The Bottom of the Population Pyramid will be the Greatest Beneficiary from Development of Organised Retailing according to PricewaterhouseCoopers’ India-centric study

New Delhi, 23 November 2005– Increased employment, efficiency in agriculture and increased exports through sourcing from India, are the three most significant benefits of modern trade, according to the PricewaterhouseCoopers’ Retail & Consumer Group’s thought leadership study on India titled - The Rising Elephant: Benefits of Modern Trade¹ to Indian Economy. This evidence based empirical study establishes how other comparable economies have benefited from modern trade, and the implications modern trade would have on the Indian economy.

The Rising Elephant provides a global perspective of the economic, social and cultural impact of global retailers in transitional economies and highlights the benefits that they brought to each of these economies. Apart from India, some of the other countries covered in the study are: China, Thailand, Poland and United Kingdom. “India is most definitely poised to become a leading producer and consumer in this new millennium. Due to the rise in the per capita income, augmented product availability, exposure to international lifestyles, brands and most of all, the media explosion, the retail and consumer industry in India is poised to enter a new era” said N.V. Sivakumar, Retail & Consumer Industry Leader, PricewaterhouseCoopers Pvt. Ltd

As per the study, a direct fallout of modern trade in India will be employment generation, both direct and indirect. Retail trade is largely labour-intensive and various studies based on the level of investment envisaged, have indicated the creation of an additional eight million jobs in the retail sector in near future. Indirect employment generation will be triggered as a chain reaction in the value chain i.e. at the manufacturer/ producer level, as well as other support activities such as grading, sorting, packaging, transportation, storage, various other service providers, such as security, training, IT, architects, store designers, facility management etc.

“There is significant opportunity of generation of new non-agricultural employment for the rural youth” , adds Sivakumar.

According to the study, there are 12 million retailers in India. Based on the rural to urban ratio (70:30), roughly 3.6 million live in urban areas. Only about 3% of these 3.6 million urban outlets, i.e. about 1,00,000 fall in the category between the organised retail outlet and D category stores (which is not likely to be affected by modern trade in any case, because of extremely convenient locations). This indicates that only those employed in the mid-category 1,00,000 stores will be potentially displaced in the medium term. In the long run, the metamorphosis of this sector will lead to the redeployment of this workforce also.

Another benefit that the study highlights is the efficiency in agriculture with the involvement of global players. Development and growth of modern trade in India will result in disintermediation in the food supply chain, as well as investments in upgrading technology and practices in the entire value chain including production, packaging, grading, storage and logistics. This will reduce wastage and duplication of efforts and enable farmers to realise higher productivity and better prices.

As per the study, sourcing from India will also grow manifold when these global retailers are allowed to operate in the Indian market, since more than 95% of merchandise sold at global retailer stores is locally sourced. India is already an important sourcing base for global retailers, primarily in products like apparel, home textiles, leather goods, gems and jewellery, handicrafts, furniture and watches, in which the country has a competitive advantage. “The presence of global retailers in the Indian market will enhance sourcing and exports from India, as retailers develop and leverage relationships with local suppliers. Once the supplier relationship is established and proves to be viable, these retailers can source for their global operations from India.” adds Sivakumar.

The study questions the prevailing view that FDI in retail or the growth of organised retail will hurt small businesses. In a growing market like India, as the retail pie continues to expand on the back of rising incomes and increasing consumer spending, there is room for everyone. Small businesses will continue to thrive as they adapt and re-model with the changing environment, to remain competitive.

The study details the developments necessary for retail transformation to take place, one of them being the availability of adequate infrastructure. Streamlining and improving logistic services will help improve productivity and cut costs, thus ultimately benefiting the Indian consumer. Legislative reforms, especially vis-à-vis property laws, labour laws, taxation, and fiscal incentives for domestic retailers are required to keep the momentum going. Granting industry status to Indian retailing will be the first step in this direction. Further to reach its potential, the Indian retail sector requires significant capital, technology and best practices to bridge the existing productivity gap and achieve scale in operations, which are critical to the sector’s success. One of the key steps to facilitate the development of the sector and accelerate its growth is to allow foreign direct investment. Foreign investment will increase food safety, increase government tax revenues from the sector, improve farm and food processing incomes and through improved efficiency of the supply chain, result in lower prices and better quality products for consumers.

Notes to the Editor:

• For a copy of the The Rising Elephant: Benefits of Modern Trade to Indian Economy, please contact: Nandini Chatterjee at nandini.chatterjee@in.pwc.com
• Modern trade is defined as any organised form of retail or wholesale activity, which is typically a multi-outlet chain of stores or distribution centres run by professional management.