06-11-2012, 05:13 PM
FDI in India’s Retail Sector More Bad than Good
1FDI in India’s Retail Sector.pdf (Size: 211.95 KB / Downloads: 46)
Retailing is the interface between the producer and the individual consumer
buying for personal consumption. This excludes direct interface between the
manufacturer and institutional buyers such as the government and other bulk
customers. A retailer is one who stocks the producer’s goods and is involved
in the act of selling it to the individual consumer, at a margin of profit. As
such, retailing is the last link that connects the individual consumer with the
manufacturing and distribution chain.
The retail industry in India is of late often being hailed as one of the sunrise
sectors in the economy. AT Kearney, the well-known international
management consultancy, recently identified India as the ‘second most
attractive retail destination’ globally from among thirty emergent markets. It
has made India the cause of a good deal of excitement and the cynosure of
many foreign eyes. With a contribution of 14% to the national GDP and
employing 7% of the total workforce (only agriculture employs more) in the
country, the retail industry is definitely one of the pillars of the Indian
economy1. (see Table 1)
The Indian Scenario:
Trade or retailing is the single largest component of the services sector in
terms of contribution to GDP. Its massive share of 14% is double the figure
of the next largest broad economic activity in the sector. (see Table 1)
The retail industry is divided into organised and unorganised sectors.
Organised retailing refers to trading activities undertaken by licensed
retailers, that is, those who are registered for sales tax, income tax, etc.
These include the corporate-backed hypermarkets and retail chains, and also
the privately owned large retail businesses. Unorganised retailing, on the
other hand, refers to the traditional formats of low-cost retailing, for
example, the local kirana shops, owner manned general stores, paan/beedi
shops, convenience stores, hand cart and pavement vendors, etc.
Employment in Retailing:
A simple glance at the employment numbers is enough to paint a good
picture of the relative sizes of these two forms of trade in India – organised
trade employs roughly 5 lakh people (see Tables 8 & 9), whereas the
unorganized retail trade employs nearly 3.95 crores5! According to a GoI
study the number of workers in retail trade in 1998 was almost 175 lakhs.
Given the recent numbers indicated by other studies, this is only indicative
of the magnitude of expansion the retail trade is experiencing, both due to
economic expansion as well as the ‘jobless growth’ that we have seen in the
past decade. It must be noted that even within the organised sector, the
number of individually-owned retail outlets far outnumber the corporatebacked
institutions. Though these numbers translate to approximately 8% of
the workforce in the country (half the normal share in developed countries)
there are far more retailers in India than other countries in absolute numbers,
because of the demographic profile and the preponderance of youth, India’s
workforce is proportionately much larger. That about 4% of India’s
population is in the retail trade says a lot about how vital this business is to
the socio-economic equilibrium in India.
Retail as a ‘Forced Employment’ Sector:
It is important to understand how retailing works in our economy, and what
role it plays in the lives of its citizens, from a social as well as an economic
perspective. India still predominantly houses the traditional formats of
retailing, that is, the local kirana shop, paan/beedi shop, hardware stores,
weekly haats, convenience stores, and bazaars, which together form the
bulk. Most importantly, Indian retail is highly fragmented, with about 11
million outlets operating in the country and only 4% of them being larger
than 500 square feet in size. Compare this with the figure of just 0.9 million
in the US, yet catering to more than 13 times of the Indian retail market size.