Indiaretailing.com: The politics of organized retail will be short-lived
Commentary by Rajendra K. Aneja
Through a special arrangement, what follows is an excerpt of an article from Indiaretailing.com, presented here for discussion.
The time for retailing in India, as an organized industry, has arrived. The government should immediately permit FDI (foreign direct investment) in retail. This will encourage large retailers like Metro, Tesco and Carrefour to get serious about their India plans. The entry of these international players will usher in a new paradigm in retailing in India.
Retail is poised to be one of the largest employment avenues in India. This will enable provisions of various industrial and labor laws to be applied to the retail industry also, which will help to manage businesses more pragmatically and systematically. Modern trade, in terms of hypermarkets/supermarkets, also improves the quality of service and augments the range of products to consumers. A store like Ikea offers thousands of economically priced products, including furniture and storage spaces, which can revolutionize daily living for the middle and lower income segments of our society.
The government is procrastinating over the FDI policy because it is tentative about the impact of organized retail on the small shops. Why be terrified? Organized retail currently constitutes only two to three percent of the retail business in India. Thus, the dreaded phantom of swamping by large retailers is a figment of political imagination.
Certainly, there will be a fallout. The smaller and marginal outlets will be impacted, and the more incompetent ones may have to shift to other businesses. But then, India abounds in opportunities.
It may interest the government to know that even in many second-world countries like Indonesia, Brazil, Venezuela, Colombia and Saudi Arabia, which abound with international hypermarkets, about 50 to 70 percent of the groceries, vegetable and fruit trade takes place through the traditional stores.
So, hypermarkets and malls will not sound the death-knell for small stores. In fact, many small stores flourish more, because their sales increase. Customers do not visit hypermarkets at the drop of a hat. A visit to a large store has to be planned. For daily grocery purchases, consumers continue to visit the cornershop. Interestingly, with the arrival of modern retailing and hypermarkets, the smaller neighborhood stores invariably spruce up in terms of layout, hygiene, merchandising and customer service. Thus, the entire trade becomes more hygiene- and customer-conscious.
Modern retailing as exemplified through supermarkets and hypermarkets is an imminent phase in India. It can be delayed, not stopped. The government should facilitate, rather than inhibit, it. Why should a billion-strong population not have the freedom of choice, which is the essence of democracy?
Discussion Questions: What do you think of the opportunity for American retailers to expand into India? Is the Indian government justified in their caution concerning a possible adverse affect on smaller stores? How do you think expansion into India might differ from past efforts to expand into regions such as Brazil, China or Mexico?