Indian retail policy attacked
Sunday, 17 June 2007
Joe Leahy from Mumbai
RESISTANCE by India's politicians to the entry of large-scale retailers in the food and grocery sector could be costing the country up to the equivalent of 1.7 percentage points of lost economic growth, a study suggests.
The study by Crisil, the Indian affiliate of Standard & Poor's, found the virtual absence of corporate investment in modern infrastructure to connect the mostly impoverished farmers to urban consumers was leading to huge wastage of food en route to market and was driving up inflation.
If farmers, who make up 60 per cent of India's 1.1bn population, were able to deliver produce to market efficiently, the rise in their disposable incomes would be enough to deliver an immediate boost to the overall economy, Crisil found.
India's ruling coalition, led by Congress party chief Sonia Gandhi, has been reluctant to allow large retailers to enter the market, particularly foreign chains, for fear this would put millions of small shop-owners out of business.
Large foreign retailers, such as Carrefour, Tesco and Wal-Mart, have failed to make progress in India because of rules barring foreign direct investment in stores selling goods under more than one brand.
Even the country's most powerful domestic business group, Reliance Industries, has faced fierce opposition from leftist activists to its plan to roll out a national food and grocery network.
Ajay Dwivedi, director of research at Crisil, said he could not comment on the issue's political dimensions. But he said: "There is a feeling among policy makers that perhaps organised retail is not good for the economy, it's not good for jobs in the trading and retailing sector. But the point we're trying to make is that it has a lot of benefits as well."
Only about 1.0 per cent of India's food and grocery trade, which makes up 74 per cent of the country's Rs12,800bn ($315.1bn) retail sector, flows through organised retail chains.
Crisil found that inefficiencies in the food and grocery supply chain in India meant farmers were realising only 35-40 per cent of the retail price of their goods compared with 60-65 per cent in more developed markets.
Poor roads and a lack of cold storage facilities were leading to goods going rotten before reaching the market while other costs such as commissions paid to numerous middlemen were driving up the final retail price.
If the sector moved to organised retailing, farmers' incomes could be lifted by as much as 37 per cent, providing a potential fillip to the economy equal to 1.7 per cent of gross domestic product, the study said.
The study comes as activists against organised retailing are pledging to step up protests against companies such as Reliance Industries.
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FT Syndication Service
RESISTANCE by India's politicians to the entry of large-scale retailers in the food and grocery sector could be costing the country up to the equivalent of 1.7 percentage points of lost economic growth, a study suggests.
The study by Crisil, the Indian affiliate of Standard & Poor's, found the virtual absence of corporate investment in modern infrastructure to connect the mostly impoverished farmers to urban consumers was leading to huge wastage of food en route to market and was driving up inflation.
If farmers, who make up 60 per cent of India's 1.1bn population, were able to deliver produce to market efficiently, the rise in their disposable incomes would be enough to deliver an immediate boost to the overall economy, Crisil found.
India's ruling coalition, led by Congress party chief Sonia Gandhi, has been reluctant to allow large retailers to enter the market, particularly foreign chains, for fear this would put millions of small shop-owners out of business.
Large foreign retailers, such as Carrefour, Tesco and Wal-Mart, have failed to make progress in India because of rules barring foreign direct investment in stores selling goods under more than one brand.
Even the country's most powerful domestic business group, Reliance Industries, has faced fierce opposition from leftist activists to its plan to roll out a national food and grocery network.
Ajay Dwivedi, director of research at Crisil, said he could not comment on the issue's political dimensions. But he said: "There is a feeling among policy makers that perhaps organised retail is not good for the economy, it's not good for jobs in the trading and retailing sector. But the point we're trying to make is that it has a lot of benefits as well."
Only about 1.0 per cent of India's food and grocery trade, which makes up 74 per cent of the country's Rs12,800bn ($315.1bn) retail sector, flows through organised retail chains.
Crisil found that inefficiencies in the food and grocery supply chain in India meant farmers were realising only 35-40 per cent of the retail price of their goods compared with 60-65 per cent in more developed markets.
Poor roads and a lack of cold storage facilities were leading to goods going rotten before reaching the market while other costs such as commissions paid to numerous middlemen were driving up the final retail price.
If the sector moved to organised retailing, farmers' incomes could be lifted by as much as 37 per cent, providing a potential fillip to the economy equal to 1.7 per cent of gross domestic product, the study said.
The study comes as activists against organised retailing are pledging to step up protests against companies such as Reliance Industries.
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FT Syndication Service