IndiaRetailBiz

With retail roll out plans of big business houses like Bharti, Reliance and others gaining momentum, Indian retail industry, is poised for a rapid growth. According to a report prepared by FICCI, the sector is expected to grow rapidly from $328 billion as at present to $430 billion, in the next three years, by 2010.

Interestingly, while modern (organised) retail will register exponential growth from around 4% ($12 billion) to around 20-22 percent (or $90 billion), it will not happen at the cost of unorganised retail. While organised retail has so far grown at 35% CAGR, it will gain further momentum to grow at 50% CAGR in the next three years. Organised retail currently accounts for 1.5% of the country’s GDP.

Even, unorganised (traditional) retail, during the next three years, will grow from present $316 billion to $340 billion.

Allaying fears of the unorganised retail, FICCI Secretary General Amit Mitra said: “We don’t see in the coming five years any conflict emerging because the informal unorganised retailing is huge in India. It will not go down, it will only go up. In ten to fifteen years, whether there will be a conflict or an impact on employment, a clear study and the government will tell us more. But at this time, we see a win-win possibility.”

The exponential growth of modern retail, according to the report, will however be possible only if certain bottlenecks are removed by the government.

Among the major recommendations, FICCI wants the government to:

• Accord industry status to the sector
• Rationalise tax structure
• Implement the concept of common market
• Improve the infrastructure
• Relax the constraints on human capital.

Justifying recommendations of the FICCI Retail report, Secretary General Amit Mitra said:

Industry status to retail is the first basic step needed for reforming the retail sector. This would help the sector avail of organised financing and fiscal incentives.

Rationalisation of taxes and tax holidays for all kinds of retailing will be essential as investment required in the retail sector and the benefits that would accrue justify giving the industry tax sops.Today, one cannot move a product from one state to another because there are so many barriers in taxation terms. We must remove those barriers. Reducing the excise duty from 16 to 14 percent, would help in making India a common market. Offering tax holidays on certain activities like cold chain would be necessary to develop infrastucture.

While, the rapid growth is expected to generate 18 million jobs, thereby making it the second biggest employer after agriculture, the sector is reeling under the pressure of human resource crunch. None of the educational institutions in India offer a comprehensive course on retail. As such, introduction of retail as an intrgrated subject of study in the schools and universities of the country is necessary. The courses on retailing should be offered in ITI’s (Industrial Training Institute), at 10+2 level, polytechnics and the universities.

Investment:

The exponential growth in modern retail will entail huge investment of more than $30 billion in the sector, within the next five odd years, by 2011.

While, 92% of the $30 billion plus investment would be made in urban areas, rural areas will account for the rest. While, two third (66%) of the urban investment is likely to go in the hypermarket (38%) and supermarket (28%) formats, specialty and cash-and-carry formats are likely to account for estimated 22% and 16%, respectively. Again, bigger cities will take away almost two third (or 62%) of the toatal urban investment.

According to the report, to sustain this growth, at least 110 million sq ft of additional retail space will have to come up every year for many years.