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Rediff.com  » Business » Organied retail not to hit kiranas: Govt

Organied retail not to hit kiranas: Govt

December 13, 2007 10:51 IST
A study by economic think-tank Icrier (Indian Council for Research on International Economic Relations) has found that any adverse impact of organised retail on mom-and-pop stores will wear off over a period of time.

Organised retail, it has said, will not lead to job losses and will, in fact, raise farmers' earnings.

The results of the study will impact the government's policy on opening the retail sector to foreign investment. The move has been stalled for some time due to political concerns.

The study is expected to carry weight as it was commissioned by the commerce ministry after Congress President Sonia Gandhi wrote to Prime Minister Manmohan Singh expressing concern over the possible impact of malls and hyper-markets on kirana traders and small stores.

"The study has found that there will be no negative impact on employment. At the same time, there will be a positive effect on farmers' earnings. Also, any adverse impact on small shops will wear off over a period of time," said a source in the know of the findings.

The study has also found that the presence of organised retailers will firm up the supply chain deficiencies, which has been bothering the sector.

An expert who has contributed to the study says the issue of lower profits of unorganised retailers due to the presence of malls and hyper-markets is academic.

"Increased competition impacts every player's sales and profits. Even in organised retail, suppose a Reliance Fresh was to open next to Subhiksha, the latter's revenues and profits would naturally decline," he said.

He said the dip in sales and profits was a result of the ongoing price war. He added organised retailers and kirana stores had been eating into their margins to offer "rock-bottom prices" to consumers.

"We are only participating in the growth story. We have opened more than 400 stores across the country and not one small retailer has had to shut shop because of us," said a senior Reliance Retail executive.

There are around 419 operational Reliance Fresh stores in the country. From its initial aim of opening 2,000 stores by 2009, Reliance Fresh has scaled down the target to around 1,500.

R Subramanian, managing director, Subhiksha Trading Services, says a new store in a locality always affects the existing businesses.

"You do not need to commission a study to find the impact on 10 stores when the 11th one opens in the same area. Just because an organised retailer opens does not mean people start buying more goods. Also, this study is at a particular point of time, and talks of only the initial reaction. It does not deal with the scenario two or three years from now."

He added unorganised retail would keep growing, but not as sharply as organised retail. "The economy is growing at 10 per cent per annum and that spin-off is being felt by traders and small retailers. And it's not as if everybody shops at branded stores."

Vishal Retail chairman RC Agarwal feels the Indian retail is in a transitional phase. "A time will come when mom-and-pop stores will join organised retail. This will be either through the franchise route or by joining the supply chain."

Experts point at the positive impact on the country's exports. "The government will surely take into account the findings of the study while deciding on opening the retail sector to foreign investment. But we should remember that if foreign players are allowed to operate in the retail space, they will have access to domestic suppliers, from whom they can source their products, boosting exports," said FDI expert Nagesh Kumar, director general of Research and Information Systems for Developing Countries (RIS).

Significantly, a recent commerce ministry-sponsored study, conducted by the Delhi-based Academy of Business Studies (ABS) and the World Trade Centre (WTC), Mumbai, recommended opening the sector to FDI on a regional basis.

BS Reporters in New Delhi
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