The growth of organised retail headed by large corporations does not significantly impact small mon-n-pop retailers, a long-awaited study by the Indian Council for Research on International Economic Relations (Icrier) concluded.
The study conducted for the government, following allegations that big retail was squeezing neigbourhood retailers out of business, showed that the latter's turnover and profit dropped 8 to 9 per cent initially, but the adverse impact weakened over five years.
Significantly, the report states that a total of 151 small shops have closed down over a period of 21 months, which is about 4.2 per cent of annual closure of retailers. However, only 62 of these shops attributed their closure directly to competition from organised retail.
Icrier Director and CEO Rajiv Kumar said the turnaround occurs as unorganised retailers adapt to the new challenge and formulate their own strategies in terms of technology upgrade and improvements in the supply chain.
The findings are likely to ease pressure on the UPA government, which has been warned by the Left parties not to succumb to the temptation to open up the retail sector to foreign investment.
On the domestic front, organised retailers have been opposed by several groups in states like Uttar Pradesh and elsewhere. In fact, UP had in mid-2007 banned the opening of new stores by retail chains like Reliance Retail, on the grounds that small traders will bear the brunt of the organised retail onslaught.
As much as 49 per cent of 1,999 sampled small retailers reported a decrease in turnover, while others reported no change or even an increase. The highest impact has been felt in west and north India.
In terms of product categories, the impact has been greater in textiles and clothing shops (46 per cent of the sample), and the least in fruit and vegetable hawkers (34 per cent).
Surprisingly, the findings suggested that low-income consumers saved more by visiting malls and super markets for discount schemes. Farmers have also benefited with price realisations about 60 per cent higher by selling to organised retailers rather than the mandi.
The study added that intermediaries have not been adversely impacted, but large manufacturers have started feeling the competitive impact of organised retail through price and payment pressures.
The terms of reference of the study were to examine the growth, employment impact on small, unorganised retailers and vendors. ICRIER was also asked to study the impact on farmers, manufacturers, consumers, prices and overall economic growth.
The study was commissioned by the Department of Industrial Policy and Promotion weeks after a letter by Sonia Gandhi, who chairs the ruling United Progressive Alliance, to Prime Minister Manmohan Singh in January 2007 asking the government to study the impact of trans-national super markets on livelihood security of small store owners.
The study originally covered only the four big cities. Subsequently, ICRIER was asked to increase the sample size. Eventually, the field survey, conducted by Development & Research Services, covered 10 cities, 2020 unorganised retailers, 1318 customers, 100 intermediaries and 197 farmers.
However, the report cautions that the results are not indicative of the countrywide scenario, but only of mega and mini-metro cities around a limited number of organised retail outlets.
"For the country as a whole, unorganised retail is growing at a reasonable rate and will continue to do so for many years to come. Yet, it is clear that demand growth for retail is likely to substantially exceed any possible supply response from unorganised retailers", the report adds.
The report forecast that India's overall retail sector will grow 16 per cent a year, from $322 billion in 2006-07 to $590 billion by 2011-12. Within this, unorganised retail, which accounts for nearly 96 per cent of the market ($309 billion), will grow 10 per cent annually to reach $496 billion.
In contrast, organised retailers will grow at 40 to 50 per cent a year to expand market share to 16 per cent by 2011-12.
