to organized retailers, with significant price and profit advantages as comparedwith selling either to intermediaries or to government regulated markets. Largemanufacturers have also started feeling the competitive impact of organized retailthrough both price and payment pressures. Yet, they see the advantages from a moreefficient supply chain and logistics that accompany the growth of organized retail.The extensive empirical evidence marshalled and analysed by ICRIER researcherswill hopefully provide a solid basis for policy in this sector. Based on the empiricalevidence and analysis that have been extensively peer reviewed, the study makes anumber of policy recommendations that have a bearing on both the unorganized andorganized segments of the retail sector. The two most important recommendations inmy view are: first, for the government to facilitate the emergence of a “private code of conduct” for organized retailers in their transaction with small suppliers; and, second,a simplification of the licensing and permit regime to promote the expansion of organized retail.
I would like to express my appreciation to the Department of Industrial Promotionand Policy (DIPP), Ministry of Commerce & Industry, Government of India, for giving ICRIER the opportunity to undertake this important study. I trust the effort of the research team led by Mathew Joseph and comprising of Nirupama Soundararajan,Manisha Gupta and Sanghamitra Sahu will receive due recognition. I would also liketo thank our collaborators, Dr. Thomas Reardon, Dr. Ashok Gulati of IFPRI,Technopak Advisors Pvt. Ltd. and Development & Research Services for their significant contribution to this effort. Finally, I hope that the study’s findings willhelp policymakers in their task of promoting modernization of the retail sector whilemaximizing its employment potential.
(Rajiv Kumar)
Director & Chief ExecutiveICRIER May 2

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