Forget about Wal-Mart or Tesco: A vast majority of Indian consumers are not getting a taste of even the desi version of organised retail. When it comes to accessing the customer's wallet, mom & pop stores rule the roost. There are 12m retail outlets in the country and 78% of them are family-owned businesses. These small and medium enterprises account for nearly 60% of all retail sales of food and food-related items, according to UNCTAD (United Nations Conference on Trade and Development).
While the debate on allowing foreign direct investment in retail continues to rage on, a study by the UN organisation has revealed that only 3% of the country's population shops at modern retail outlets. The remaining 97% is dependent on small retail outlets.
Only 4% of the retail chains in the country have a floor area of more than 500 sq ft, says the study which is scheduled to be released in Geneva this November. The malls mushrooming in places like Gurgaon are more of an exception and have not caused any change in the country's retail landscape.
An advance copy of the UNCTAD study, available exclusively to the ET, points out that cautious approach of retail FDI means that the Indian consumer is virtually dependent small retailers. Opening up the sector would pave the way for Indian goods, especially farm goods, to get better access in the global markets, says the study. The clear hint is that India should not hesitate in discussing liberalisation of the retail services during the current talks at the World Trade Organization (WTO) to liberalise trade in services.
“The ongoing GATS negotiations provides a unique opportunity to assure that commercially meaningful market access commitments for developing countries are offered by developed countries, while providing effective access to global distribution channels for services from developing countries. Such access would also require market liberalisation for movement of natural persons, involved in the distribution services,” says the study. The negotiations should take into account the sensitivities of this sector and developing countries need to approach liberalisation of this sector with appropriate pace and sequencing, it has been advised.
The UNCTAD study comes at a time when the government is looking at opening up of retail for FDI despite opposition from the Left parties. The current feeling is that the liberalisation would be phased, accompanied by a number of restrictions including a cap on the number of outlets in line with the population of a region. A number of global players like Wal-Mart are interesting in entering the vast Indian market and they have argued that exports from the country would increase following the arrival of global chains. Since these chains would stock Indian products at their outlets in the country, they would also be increasingly sourced for sales in other countries.
Commerce & industry minister Kamal Nath has made his intentions clear by emphasising that the government was actively considering liberalisation of the retail sector. As of now, few foreign companies like Metro of Germany have been permitted to enter the wholesale business. However, no new proposal for entering the retail sector is being entertained. Even in the case of companies obtaining permission for wholesale trade or cash & carry business, the government specifies that retail trading is not permitted. The UNCTAD study would only strengthen the government's case for opening up of the sector.