Retailing in India is a pillar of the national economy accounting for about 10 percent of GDP. The Indian retail market is estimated to be worth $1.3 trillion as of 2022. India is one of the fastest growing retail markets in the world, with 1.4 billion people.
As of 2003, India's retailing industry was essentially owner staffed small shops. In 2010, larger format convenience stores and supermarkets accounted for about 4 percent of the industry, and these were present only in large urban centers. India's retail and logistics industry employs about 40 million Indians (3.3% of Indian population). In November 2011, India's central government announced retail reforms for both multi-brand stores and single-brand stores. These market reforms paved the way for retail innovation and competition with multi-brand retailers such as Walmart, Carrefour and Tesco, as well single brand majors such as IKEA, Nike, and Apple. The announcement sparked intense activism, both in opposition and in support of the reforms. In December 2011, under pressure from the opposition, Indian government placed the retail reforms on hold until a consensus was reached.
In January 2012, India approved reforms for single-brand stores welcoming anyone in the world to innovate in Indian retail market with 100% ownership, but imposed the requirement that the single brand retailer source 30 percent of its goods from India. Indian government continues the hold on retail reforms for multi-brand stores. In June 2012, IKEA announced it had applied for permission to invest $1.9 billion in India and set up 25 retail stores. An analyst from Fitch Group stated that the 30 percent requirement was likely to significantly delay if not prevent most single brand majors from Europe, USA and Japan from opening stores and creating associated jobs in India.
On 14 September 2012, the government of India announced the opening of FDI in multi-brand retail, subject to approvals by individual states. On 20 September 2012, the Government of India formally notified the FDI reforms for single and multi brand retail, thereby making it effective under Indian law.
Local terms
The National Commission for Enterprises in the Unorganized Sector (NCEUS) defines Unorganized sector as
'Unorganized Sector is a Sector consisting of all unincorporated private enterprises owned by individuals or households engaged in the sale or production of goods and services operated on a proprietary or partnership basis and with less than ten total workers.'
Based on this definition, Organized sector in India is defined as
'Organized sector is a sector consisting of all incorporated enterprises which are engaged in the sales or production of goods and services operated as private limited or limited organizations governed by Companies act and having more than ten total workers.'
With this definition, Organized Retail Sector will be characterized as: Company-owned retail setups Part of the employees are on the direct payroll of the company (some may be on the contract also) Employees will be governed by minimum wages act These outlets can be "standalone company owned showroom" or "The retail space" in any of the super market or mall, etc. Practically, there may be less than ten worker though
Organised retailing, in India, refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the publicly traded supermarkets, corporate-backed hypermarkets and retail chains, and also the privately owned traditional large retail businesses who constantly keep upgrading to the market dynamics and change like Saravana Stores, Pothys, The Chennai Silks who operate in a specific region or a part of the country. Dynamics of retail are quite different in India, owing to different climatic and cultural and language differences in the demographic profile.
Unorganised retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the local corner shops, owner staffed general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc."ICRIER Begins Survey of Indian Retail Sector." 19 March 2007.
Organised retailing actively started with the entry of Shoppers Stop, Westside, Pantaloons, Pyramid - Crossroad, all being department store formats in the mid to late 1990s and was absent in most rural and small towns of India till 2010. Supermarkets and similar organised retail accounted for just 4% of the market.
Most Indian shopping happens in open markets or numerous small grocery and retail shops. Shoppers typically wait outside the shop, ask for what they want, and can not pick or examine a product from the shelf. Access to the shelf or product storage area is limited. Once the shopper requests the food staple or household product they are looking for, the shopkeeper goes to the container or shelf or to the back of the store, brings it out and offers it for sale to the shopper. Often the shopkeeper may substitute the product, claiming that it is similar or equivalent to the product the consumer is asking for. The product typically has no price label in these small retail shops; all packaged products must display the maximum retail price (MRP) above which the product cannot be sold. It is a criminal offence to sell a product beyond the MRP of a product. The shopkeeper can price the food staple and household products arbitrarily, and two consumers may pay different prices for the same product on the same day but never will those price be above the maximum retail price. Price is rarely negotiated between the shopper and shopkeeper. The shoppers usually do not have time to examine the product label, and do not have a choice to make an informed decision between competitive products.RETAILING IN INDIA: A REVIEW OF PRESENT SCENARIO, Chapter 4 (2011)
India's retail and logistics industry, organised and unorganized in combination, employs about 40 million Indians (3.3% of Indian population). The typical Indian retail shops are very small. Over 19 million(as of 2020)statista outlets operate in the country and only 4% of them being larger than in size. India has about 11 shop outlets for every 1000 people. Vast majority of the unorganized retail shops in India employ family members, do not have the scale to procure or transport products at high volume wholesale level, have limited to no quality control or fake-versus-authentic product screening technology and have no training on safe and hygienic storage, packaging or logistics. The unorganized retail shops source their products from a chain of middlemen who mark up the product as it moves from farmer or producer to the consumer. The unorganized retail shops typically offer no after-sales support or service. Finally, most transactions at unorganised retail shops are done with cash, with all sales being final.
Until the 1990s, regulations prevented innovation and entrepreneurship in Indian retailing. Some retailers faced the challenge of complying with over thirty regulations, such as "signboard licenses" and "anti-hoarding measures," before they could open their doors. There were taxes on moving goods to states, from states, and even within states in some cases. Farmers and producers had to go through middlemen monopolies. Logistics and infrastructure were very poor, with losses exceeding 30 percent.
Through the 1990s, India introduced widespread free-market reforms, including some related to retail. Between 2000 and 2010, consumers in select Indian cities gradually began to experience the quality, choice, convenience, and benefits of the organized retail industry.
Growth
Growth over 1997–2010 India in 1997 allowed foreign direct investment (FDI) in cash and carry wholesale. Then, it required government approval. The approval requirement was relaxed, and automatic permission was granted in 2006. Between 2000 and 2010, Indian retail attracted about $1.8 billion in foreign direct investment, representing a very small 1.5% of total investment flow into India.GROWTH AND NECESSITIES OF FDI IN RETAILING IN INDIA
Single brand retailing attracted 94 proposals between 2006 and 2010, of which 57 were approved and implemented.Services Sector, Government of India Budget Document, Chapter 10 (2012) For a country of 1.2 billion people, this is a very small number. Some claim one of the primary restraint inhibiting better participation was that India required single brand retailers to limit their ownership in Indian outlets to 51%. China in contrast allows 100% ownership by foreign companies in both single brand and multi-brand retail presence.
Indian retail has experienced limited growth, and its spoilage of food harvest is amongst the highest in the world, because of very limited integrated cold chain and other infrastructure. India has only 5386 stand-alone cold storages, having a total capacity of 23.6 million metric tons. However, 80 percent of this storage is used only for potatoes. The remaining infrastructure capacity is less than 1% of the annual farm output of India, and grossly inadequate during peak harvest seasons. This leads to about 30% losses in certain perishable agricultural output in India, on average, every year.Investing in India, KPMG
Indian laws already allow foreign direct investment in cold-chain infrastructure to the extent of 100 percent. There has been no interest in foreign direct investment in cold storage infrastructure build out. Experts claim that cold storage infrastructure will become economically viable only when there is strong and contractually binding demand from organised retail. The risk of cold storing perishable food, without an assured way to move and sell it, puts the economic viability of expensive cold storage in doubt. In the absence of organised retail competition and with a ban on foreign direct investment in multi-brand retailers, foreign direct investments are unlikely to begin in cold storage and farm logistics infrastructure.
Until 2010, intermediaries and middlemen in India have dominated the value chain. Due to a number of intermediaries involved in the traditional Indian retail chain, norms are flouted and pricing lacks transparency. Small Indian farmers realise only 1/3rd of the total price paid by the final Indian consumer, as against 2/3rd by farmers in nations with a higher share of organised retail. The 60%+ margins for middlemen and traditional retail shops have limited growth and prevented innovation in Indian retail industry.
India has had years of debate and discussions on the risks and prudence of allowing innovation and competition within its retail industry. Numerous economists repeatedly recommended to the Government of India that legal restrictions on organised retail must be removed, and the retail industry in India must be opened to competition. For example, in an invited address to the Indian parliament in December 2010, Jagdish Bhagwati, Professor of Economics and Law at the Columbia University analysed the relationship between growth and poverty reduction, then urged the Indian parliament to extend economic reforms by freeing up of the retail sector, further liberalisation of trade in all sectors, and introducing labour market reforms. Such reforms Professor Bhagwati argued will accelerate economic growth and make a sustainable difference in the life of India's poorest.,
A 2007 report noted that an increasing number of people in India are turning to the services sector for employment due to the relative low compensation offered by the traditional agriculture and manufacturing sectors. The organised retail market is growing at 35 percent annually while growth of unorganised retail sector is pegged at 6 percent."India again tops global retail index ." 22 /6/ 2007.