Competition from unorganised sector
Although India has a large consumer base, Indian consumers are price sensitive and there is considerable heterogeneity in consumers’ tastes, product choices and shopping behaviour. They are experimenting across brands and brand loyalty is low. Moreover, the unorganised sector is strong and offer significant competition to organised players, especially in sectors such as food and grocery. and it has led to mergers and acquisition. retail is a difficult business with long gestation lags. Its success depends on a number of factors including effective logistics network, availability of retail space, and supporting regulation. A number of regulations which can not only help this sector but the entire logistics network are pending. Implementation of GST in India is a much bigger reform for retail modernisation than allowing FDI in retail. The government should make necessary changes in the FEMA Act so that profit repatriation related issues of foreign retailers are addressed. Unless this is done, foreign retailers would not invest in India. FDI in retail should be delinked from domestic regulations. While it is important to regulate retail, regulations should be transparent and non-discriminatory. Also, regulations should support scale expansion, growth of manufacturing and linkages of Indian manufacturers into global value chains of retailers. Conditions restricting scale expansion of manufacturers such as requirements to source from SMEs will not enable Indian manufacturers to grow and become part of global value chain of retailers. The role of the government is to provide the supporting infrastructure and regulatory transparency. If that is done, industry will come forward and invest in retail.
The growth of organised retail will lead to quality employment creation, enhance tax revenue earnings of the government, lead to investment in the supply chain and support the growth of local manufacturing and brand building, among others. It is closely interlinked with the growth of other sectors such as transport, tourism and constructions. Countries such as UAE (Dubai), Hong Kong, Singapore and Thailand earn a significant amount of foreign exchange through retail. Indians spend a lot in shopping abroad and India can itself become an attractive tourism and retail destination. At present, the number of tourists received by India is much lower than East Asian countries and Dubai. It is also important to note that consumerism and growth of retail have in the past enabled economies to come out of slowdown and India can return to the fast track growth path through a holistic approach to development of modern retail which takes into account its interlinkages with other sectors of the economy.