Organized Retailing in India: Issues and Outlook

Abstract

Sales for organized (i.e. “large”) retailers grew four times faster than the sales for unorganized (i.e. “small”) retailers in India during 2005-09. However, unorganized retailers captured as much as 85% of the increase in retail sales over this time period. We estimate a time-series model that suggests that retail sales can continue to grow at the post-2005 rates in the short run. If so, organized retailers may increase their share of sales from 4.8% to 9.1%, and unorganized retailers may still capture three quarters of the total increase in retail sales, during 2009-16. We discuss the relative advantages for organized and unorganized retailers, and conclude that unorganized retailers are likely to coexist with organized retailers in the long run.

We also argue that “large” multinational retailers, in particular, whose entry is much feared, have the potential to benefit consumers, farmers, and manufacturers; and that they can make investments in, and improve the efficiency and performance of, the distribution system in India. Besides, we contend that they are unlikely to decimate the “small” retailers in India.

We examine widespread concerns about the potential misuse of economic power by large retailers. Several of these concerns are improbable. In any event, we propose that anti-competition outcomes can be minimized in several ways: by developing electronic markets that allow open access to buyers and sellers; by facilitating collective buying by cooperatives representing unorganized retailers; and by requiring the use of common, inter-operable standards in the design of information systems that support supply-chain activities.