7

LESSON Introduction to
Indian Economy

1
INTRODUCTION TO INDIAN ECONOMY

CONTENTS
1.0 Aims and Objectives
1.1 Introduction
1.2 Definition of Economics
1.3 Salient Features of Indian Economy
1.4 Difference between Growth and Development
1.4.1 Growth
1.4.2 Development
1.5 Measurement of Economic Growth
1.6 Factors affecting Economic Growth of India
1.7 Classification of Sectors of Indian Economy
1.7.1 Major Sectors of Indian Economy
1.8 The Economic Scenario at Glance
1.9 Marketing’s Role in Indian economy
1.10 Impact of Globalisation on Indian economy
1.10.1 Steps taken to Globalise Indian Economy
1.10.2 Merits and Demerits of Globalisation
1.11 SWOT Analysis of Indian Economy
1.11.1 Strength
1.11.2 Weaknesses
1.11.3 Opportunities
1.11.4 Threats
1.12 Policy Framework of Retail in India
1.13 Problems facing Indian Economy
1.14 Challenges towards Indian Economy
1.14.1 Food, Inflation and Agriculture
1.14.2 Financial Sector Liberalisation
1.14.3 External Sector
1.15 Let Us Sum Up
1.16 Lesson End Activity
1.17 Keywords
1.18 Questions for Discussion
1.19 Suggested Readings
8
. 1.0 AIMS AND OBJECTIVES
After studying this lesson, you should be able to:
z Define the term economics and discuss the salient features of Indian economy
z Difference between growth and development
z Measure economic growth
z Identify various factors affecting economic growth of India
z Classify different sectors of Indian economy
z Discuss impact of globalisation on Indian economy
z Explain swot analysis of Indian economy
z Describe policy framework of retail in India
z Identify problems and challenges being face Indian economy

1.1 INTRODUCTION
India is today one of the six fastest growing economies of the world. The country
ranked fourth in terms of Purchasing Power Parity (PPP) in 2001. The business and
regulatory environment is evolving and moving towards constant improvement. A
highly talented, skilled and English-speaking human resource base forms its
backbone. The Indian economy has transformed into a vibrant, rapidly growing
consumer market, comprising over 300 million strong middle class with increasing
purchasing power. India provides a large market for consumer goods on the one hand
and imports capital goods and technology to modernise its manufacturing base on the
other.
An abundant and diversified natural resource base, sound economic, industrial and
market fundamentals and highly skilled and talented human resources, make India a
destination for business and investment opportunities with an assured potential for
attractive returns. Far-reaching measures introduced by the government over the past
few years to liberalize the Indian market and integrate it with the global economy are
widely acknowledged.

1.2 DEFINITION OF ECONOMICS

The economy is about how wealth is created, distributed and consumed. It concerns
the ways in which a country produces, distributes and consumes the tangible, material
commodities of life. It is also about how the proceeds or income from these activities
are distributed between those that contribute toward them: capitalist businesses,
workers, the state and the whole of society. Every person affects the economy in some
way and we are all affected by it.
Economics attempts to answer questions such as:
1. What is produced and how?
2. Why does a particular country produce particular goods and services?
3. How are the natural resources used?
4. How does a country earn and spend its money?
5. How are its people employed, and what technology do they use in their work?
6. What is the relationship between these things and the wealth and poverty of 9
Introduction to
different communities? Indian Economy

1.3 SALIENT FEATURES OF INDIAN ECONOMY

The following are the features of Indian economy:
1. Indian Economy-Underdeveloped: On the eve of independence, Indian economy
was underdeveloped economy. As an underdeveloped economy, Indian economy
had the following features:
(i) Low Per Capita Income: Underdeveloped economies have low per capita
income. India has no exception to it. In 1947-48, per capita income was
` 230. People were poor. They were not getting fair square meals a day. They
had no shelter and clothing. Most of the people were unemployed.
(ii) Poor Infrastructure: On the eve of independence infrastructural development
which comprised of communication and transport and electricity etc. was very
poor. In 1948, power generation capacity was nearly 2100 MW; length of
railway lines was 53,596 Kms.
(iii) Dependence on Imports: The country had to heavily depend on imports.
Armed forces of the country also depended on foreign imports. Moreover,
several consumer goods like sewing machines, medicines, oil, bicycles, etc.
were imported from abroad.
(iv) Illiteracy: Illiteracy was both cause and effect of poverty. Due to illiteracy,
people were unable to use new techniques in agriculture and industry. They
were unable to organize trade and commerce on modern lines. In 1948, rate of
illiteracy was 18%. Thus 82% of the population was illiterate.
(v) Agricultural economy: Indian economy was predominantly agricultural. In
1948, about 70% population was engaged in agriculture. Moreover,
agriculture constituted 50% of national income. But agriculture itself was
backward. Regarding productivity, it was 110 kg/hectare for rice in 1947 as
against 748 kg in Japan.
(vi) Low Development of Industries: There was very little development of
industries. Large industries used to produce consumer goods. Basic and key
industries were very less in number. In 1947, cement production was 26 lakh
tonnes, of sugar 10 lakh tonnes and that of cloth just 421 crore meter.
2. Stagnant Economy: During the British period, Indian economy remained almost
stagnant. There was very slow growth of economy. This was clear from the fact
that for almost a century, the average annual growth rate of per capita income in
India was not more than 0.5%.
The high growth rate of population tended to make it difficult to maintain even the
proposed growth rate. In fact poverty was widespread and about 40% people were
living below poverty line.
The causes of stagnation and backwardness are laissez faire, commercialization of
agriculture, neglect of irrigation, destruction of cottage and handicraft and
economic drainage and discriminatory tariff policy.
3. Semi-Feudal Economy: During the British rule, Indian economy had a mixed
mode of production. Feudalism was more prominent than other modes of
production.
A substantial developed capitalistic sector had emerged. Handicraftsmen had lost
their independent status and were engaged in a simple commodity production.
10 Bonded labour force was prevalent in agriculture. Primitive social organizations
existed in areas inhabited by the tribals.
4. Depreciated Economy: On the eve of Independence Indian economy was
depreciated. In every economy, extensive use of factors of production, inevitably
leads to their wear and tear. If no arrangements are made to replace the
depreciated factors then the stock of gross capital declines.
This results into the fall in production capacity. Such an economy is called
depreciated economy. After World War II Indian economy also turned into
depreciated economy.
During World War II India had supplied large quantity of goods to Britishers.
India was paid for it in terms of sterling. But due to lack of real capital, its
production capacity declined.
5. Pre-dominance of Agriculture: Agriculture is the main sector of Indian economy,
which is in total contrast to the economic structure of a developed economy. More
than 70 per cent of the total population is engaged in agricultural activities while
the picture is absolutely different in advanced countries.
According to Dr. Cloustone, "India has depressed classes, the tool has depressed
industries and unfortunately, agriculture is one of them" Therefore, the essence of
Indian economy is an agrarian economy.
6. Underutilized Natural Resources: It has been rightly stated that India is a rich
country inhabited by poor people. It means that the country possesses abundant
stock of natural resources but the problem is that these resources are not fully
utilized for the production of material goods and services. The result is poverty of
the people. The vicious circle of poverty moves for year to year together.
7. Heavy Population Pressure: Population is a major factor influencing the nature of
a country's economy. Over-population creates complex economic problems.
The income per capita is low, the efficiency of labour is not satisfactory and there
is an acute housing shortage. Unemployment and low standard of living dominate
the scene. In India, the rate of growth of population was about 1.25% per annum
during 1941-51.
8. Capital Deficiency: Deficiency of capital is another basic characteristic of Indian
economy. In case of physical capital, its total stock is not adequate for equipping
well to the entire labour force and full utilization of natural resources.
Similarly, human capital is far from satisfaction. The major reasons of low level
of capital formation in India were (i) low inducement to invest and (ii) low
propensity and capacity to save.
9. Famines: In the pre-British period famines had been occurring. These famines
showed an unbridled increase in the 18th and 19th centuries. The country
experienced 12 famines and 4 scarcities in between 1765-1858. Similarly, in
between 1860-1908, 20 famines spread their wings.
In 1943 Bengal famine shook the foundation of the country. William Digby
estimated that during 1854-1901, 28.8 million persons died due to famines. In the
famine of 1899-1900 2.5 million persons died of starvation.
10. Industrial Backwardness: On the eve of independence Indian economy was
backward from industrial point of view there was deficiency of basic and heavy
industries. Among heavy industries, there was Tata Iron and Steel industry.
The production of machines in the country was negligible. Statistics reveal that in
1947 total production of iron & steel was 9 lakh tonnes.
11. Low Levels of Living: India has been, and even today is one among the poorest 11
Introduction to
countries of the world. Barma few rich, the common masses forced to lead a Indian Economy
miserable life. Almost half of country's population is below the poverty line.
Quantity of goods available per head of population is meager and the quality is
invariably indifferent. Nutritional content of consumption is grossly inadequate
and hunger, starvation and disease are fairly widespread.
12. Lack of Social Overhead Capital: Social Overhead Capital comprises of such
industries which help in the growth of other industries. Social overhead capital or
infrastructure as it is now called, includes such industries like railways and other
means of transport, electricity and other sources of energy, communication,
banking, etc.
Unfortunately not much attention was paid to this during the British rule and
consequently the development of industries in India remained slow and tardy.
13. Widespread Unemployment: Unemployment in India is a direct outcome of
rapidly increasing population. More people need more jobs but the
underdeveloped economy of India cannot accommodate them. This naturally leads
to widespread unemployment. Thus unemployment becomes an all round problem
in the country.
14. Income Disparities: The gap between wealth and poverty is exceedingly wide in
India. A handful of rich persons get a relatively large share of the total income
while the large mass of poor population gets a relatively small portion of it.
Inequalities of income distribution are to be observed both in the rural and urban
sectors of the economy. Inequalities of income are to be seen in the form of
unequal distribution of land in the agricultural sector and concentration of
economic power in non-agricultural sector.
15. Absence of Enterprise and Initiative: In India, enterprise and initiative are
inhibited by the social system which denies opportunities for creative faculties.
The force of custom, the rigidity of status, absence of intellectual curiosity and
distrust of new ideas, combine to create an atmosphere inimical to enterprise,
experimentation and innovation. Whatever little entrepreneurship exists tends to
become monopolistic and quasi-monopolistic.

1.4 DIFFERENCE BETWEEN GROWTH AND

DEVELOPMENT
The term growth and development are very often used interchangeably but it is
worthwhile to keep in mind the distinction which is made between them or at least to
understand why they are so often used together.
The term growth implies an increase in size. When a body or any of its parts is
described as having growth it usually means that it has become large and heavier. It is
thus that we speak of growth of arms, brain, muscles or the body in general.
Growth means increase or addition in size, height, length or weight and can be
measured. Development means change in shape, form or structure so as to improve in
working or functioning.
Development implies certain qualitative changes or changes in character leading to
maturity of improvement in functioning. Arms grow large but also they develop by
undergoing certain changes which equip them for better work.
12 The Differences between growth and development are given below:

1.4.1 Growth
1. Growth is used in purely physical terms; it generally refers to change in size,
length, height and weight of an individual. Changes in the quantitative aspects
come into the domain of growth.
2. Growth is one of the aspects of developmental process.
3. Growth describes the changes which takes place in particular aspect of the body
and behaviour of an organism.
4. Growth does not continue throughout life, it stops when maturity has been
attained.
5. The changes produced by growth on the subject of measurement. They may be
quantified.
6. Growth may or may not bring development. A child may grow (in terms of
weight) by becoming fat but his growth may not bring any functional
improvement (qualitative change) or development.

1.4.2 Development
1. Development implies overall changes in shape, form or structure resulting in
improved working or functioning. It indicates the changes in the quality or
character rather than in quantitative aspects.
2. Development is a wider and comprehensive term; it refers to overall changes in
the individual. Growth is one of its aspects.
3. Development describes the changes in the organism as a whole and does not list
changes in parts.
4. Development is a continuous process.
5. Development implies improvement in functioning and behaviour and hence brings
qualitative changes.
6. Development is also possible without growth as we see in the cases of some
children that they do not gain in terms of height, weight or size but they do
experience functional improvement or development in Physical, Social, emotional
or intellectual aspects.

1.5 MEASUREMENT OF ECONOMIC GROWTH

Economic growth can generally be measured in four ways:
1. Increase in Real National Income. One of the measures of economic growth is
the increase in the economy's real national product or income over a period of
time. But this is not a satisfactory measure because it does not take into account
the growth of population.
2. Increase in Per Capita Income. The second measure of economic growth relates
to an increase in the per capita real income. This implies that the rate of increase
in real national income should be higher than the growth rate of population. But
increase in per capita income may not necessarily raise the real standard of living
of the common man. It is possible that even when per capita real income is
increasing per capita consumption may fall. This kind of situation can arise when
increased income goes to the few rich instead of the many poor. So, this measure
also becomes faulty under such a condition.
3. Growth in Consumption. Economic growth can also be measured from the 13
Introduction to
viewpoint of economic welfare. It is regarded as a process whereby there is an Indian Economy
increase in the consumption of goods and services by individuals. But this method
is also not free from defects. First, the consumption of goods and services depends
upon the tastes and preferences of individuals. Second, for measuring economic
welfare, we should not only consider what is produced but also how it is
produced. The increased output might have raised real costs and social costs in the
economy.
4. Social Indicators. Economists have also measured economic growth in terms of
social indicators. These indicators emphasise on the quality of the development
process. These include: health, food and nutrition, education, employment,
housing, clothing, transportation, social security, etc. But problem here arises
about the number of items to be included in such an index.
Question now arises what should be real measure of economic growth. All the
measure has their relative merits and demerits. However, the main choice is to be
made between 'national income' and per capita income. In our opinion, for developed
countries, increase in national income should be taken as an index of economic growth
while increase in real per capita income should be accepted as a true index of
economic growth in under-developed countries. However, most of the economists
favour per capita income as an indicator of economic growth.

1.6 FACTORS AFFECTING ECONOMIC GROWTH OF

INDIA
The Economy of India is the eleventh largest in the world by nominal GDP and the
fourth major by purchasing power parity (PPP). In 2010 the country's per capita GDP
(PPP) is $3,290 (IMF, 127th). Following strong economic reforms from the post-
independence socialist economy, the country's economic growth progress at a quick
pace, as free market principles were initiated in 1991 for international antagonism and
foreign investment.
The value of any money in an economy is hard to bet, to be stable for a long stage of
time as there are number of factor influence its approval and the depreciation. The
currency value of an economy influences the growth rate of GDP in an economy.
Several other factors that have a direct power on the over or the under valuation of a
currency are listed below:
Following are the main factors affecting economic growth India:
1. Capital flows and the stock market of India: This is important to note that in
spite of suffering depression, an economy can grow if the capital inflow is
constant or incessantly rising. In India even if the GDP rate is less, the currency
can still get overvalued due to great capital inflows made by the FII’s in the Indian
economy.
2. Global currency trends: Like many other money Indian rupee have also tied its
knot with some of the big economy of the world as well as the names of UK, US,
Japan and Canada. The depreciation or approval in the currency any of these,
especially in the US dollar, influences the valuation of the Indian currency in one
way or the other.
3. RBI Intervention: The assessment of the Indian currency highly depends on RBI
that manages the ‘balance of payments’, slight modification in which can define
the over or the under assessment of the Indian currency.
14 4. Oil factors: India is a major importer of oil and the valuation of Indian money
gets with no trouble exaggerated by the increase in the prices of the crude oil. It
can further result in spreading inflation in an economy due to the over valuation of
the Indian currency.
5. Political factors: Several other factors that influence the currency constancy are
some political factors like change in the government set up, introduction of new
export and import policies, tax rates and many more.
Decisively, there are many factors that arise from the economic arrangement of Indian
economy and affect the valuation of the Indian currency that in turn affect the
economic growth rate of the economy of a country.

1.7 CLASSIFICATION OF SECTORS OF INDIAN

ECONOMY
Sectors of Indian Economy have witnessed unparalleled levels of financial
development, due to India's emerging economy. India, being a money-making and
industry centric economy, has gained in huge amount from off-shoring from
developed nations, and a vigorous production and export centric sectoral outline.

Primary Sector
When the economic activity depends mainly on exploitation of natural resources then
that activity comes under the primary sector. Agriculture and agriculture related
activities are the primary sectors of economy.

Secondary Sector
When the main activity involves manufacturing then it is the secondary sector. All
industrial production where physical goods are produced come under the secondary
sector.

Tertiary Sector
When the activity involves providing intangible goods like services then this is part of
the tertiary sector. Financial services, management consultancy, telephony and IT are
good examples of service sector.
Historical change in the sectors: three stages
1. Initial Stage: After observing the changes that have come in the development
patterns of the sectors, it has been found that in the Initial stages of the
development the Primary Sector was the most important sector of economic
activity.
As the methods of farming changed and agricultural sector began to prosper, it
produced much more food than before and many people could take-up many other
activities which led to the increase in number of activities. However at this stage
most of the goods produced were natural products from the primary sector, hence
most people were employed in this sector.
2. Second Stage: Over a long time (more than hundred years or so) because new
methods of manufacturing were introduced, factories came up and started
expanding. People began to work in factories in large numbers, and also people
started using factory goods in large numbers as they were cheap. Secondary sector
gradually became the most important in total production and employment. There
was a shift and the importance of the sectors also changed.
3. Third Stage: In past hundred, there has been a further shift from Secondary to 15
Introduction to
Tertiary sector in the developed countries. The service sector has become the most Indian Economy
important in terms of total production. Most of working people are also employed
in the service sector.

1.7.1 Major Sectors of Indian Economy

Below is the list of some of the major Indian economic sectors:
1. Agricultural Sector of Indian Economy: The agricultural sector of Indian
economy is the major source of employment for around 59.4% of the nation's
populace. It donates roughly one-fifth of the entire GDP (Gross Domestic
Product) and fetches around 10% of the entire export earnings. The sector also
provides raw materials for a bigger sector of industries.
Minimal and unpredictable expansion rates along with the latest boom of agrarian
calamity in many parts of Indian geography, is not only a warning to national food
security but also to the fiscal welfare of India as a whole.
2. Commerce and Industries of Indian Economy: Directorate of Industries &
Commerce, the regulatory authority is given the responsibilities of allowing
sectoral expansion in India by offering financial support for Infrastructure through
manufacturing estates, inducements for principal Investment and other finances. It
also offers the industrialist, power, land and water, besides authorization of
financial incentives.
3. Communication and IT sector of Indian Economy: One of the rapidly emerging
sectors of the Indian Industry in context of productivity and export, Electronics
and Information Technology is entirely de-licensed excluding defence and
aviation electronics. Besides the liberalization in FDI and Exim plans of the
nation's fiscal structure, the sector is drawing significant interest not only as a
massive market but also as a competent manufacturing unit for global firms.
Over the past few years, 'Software Development and IT Enabled Services' have
surfaced as the prospects for India in the international affairs. The central
government has undertaken all required measures to make India an international
IT superpower and a leader in the era of information insurgency. The government
has also declared endorsement of IT as one of the top five precedence of India and
has comprised a National Task Force on IT and Software Development.
4. Finance sector of Indian Economy: The Ministry of Finance handles the finances
of the government and is concerned with all the fiscal activities taking place in
India. Some of the chief functions of the ministry are planning authoritarian
guidelines and Budget. The ministry is also delegated with the major tasks of
forming tenets, modifying pays, and other services of the government workforces.
It also has a governmental power over the Local Fund Audit department,
Directorates of National Savings department, Insurance department, etc.
5. Health & Family Welfare sector of Indian Economy: The major concern of the
Indian Government is health and well-being of the society. In accordance to this,
the government has launched several health programmes under the authority of
the Ministry of Health and Family Welfare. Additionally, the government has
released a website named Healthy India to direct Indians on upholding their health
through a balanced diet.
6. Transport sector of Indian Economy: With the alteration in fiscal situation,
aspects such as industry globalization, global financial incorporation, elimination
of economic hurdles to trade and an improved rivalry have enhanced the transport
requirements. The sector is one of the most vital infrastructure needs which are
16 significant for the growth prospects and plays a vital part in construction or
destructing of viable positioning.

1.8 THE ECONOMIC SCENARIO AT GLANCE

The year to year Indian growth rate could well hit double figures at some point in
2007. The current pace of expansion may not be sustainable. As the India real GDP
grew by 9.2% in the year till September 2006. Over the past 4 years, an average
annual pace of GDP is more than 8%, as compared to 6% in the 1980’s and 1990’s.
Most standard methods of estimating the trend- or potential- rate of growth (the
maximum at which an economy can expand without trigging a rise in inflation) arrive
at figures of around 7% but Indian economy is growing at the rate of 8%. India is
already exceeding its speed limit there is a high risk that if the economy continues to
grow at 9% or more, the Inflation will climb higher and financial imbalances will
widen, running the risk of economic imbalances. Recently inflation reaches to 6.75%,
so to take measure and control inflation Government has taken following measures
such as:
1. Increase the CRR ratio to .5 bpt. Now it becomes 6%.
2. Increase the PLR from 12% to 14%.
3. Reduce the prices of petrol & diesel by ` 1–` 2 respectively.
4. Also, request manufacturer not to hike product price.
The above mentioned measures can be helpful to certain extent to reduce the
increasing inflation rate. Though in past the Liberalization policy introduced in the
early 1990’s, lowered barriers to trade a liberalized capital markets. As a result total
trade in goods and services has leapt to 45% of GDP, from 17% in 1990. The
government 5 year plan (2011-2012) has an ambitious target of 9% average annual
growth, Indian businessmen were the most upbeat among 32 countries served recently
about 97% of the respondents were bullish about the future (According to grant
Phornton, a London based accounting firm). The acquisition of Britain’s Corus by
Tata Steels at $5.8 billion ($11.3 billion) is the milestone in the Indian economy.

1.9 MARKETING’S ROLE IN INDIAN ECONOMY

“Marketing’s role is to ensure the continuance in growth of economies and the
individual’s standard of living”. (M.J. Baker, 1985)
According to the statement given by M.J. Baker, Marketing plays a vital role in the
economic growth of the country periodically and sustain individuals standard of
living.
Marketing Definition “Marketing is a social and managerial process by which
individuals and groups obtain what they need and want through creating, offering, and
exchanging products of value with others” (Philip Kotler). Basically human need is
state of deprivation or neediness where the people require food, shelter, clothing,
belonging, esteem to live up their life. These needs are not created by the society or
either the marketers, it is the existing nature of human biology and human condition.
Even though the human needs of the people are few, their wants are many, this is
because they are continuously shaped or reshaped by the social forces and their
environment which include institutions, families, and business corporations. “Wants
of the specific product” is the demand of the people and their willingness to buy them.
Companies should not only measure how many people want to buy their product but
also the people who are willing and able to buy it. This willingness should be created
by the company. Here comes the Marketing principle how well the companies sell 17
Introduction to
their product and satisfy the needs of the customer (Narayana Rao K.V.S.S) Indian Economy
Market- “Consists of potential customers sharing a particular need or want who might
be willing and able to engage in exchange to satisfy that need or want” (Philip Kotler).
Marketer- “A Marketer is someone seeking one or more customers who might engage
in an exchange of values”. Marketers are the one who influence demands on the
product by making the product attractive, appropriate, affordable, and easily available
to target consumers.
Check Your Progress 1
State whether the following statements are true or false:
1. Sectors of Indian Economy have witnessed unparalleled levels of
financial development, due to India's emerging economy.
2. When the main activity involves manufacturing then it is the secondary
sector.
3. All industrial production where physical goods are produced come under
the primary sector.
4. When the activity involves providing intangible goods like services then
this is part of the secondary sector.
5. Financial services, management consultancy, telephony and IT are good
examples of service sector.

1.10 IMPACT OF GLOBALISATION ON INDIAN

ECONOMY
Indian economy had experienced major policy changes in early 1990s. The new
economic reform, popularly known as, Liberalization, Privatization and
Globalization (LPG model) aimed at making the Indian economy as fastest growing
economy and globally competitive. The series of reforms undertaken with respect to
industrial sector, trade as well as financial sector aimed at making the economy more
efficient.
With the onset of reforms to liberalise the Indian economy in July of 1991, a new
chapter has dawned for India and her billion plus population. This period of economic
transition has had a tremendous impact on the overall economic development of
almost all major sectors of the economy, and its effects over the last decade can hardly
be overlooked. Besides, it also marks the advent of the real integration of the Indian
economy into the global economy.
This era of reforms has also ushered in a remarkable change in the Indian mindset, as
it deviates from the traditional values held since Independence in 1947, such as self
reliance and socialistic policies of economic development, which mainly due to the
inward looking restrictive form of governance, resulted in the isolation, overall
backwardness and inefficiency of the economy, amongst a host of other problems.
This is despite the fact that India has always had the potential to be on the fast track to
prosperity.
Now that India is in the process of restructuring her economy, with aspirations of
elevating herself from her present desolate position in the world, the need to speed up
her economic development is even more imperative. And having witnessed the
positive role that Foreign Direct Investment (FDI) has played in the rapid economic
growth of most of the Southeast Asian countries and most notably China, India has
18 embarked on an ambitious plan to emulate the successes of her neighbors to the east
and is trying to sell herself as a safe and profitable destination for FDI.
Globalization has many meanings depending on the context and on the person who is
talking about. Though the precise definition of globalization is still unavailable a few
definitions are worth viewing, Guy Brainbant: says that the process of globalization
not only includes opening up of world trade, development of advanced means of
communication, internationalization of financial markets, growing importance of
MNCs, population migrations and more generally increased mobility of persons,
goods, capital, data and ideas but also infections, diseases and pollution. The term
globalization refers to the integration of economies of the world through uninhibited
trade and financial flows, as also through mutual exchange of technology and
knowledge. Ideally, it also contains free inter-country movement of labor. In context
to India, this implies opening up the economy to foreign direct investment by
providing facilities to foreign companies to invest in different fields of economic
activity in India, removing constraints and obstacles to the entry of MNCs in India,
allowing Indian companies to enter into foreign collaborations and also encouraging
them to set up joint ventures abroad; carrying out massive import liberalization
programs by switching over from quantitative restrictions to tariffs and import duties,
therefore globalization has been identified with the policy reforms of 1991 in India.
In early 1990s the Indian economy had witnessed dramatic policy changes. The idea
behind the new economic model known as Liberalization, Privatization and
Globalization in India (LPG), was to make the Indian economy one of the fastest
growing economies in the world. An array of reforms was initiated with regard to
industrial, trade and social sector to make the economy more competitive. The
economic changes initiated have had a dramatic effect on the overall growth of the
economy. It also heralded the integration of the Indian economy into the global
economy. The Indian economy was in major crisis in 1991 when foreign currency
reserves went down to $1 billion and inflation was as high as 17%. Fiscal deficit was
also high and NRI's were not interested in investing in India. Then the following
measures were taken to liberalize and globalize the economy.

1.10.1 Steps taken to Globalise Indian Economy

Some of the steps taken to liberalize and globalize our economy were:
1. Devaluation: To solve the balance of payment problem Indian currency were
devaluated by 18 to 19%.
2. Disinvestment: To make the LPG model smooth many of the public sectors were
sold to the private sector.
3. Allowing Foreign Direct Investment (FDI): FDI was allowed in a wide range of
sectors such as Insurance (26%), defense industries (26%), etc.
4. NRI Scheme: The facilities which were available to foreign investors were also
given to NRI's.

1.10.2 Merits and Demerits of Globalisation

The Merits of Globalization are as follows:
1. There is an International market for companies and for consumers there is a wider
range of products to choose from.
2. Increase in flow of investments from developed countries to developing countries,
which can be used for economic reconstruction.
3. Greater and faster flow of information between countries and greater cultural 19
Introduction to
interaction has helped to overcome cultural barriers. Indian Economy
4. Technological development has resulted in reverse brain drain in developing
countries.
The Demerits of Globalization are as follows:
1. The outsourcing of jobs to developing countries has resulted in loss of jobs in
developed countries.
2. There is a greater threat of spread of communicable diseases.
3. There is an underlying threat of multinational corporations with immense power
ruling the globe.
4. For smaller developing nations at the receiving end, it could indirectly lead to a
subtle form of colonization.

1.11 SWOT ANALYSIS OF INDIAN ECONOMY

India is the ninth largest economy in the world in terms of GDP. The Indian Economy
due to its peculiar trends has been a subject of interest for the world. After
independence, the Indian economy was more like a socialist economy: democratic,
large public sectors and heavy regulations on private sectors. Around the 1990s the
economy reached a point of stagnation. Then, in 1991, India saw the largest economic
reforms pioneered by Dr Manmohan Singh, the then finance minister. These changes
improve the rate of economic growth and social development. Economists predict that
the Indian economy will be the third largest by 2025, after the USA and China.

1.11.1 Strength
The strength of the Indian economy lies in its robust nature, which is evident from its
constant growth even during times of recession (2008-09). The banking and credit
system has been able to survive the downturn due to heavy regulations imposed by the
RBI. This brought more transparency to the system. Another important factor that
forms the spine of the Indian economy is agriculture, because it employs nearly 50%
of the total population. Although agriculture shares only 18.5% of GDP, it makes
India self-reliant in terms of food supply. Today, India is a leading producer of a
number of agricultural products that give a boost to the export value. The youth of
India, which makes a large part of the population is an advantage as it constitutes a
huge work force. Following are its strength:
z Huge pool of labour force
z High percentage of cultivable land
z Diversified nature of the economy
z Huge English speaking population, availability of skilled manpower
z Stable economy, does not get affected by external changes
z Extensive higher education system, third largest reservoir of engineers
z High growth rate of economy
z Rapid growth of IT and BPO sector bringing valuable foreign exchange
z Abundance of natural resources
20 1.11.2 Weaknesses
Primary weakness of the Indian economy is its excessive dependence on agriculture.
Since agriculture is monsoon dependent trade, production can vary by large margins
and cause turbulence in the economy. India also lags behind in social development. A
large part of the population is still living below the poverty line. Another weakness is
the literacy rate. Although we have achieved high progress rates in terms of GDP,
more than a third of the population remains illiterate, thus, easily exploitable.
Following are its weaknesses:
z Very high percentage of workforce involved in agriculture which contributes only
23% of GDP
z Around a quarter of a population below the poverty line
z High unemployment rate
z Stark inequality in prevailing socio economic conditions
z Poor infrastructural facilities
z Low productivity
z Huge population leading to scarcity of resources
z Low level of mechanization
z Red tapism, bureaucracy
z Low literacy rates
z Unequal distribution of wealth
z Rural-urban divide, leading to inequality in living standards

1.11.3 Opportunities
India has ample opportunities for growth. The agriculture sector and SMEs need to be
encouraged and assisted as they have high potential. Indian government should focus
on defining and properly implementing the policies for rural development, as most of
the population resides in rural India. Tourism is a thriving industry in India and we
need to harness its potential. It will help raise our foreign reserves and create
employment opportunities. Following are its opportunities:
z Scope for entry of private firms in various sectors for business
z Inflow of Foreign Direct Investment is likely to increase in many sectors
z Huge foreign exchange earning prospect in IT and ITES sector
z Investment in R&D, engineering design
z Area of biotechnology
z Huge population of Indian Diaspora in foreign countries (NRIs)
z Area of Infrastructure
z Huge domestic market: Opportunity for MNCs for sales
z Huge natural gas deposits found in India, natural gas as a fuel has tremendous
opportunities
z Vast forest area and diverse wildlife
z Huge agricultural resources, fishing, plantation crops, livestock
1.11.4 Threats 21
Introduction to
Terrorism and corruption are the greatest threats that India faces. It is because both Indian Economy

hamper the growth of people and trade, which is a must for overall economic growth.
The rising inflation, hording and black-marketing, also pose a threat to economic
development. Economic growth, mainly the exports, has seen a downward trend due
to the worldwide economic downturn and has become a cause of concern. The Indian
government needs to redefine its policies and bring more stringent reforms to steer out
of this turbulence. Following are its threats:
z Global economy recession/slowdown
z High fiscal deficit
z Threat of government intervention in some states
z Volatility in crude oil prices across the world
z Growing Import bill
z Population explosion, rate of growth of population still high
z Agriculture excessively dependent on monsoons

1.12 POLICY FRAMEWORK OF RETAIL IN INDIA

India's retail sector has recently been witnessing a rapid transformation in many
aspects of the business by introducing scalable and profitable organized or modern
retail models across different categories and, thereby, making way for new formats
over the existing unorganized or traditional ones. While the organized retailing refers
to trading activities undertaken by licensed retailers who are registered for sales tax,
income tax, and routine regulatory checks, the unorganized retailing mostly includes
low-cost neighborhood kiranas or mom-and-pop shops, kiosks, street markets, hand-
cart and pavement vendors. This coexistence of two types of retailing has given rise to
an organizational or institutional dualism in India's retail sector. Because of a
perceived threat that small traders will bear the brunt of the organized retail growth by
losing their business, the government's current regulatory policy has been very
cautious. As a result, the growth of the Indian retail sector as a whole has increasingly
become inclusive.
z Goods and Service Tax (GST), which is expected to be introduced in India with
effect from April 1, 2011, aims to establish an economically efficient tax system
that is neutral in its application, attractive in terms of distribution and removes the
tax cascading prevalent in the existing system.
z Implementation of GST is expected to simplify the supply chain for consumer
goods, make cash flow improvements by removing the excise duty on goods
manufacturing, lower business input costs and enable enhanced profitability due
to the elimination of tax cascading, etc.
z The abolition of Central Sales Tax (CST) is likely to warranty re-evaluation of
procurement and distribution arrangements. Removal of excise duty on products
may result in cash flow improvements, since GST will be paid on sale/supply
rather than on the product.
z The elimination of tax cascading is expected to lower business input costs and
improve profitability. The application of tax at all points in the supply chain is
likely to require adjustments being made to profit margins, especially for
distribution and retailers.
22 z Tax refunds on goods purchased for resale imply a significant reduction in the
inventory cost of distribution. Distributors are also expected to enjoy the cash
flow from collection of GST in their sales, before remitting it to the government at
the end of the tax-filing period.
z Changes need to be made to accounting and IT systems to record transactions, in
line with GST requirements. Appropriate measures need to be taken to ensure a
smooth transition to the GST regime, for example, through employee training,
compliance under GST, customer education and inventory credit tracking.
India's retailing industry is essentially owner manned small shops. In 2010, larger
format convenience stores and supermarkets accounted for about 4 percent of the
industry, and these were present only in large urban centers. India's retail and logistics
industry employs about 40 million Indians (3.3% of Indian population).
Until 2011, Indian central government denied Foreign Direct Investment (FDI) in
multi-brand retail, forbidding foreign groups from any ownership in supermarkets,
convenience stores or any retail outlets. Even single-brand retail was limited to 51%
ownership and a bureaucratic process.
In November 2011, India's central government announced retail reforms for both
multi-brand stores and single-brand stores. These market reforms paved the way for
retail innovation and competition with multi-brand retailers such as Wal-Mart,
Carrefour and Tesco, as well single brand majors such as IKEA, Nike and Apple. The
announcement sparked intense activism, both in opposition and in support of the
reforms. In December 2011, under pressure from the opposition, Indian government
placed the retail reforms on hold till it reaches a consensus.
In January 2012, India approved reforms for single-brand stores welcoming anyone in
the world to innovate in Indian retail market with 100% ownership, but imposed the
requirement that the single brand retailer source 30 percent of its goods from India.
Indian government continues the hold on retail reforms for multi-brand stores.
In June 2012, IKEA announced it has applied for permission to invest $1.9 billion in
India and set up 25 retail stores. Fitch believes that the 30 percent requirement is
likely to significantly delay if not prevent most single brand majors from Europe,
USA and Japan from opening stores and creating associated jobs in India.
On 14 September 2012, the government of India announced the opening of FDI in
multi brand retail, subject to approvals by individual states. This decision has been
welcomed by economists and the markets, however has caused protests and an
upheaval in India's central government's political coalition structure. On 20 September
2012, the Government of India formally notified the FDI reforms for single and multi
brand retail, thereby making it effective under Indian law.

1.13 PROBLEMS FACING INDIAN ECONOMY

Following are the problems faced by the Indian Economy:
1. Inflation: Fuelled by rising wages, property prices and food prices inflation in
India is an increasing problem. Inflation is currently between 6-7%. A record 98%
of Indian firms report operating close to full capacity. With economic growth of
9.2% per annum inflationary pressures are likely to increase, especially with
supply side constraints such as infrastructure. The wholesale-price index (WPI)
rose to an annualised 6.6% in January 2007.
2. Poor educational standards: Although India has benefited from a high % of
English speakers. (Important for call centre industry) there are still high levels of
 illiteracy amongst the population. It is worse in rural areas and amongst women. 23
Introduction to
Over 50% of Indian women are illiterate Indian Economy
3. Poor Infrastructure: Many Indians lack basic amenities lack access to running
water. Indian public services are creaking under the strain of bureaucracy and
inefficiency. Over 40% of Indian fruit rots before it reach the market; this is one
example of the supply constraints and inefficiency’s facing the Indian economy.
4. Balance of Payments deterioration: Although India has built up large amounts of
foreign currency reserves the current account deficit has deteriorate in recent
months. This deterioration is a result of the overheating of the economy.
Aggregate supply cannot meet aggregate demand so consumers are sucking in
imports. Excluding workers remittances India’s current account deficit is
approaching 5% of GDP.
5. High levels of debt: Buoyed by a property boom the amount of lending in India
has grown by 30% in the past year. However there are concerns about the risk of
such loans. If they are dependent on rising property prices it could be problematic.
Furthermore if inflation increases further it may force the RBI to increase interest
rates. If interest rates raise substantially, it will leave those indebted facing rising
interest payments and potentially reducing consumer spending in the future
6. Inequality has risen rather than decreased: It is hoped that economic growth
would help drag the Indian poor above the poverty line. However so far economic
growth has been highly uneven benefiting the skilled and wealthy
disproportionately. Many of India’s rural poor are yet to receive any tangible
benefit from the India’s economic growth. More than 78 million homes do not
have electricity. 33% (268 million) of the population live on less than $1 per day.
Furthermore with the spread of television in Indian villages the poor are
increasingly aware of the disparity between rich and poor.
7. Large Budget Deficit: India has one of the largest budget deficits in the
developing world. Excluding subsidies it amounts to nearly 8% of GDP. Although
it is fallen a little in the past year. It still allows little scope for increasing
investment in public services like health and education.
8. Rigid labour Laws: As an example firms employing more than 100 people cannot
fire workers without government permission. The effect of this is to discourage
firms from expanding to over 100 people. It also discourages foreign investment.
Trades Unions have an important political power base and governments often shy
away from tackling potentially politically sensitive labour laws.

1.14 CHALLENGES TOWARDS INDIAN ECONOMY

The major challenges that Indian Economy is facing today are as follows:

1.14.1 Food, Inflation and Agriculture

The Economic Survey 2010-11 says that continued high food inflation is a concern
facing the Indian economy and the policy makers. To ascertain the causes of the high
inflation, the Economic Survey points to two factors, viz. high domestic demand and
higher global prices on account of the global recovery. Elaborating on these issues the
survey points out that there has been monetary easing in the advanced countries,
because of which there exists a higher money supply in the world economy which are
driving up the prices. This is however incorrect. The fact of the matter is that the
advanced economies are still in the process of recovering with high unemployment
and low growth. Any monetary easing on their part should not lead to inflation
because of the existence of unutilized capacity in the economy. The problem with
 global food inflation is that there has been a systematic decline in the global food
24
production. Due to bad weather conditions in various countries have added to this
already delicate supply situation giving rise to a global inflation of food articles. Be
that as it may, the world food prices will affect Indian farmers and consumers only
when we expose them to such global fluctuations in the world prices by opening up
the economy. That is precisely what the policy makers have been doing over the last
two decades. Now to blame the rising global food prices for inflation at home is rather
ironical.
If we look at the domestic factors driving food inflation, the Economic Survey points
out that rise in demand due to schemes like the NREGA may be a contributing factor.
This is however totally unconvincing. There is a table given in the Economic Survey,
which shows that the growth rate of consumption of food has declined from 6.4% in
2007-08 to only 0.5% in 2009-10. So the demand pull on food is actually declining
according to the Economic Survey only. If food inflation is happening even then, it is
surely a result of supply factors. The most obvious point is that there has been a slow-
down in agriculture over the years. While everybody seems to be celebrating the 5.4%
growth rate in agriculture in 2010-11, it needs to be pointed out that this growth is on
the basis of a low base. For example, the food-grain production in the country was
234.5 million tonnes in 2008-09 which declined to 218.1 million tonnes in 2009-10
and subsequently increased to 232.1 million tonnes in 2010-11. In other words, the
food-grain production this year has not reached the previous peak output yet. To have
any sense of celebration on the achievement in agriculture is therefore quite
misplaced.

1.14.2 Financial Sector Liberalisation

All over the world, a vigorous debate is taking place on the issue of financial
liberalization in the aftermath of the global crisis. It is being repeatedly pointed out by
heterodox economists that financial liberalization increases the fragility of the
financial architecture of an economy and reduces the effectiveness of the regulatory
framework and eventually leads to a crisis. This was clearly evident in the global crisis
where the entire financial architecture of the world was on the verge of collapse. The
government has announced a series of financial sector reforms, starting from opening
up the Mutual Funds for FII investment and increasing the FDI limit for corporate
bonds and infrastructure. Moreover, the Finance Minister pointed towards major
reforms in the insurance, pension funds and the banking sector, aimed at more opening
up of these sectors for FDI.
These policies are to the detriment of the interests of the majority of the people in the
country. Such financial sector liberalization will only increase our vulnerability to the
crisis of the advanced capitalist countries. However, the government’s economic
philosophy does not give it any other choice. This is because the government has
decided that it will not indulge in public investment for generating growth in the
economy. Therefore, the private sector has to be relied upon. As has been already
argued in order to maintain the confidence of global and domestic corporates, the
government has to continuously provide sops to them. In other words, unless the
overall economic trajectory of the government changes, such anti-people reforms are
bound to increase in the coming days.

1.14.3 External Sector

India’s situation in the external sector is also a matter of worry. The current account
balance has been in the negative for the last 5 years, but it is now reaching 3.5% of
GDP, which is very high. This rise in the current account deficit has been due to a
moderate slowdown in the growth rate of exports but more importantly as a result of
an increase in the growth rate of imports. An increase in imports is a natural corollary 25
Introduction to
of a growing economy. But the point is to increase exports to meet the import bill. Indian Economy
However, the world economy, particularly the advanced countries, is still facing a
slowdown of growth. As a result, in the near future, there is little prospect for Indian
exports to increase drastically. On the other hand, as a result of the unrest in the
Middle East the prices of Crude Oil in the international market have crossed $100.
This will impose an additional import bill for India and therefore increase the current
account deficit. The increase in global oil prices also has its ramifications in India,
where the prices of petroleum products will rise, adding to an already inflationary
situation. Now, if the relative inflation in India, is higher than other countries then the
competitiveness of the Indian commodities will get eroded (even at a constant
exchange rate) and result in a decline in the exports. In short, the current account
deficit in India is showing signs of not improving in the near future.
Added to this problem of current account deficit, there also exists the problem of short
term capital flows into India. Since the advanced capitalist countries are still in a
crisis, global finance in search of more profits has found their destinations in the
developing countries like India and China. In 2009-10, there has been a huge surge in
portfolio flow into the Indian economy. Such capital flows have the problem of
appreciating the currency as well as fuelling an asset price bubble in the domestic
economy. Both these issues need to be tackled. An appreciation of the Indian Rupee
will adversely affect the exports while an asset price bubble will only result in a crash
and a concomitant financial crisis. It is therefore imperative that the India takes care of
these problematic developments in the external sector.

Check Your Progress 2

Fill in the blanks:
1. India’s situation in the external sector is also a matter of ………….
2. An increase in imports is a natural …………. of a growing economy.
3. The world economy, particularly the advanced countries, is still facing a
…………. of growth.
4. The increase in global oil prices also has its …………. in India, where the
prices of petroleum products will rise, adding to an already inflationary
situation.
5. If the relative inflation in India, is higher than other countries then the
competitiveness of the Indian commodities will get eroded and result in a
…………. in the exports.

1.15 LET US SUM UP

India is today one of the six fastest growing economies of the world. The Indian
economy has transformed into a vibrant, rapidly growing consumer market,
comprising over 300 million strong middle class with increasing purchasing power.
India provides a large market for consumer goods on the one hand and imports capital
goods and technology to modernize its manufacturing base on the other.
The economy is about how wealth is created, distributed and consumed. It concerns
the ways in which a country produces, distributes and consumes the tangible, material
commodities of life.
India has been, and even today is one among the poorest countries of the world.
Barma few rich, the common masses forced to lead a miserable life. Almost half of
country's population is below the poverty line.
26 Quantity of goods available per head of population is meager and the quality is
invariably indifferent. Nutritional content of consumption is grossly inadequate and
hunger, starvation and disease are fairly widespread.
In India, enterprise and initiative are inhibited by the social system which denies
opportunities for creative faculties.
The force of custom, the rigidity of status, absence of intellectual curiosity and distrust
of new ideas, combine to create an atmosphere inimical to enterprise, experimentation
and innovation. Whatever little entrepreneurship exists tends to become monopolistic
and quasi-monopolistic.
All over the world, a vigorous debate is taking place on the issue of financial
liberalization in the aftermath of the global crisis. It is being repeatedly pointed out by
heterodox economists that financial liberalization increases the fragility of the
financial architecture of an economy and reduces the effectiveness of the regulatory
framework and eventually leads to a crisis. This was clearly evident in the global crisis
where the entire financial architecture of the world was on the verge of collapse. The
government has announced a series of financial sector reforms, starting from opening
up the Mutual Funds for FII investment and increasing the FDI limit for corporate
bonds and infrastructure. Moreover, the Finance Minister pointed towards major
reforms in the insurance, pension funds and the banking sector, aimed at more opening
up of these sectors for FDI

1.16 LESSON END ACTIVITY

Identify various problems as well as challenges facing Indian economy. What
measures have been taken to solve those challenges? Explain.

1.17 KEYWORDS
Economy: The economy means how wealth is created, distributed and consumed. It
concerns the ways in which a country produces, distributes and consumes the tangible,
material commodities of life.
Income Disparities: The gap between wealth and poverty is called income disparity.
Growth: Growth refers to change in size, length, height and weight of an individual.
Changes in the quantitative aspects come into the domain of growth.
Development: Development implies overall changes in shape, form or structure
resulting in improved working or functioning. It indicates the changes in the quality or
character rather than in quantitative aspects
Primary Sector: When the economic activity depends mainly on exploitation of
natural resources then that activity comes under the primary sector.
Secondary Sector: When the main activity involves manufacturing then it is the
secondary sector.
Tertiary Sector: When the activity involves providing intangible goods like services
then this is part of the tertiary sector.
Marketing: Marketing is a social and managerial process by which individuals and
groups obtain what they need and want through creating, offering, and exchanging
products of value with others.
Market: Market is an association of potential customers sharing a particular need or
want who might be willing and able to engage in exchange to satisfy that need or
want.
Marketer: “A Marketer is someone seeking one or more customers who might engage 27
Introduction to
in an exchange of values”. Marketers are the one who influence demands on the Indian Economy
product by making the product attractive, appropriate, affordable, and easily available
to target consumers
LPG Model: The new economic reform, popularly known as, Liberalization,
Privatization and Globalization (LPG model) aimed at making the Indian economy
as fastest growing economy and globally competitive.

1.18 QUESTIONS FOR DISCUSSION

1. Define the term ‘economics’.
2. Write down the salient features of Indian economy.
3. Difference between growth and development.
4. Describe the measurement of economic growth.
5. List and explain the various factors affecting economic growth of India.
6. Make a classification of sectors of Indian economy.
7. Discuss marketing’s role in Indian economy.
8. Describe the impact of globalisation on Indian economy.
9. What do you know about swot analysis of Indian economy?
10. Discuss policy framework of retail in India.

Check Your Progress: Model Answers

CYP 1
1. True
2. True
3. True
4. True
5. True

CYP 2
1. worry
2. corollary
3. slowdown
4. ramification
5. decline

1.19 SUGGESTED READINGS

Raj, J Felix (2008), Indian Economy, Deep & Deep publications Pvt. Ltd.
Khandela, Man Chand (2008) Future of Indian Economy, Aavishkar Publishers & Distributors.
Gupta, K R, (2008), Studies in Indian Economy, Atlantic Publishers & Distributors.
Kapila, Uma (2006), Indian Economy, Academic Foundation.
28
Retail Store and
Visual Merchandising
LESSON

2
RETAIL INDUSTRY AND ECONOMY

CONTENTS
2.0 Aims and Objectives
2.1 Introduction
2.2 Concept of Retailing
2.2.1 Nature of Retailing
2.2.2 Growing Importance of Retailing
2.2.3 Functions of Retailing
2.3 Retail Sector of Indian Economy
2.3.1 Growth Factors of the Retail Sector of Indian Economy
2.3.2 Key Challenges of Indian Retail Industry
2.3.3 Opportunities in Indian Retailing
2.4 Emergence of Organised Retailing
2.4.1 Emerging Trends in Indian Organised Retailing
2.4.2 Challenges facing the Organised Retail Industry
2.5 Trends in Retailing
2.6 Let Us Sum Up
2.7 Lesson End Activity
2.8 Keywords
2.9 Questions for Discussion
2.10 Suggested Readings

2.0 AIMS AND OBJECTIVES

After studying this lesson, you should be able to:
z Describe meaning and concept of retailing
z Explain retail sector of Indian economy
z Discuss growth factors of the retail sector of indian economy
z Identify key challenges of Indian retail industry
z Trace opportunities in Indian retailing
z Recognise emergence of organised retailing
z Discuss trends in retailing
 29
2.1 INTRODUCTION Retail Industry
and Economy
Retailing comes at the end of the marketing distributive channel. The word ‘retail has
been derived from the French word “retailler” and means ‘to cut a piece’ or ‘to break
bulk’. It covers all the activities involved in the sale of product and services. Retailing
is a high-intensity competition industry and second largest globally. The reason for its
popularity lies in its ability to provide easier access to a variety of products, freedom
of choice, and many services to consumers. The size of an average retail store varies
across countries depending largely on the level of a particular country’s economic
development. The largest retail store in the world is Wal-Mart of USA.
Retailing is the world’s largest private sector contributing to 8% of the GDP and
it employs one sixth of the labour force. The estimated retail trade is expected to be
7 trillion US $. Many countries have developed only due to retailing and presently we
see there is a vast change in the retail industry. As far as India is concerned it
contributes to 14% of our GDP and it is the second largest sector next to agriculture
which provides employment to more number of persons.
Now according to a survey, India is classified in to the fifth most attractive retail
destination and second among the countries in Asia. Worldwide it is ranked as fifth
most attractive retail destination.

2.2 CONCEPT OF RETAILING

Retailing in simple term can be defined as “Retailing is the business activity of selling
goods and services to the final consumer”.
Retailing can be defined as the business products and services to consumers for their
own use. It has its origin in the French word, retailer meaning ‘to cut a piece off’.
According to Kotler: “Retailing includes all the activities involved in selling goods or
services to the final consumers for personal, non-business use”
The definition of retailing is actually “breaking the bulk”. Retailing is the activity of
selling goods and services to last level consumers for their use. It is concerned with
getting goods in their finished state into the hands of customers who are prepared to
pay for the pleasure of eating, wearing or experiencing particular product items.
Retailing is all about the distribution of goods and services because retailers play a
key role in the route that products take after originating from a manufacturer, grower
or service-provider to reach the person who consumes. Retailing is also one of the key
elements of a marketing strategy facilitating the targeting process, making sure that a
product reaches particular groups of consumers. It is important in a marketing strategy
to match the arena in which a product is purchased to the benefits and characteristics
of the product itself and its price. Retailers provide a collection of service benefits to
their customers such as being located in convenient places, editing product ranges
according to shopping tasks, and selling goods in quantities that match personal
consumption levels. Ensuring that this process runs smoothly presents a host of
managerial challenges. Retailing is therefore a deceptively simple management
process – yet fascinatingly complex in its detail.
The term retailing applies not only to the selling of tangible products like loaves of
bread or pairs of shoes, but also to the selling of service products. Companies who
provide meals out, haircuts and aromatherapy sessions are all essentially retailers, as
they sell to the final consumer, and yet customers do not take goods away from these
retailers in a carrier bag. The consumption of the service product coincides with the
retailing activity itself. From a traditional marketing viewpoint, the retailer is one of a
30 number possible organization through which goods produced by manufacture flow on
their way to their consumer destiny. These organizations perform various roles by
being a member of a distribution channel. For example, chocolate producer like
Cadbury’s will use a number of distribution channels for its confectionery, which
involve members such as agents, wholesalers, supermarkets, convenience stores,
petrol stations, vending machine operators and so on. Channel members, or marketing
intermediaries as they are sometimes referred to, take on activities that a manufacturer
does and have the resources to perform, such as displaying the product alongside
related or alternative items in a location that is convenient for consumer to access for
shopping.
Retailing consists of the sale of goods or merchandise from a fixed location, such as a
department store or kiosk, or by post, in small or individual lots for direct
consumption by the purchaser. Retailing may include subordinated services, such as
delivery. Purchasers may be individuals or businesses. In commerce, a retailer buys
goods or products in large quantities from manufacturers or importers, either directly
or through a wholesaler, and then sells smaller quantities to the end-user. Retail
establishments are often called shops or stores. Retailers are at the end of the supply
chain. Manufacturing marketers see the process of retailing as a necessary part of their
overall distribution strategy. The term “retailer” is also applied where a service
provider services the needs of a large number of individuals, such as a public utility
like electric power.
Retailing is a high-intensity competition industry and second largest globally. The
reason for its popularity lies in its ability to provide easier access to a variety of
products, freedom of choice, and many services to consumers. The size of an average
retail store varies across countries depending largely on the level of a particular
country’s economic development. The largest retail store in the world is Wall-Mart of
USA and the second largest is Carrefour of France. The Indian market is dotted by
traditional market places called bazaars or haats comprising of numerous small and
large shops, selling different or similar merchandise. A bazaar in India is a long street
in a city or town and a central place of commercial activities. In Indian rural areas,
these bazaars also occur on fixed weekdays where buyers and sellers converge from
other nearby villages and often seem like festive events. Traditionally, the small
retailers in India have played a major role in all sectors and unorganised retailers
outnumber organized ones.
Within the last 10–12 years there have been major changes in the general retailing
scenario. For example, now ready-to-wear garments market has seriously affected
what used to be strictly a made-to-order market for clothing. Almost all other retail
businesses are undergoing changes with the passage of time.
Because of the overlap of classification criteria, some stores may qualify as under two
different categories at the same time. An independent store is a single retail unit
owned by an individual, partnership, or corporation. Usually independent stores tend
to be small and are owned by individuals. Traditional independent stores are known as
kirana shops in India. A retail chain store is a part of a multiple retail outlet business.
When any type of other stores start spreading in more locations, they can be called as
retail chains of that specific type. Franchise store is contracted with the parent
company under specified conditions.

2.2.1 Nature of Retailing

Best in class retailers typically operate in three channels: brick and mortar stores,
through Internet and via catalogues. While these retailers may operate in three
channels, the Internet and call centers support the stores rather than replace the in-
store shopping experience. Stores remain the predominant delivery vehicle. Indeed,
the below-average performers tend to rely solely on stores or primarily on the interest 31
Retail Industry
as their primary selling channel. and Economy
Even those retailers who are achieving best-in-class sales performance have a long
way to go in adopting multi-channel best practices. While some may be successful
“bruting” their way to multi-channel effectiveness on today’s relatively small scales,
as cross-channel buying and delivery increases as a percentage of total sales, more and
more money and productivity will be squeezed from their enterprises. Many find
themselves with dissatisfied, disappearing customers and thus adversely affecting their
growth. Today’s sales laggards clearly have the opportunity to leapfrog competitions’
best practices and technologies. The best-in-class are vulnerable, particularly to those
who take aggressive steps to get their house in order.
A multi-channel retailer is a company that sells directly to the public via more than
one venue. Most multi-channel retailers sell through mail order catalogues and brick
& mortar retail stores. Some multi-channel retailers, such as Wal-Mart, sell online as
well, allowing them to attract new customers using their seasonal mail order
catalogues. One can check their website www.walmart.com.
Some other successful multi-channel retailers in the US of A are: Pottery Barn, Crate
& Barrel, Williams- Sonoma, Macy’s, Restoration Hardware, J.C. Penney and J. Jill.
Typically, a multi-channel retailer begins with a traditional retail storefront, then adds
a mail order catalogue and finally, once those two channels prove lucrative, expands
to a third selling channel by establishing an online presence.
Although this is the normal sequence of events, there are other successful
multichannel retailers, who have started with either a web channel or direct mail
channel first and then expanded their marketing efforts into the “real world” of
traditional retail storefront selling environments.
Establishing more than one way for their customers to shop for their products, is a
good way for retailers to grow their monthly revenues and gain new customers, who in
turn can be marketed to via other channels not used during their initial purchase. For
example, if you shop at one of your local retail stores and they also market via direct
mail and online, you will normally be added to their customer loyalty program and
begin receiving both promotional emails (also known as SPAM) and direct mail
advertisements. If you don’t want to receive promotional emails or direct mail from
the retailer, be sure to ask at the time of check-out, not to have any of your private
contact information used for promotional purposes. In addition, consumers need to be
aware that some retailers may choose to sell your private contact information to other
online and/or mail order companies, as a means to increase their overall profitability.
To sustain competitive advantage retailers are increasingly leveraging their presence
across channels whether it is – catalog, web, stores, call center or kiosks. However, to
realize this multi-channel vision, enterprises need to integrate and synchronize
operations across retail value chain and optimize every touch point to deliver seamless
customer experience. Integrating merchandising, order fulfillment and inventory
management process and delivering a consistent value proposition across the retail
channels can help retailers realize their business objectives while increasing customer
share.
By leveraging people, technology processes and infrastructure, a number of IT
companies, like TCS (Tata Consultancy Services) work closely with the retail
enterprises to help them deliver seamless customer experience across various
channels. From enabling cross-channel inventory management to synchronizing their
offline and online value proposition, TCS helps retailers win customers and ensure
success. Not all retailers though share the same priorities; store-based retailers need to
focus more on selling, while manufacturers need to focus on organization and culture.
32 2.2.2 Growing Importance of Retailing
There are many factors responsible for the growth of the retail sector like economic
and political, demographics, consumer behaviour, etc. which are discussed below.
1. Economic Factor
2. Political Factor
3. Demographic Factor
4. Change in Consumer Behaviors
5. Others
These are explained below:

Economic Factor
It consists of the government’s liberalized policies which are now allowing FDI into
retail. Moreover, India is now the second fastest growing country in the world and the
fourth largest economy in terms of PPP after USA, China and Japan. This implies that
the consumers especially middle and upper class ones have more disposable income to
spend. It was found out that 70 million people earn more than $18,000 per annum and
the number will rise to 140 million by 2011. Hence the situation seems interesting for
the retail companies.

Political Factor
India has been a democratic country since 1947 and what makes it even more
attractive is the current stable government which believes in market economy and
hence more liberalization in trade can be expected.

Demographic Factor
The country has the largest young population in the world, over $890 million people
below 45 years. Moreover, there will be 550 million young people under the age of 20
by 2015. Furthermore, there has been an increase in the number of working women
and nuclear families. Also there are more English speaking people in India than in the
whole of Europe taken together. All these are the reasons for growth in the organized
retail.

Change in Consumer Behaviour

Indian consumers are becoming more trend conscious and there is a shift from price
consideration to design and quality. There is greater focus on looking and feeling
good. Indian consumers have grown richer and hence spending more. Mall mania
brought with it a new retail format which offers a perfect weekend getaway for Indian
families. There is a shift from a need based to a lifestyle based sector.

Others
Factors in addition to the ones discussed above are increase in the number of
international brands, credit availability, improvement in infrastructure and investment
in technology and real estate to provide consumers with a world class shopping
experience. Also there is a space for 15,000+ new outlets, 100 hypermarkets, 500
department stores and 2000 supermarkets.

2.2.3 Functions of Retailing

Retailers are crucial players in the emerging market scenario. Large brands are
running first to get into the desired retail formats to cater to the growing middle class
of India. Retailers perform various functions like providing assortments, sorting, 33
Retail Industry
breaking the bulk, rendering services, bearing risk, serve as a channel of and Economy
communication, transportation, advertising and holding inventory. They significantly
contribute towards increasing the product value and satisfying the consumers.

Providing Assortments
Offering an assortment enables customers to choose from a wide selection of brands,
designs, sizes, colors, and prices in one location. Manufacturers specialize in
producing specific types of products, for example, Kellogg’s makes breakfast cereals,
and Knorr makes soups. If each manufacturer had its own stores that only sold its own
products, consumers would have to go to many different stores to buy groceries to
prepare a single meal. Retailers offer assortment of multiple products and brands for
consumer convenience.

Sorting
Manufacturers make one single line or multiple product lines and will always prefer to
sell their entire output to few buyers to reduce their costs. Final consumers will prefer
to choose from a large variety of goods and services and then usually buy in smaller
quantities. Retailers have to strike a balance between demands of both the sides, by
collecting a combination of goods from different producers, buying them in large
quantities and selling them to individual consumers in smaller quantities. The above
process is called sorting and under this process, the retailer undertakes activities and
performs functions that add value to the products and services while selling them to
consumers. A shopping supermarket of Pantaloon Retail in the name of ‘Big Bazaar’
sells more than 20,000 assortments from 900 companies. Customers can choose from
such a basket in just one location. There are specialized retailers like Nilgiris or
Barista, which offers specialized assortments of a single product line.

Breaking Bulk
Retailers offer the products in smaller quantities tailored to individual consumers and
household consumption patterns. This reduces transportation costs, warehouse costs
and inventory costs. This is called breaking bulk.

Rendering Services
Retailers render services that make it easier for customers to buy and use products.
They provide credit facilities to the customers. They display products, which attract
the customers. Retailers keep ready information on hand to answer queries of the
customers. They provide services by which the ownership can be transferred from
manufacturer to the end consumers with convenience. They also provide product
guarantee from owner’s side, after sales service and also deal with consumer
complaints. Retailers also offer credit to consumers and develop hire purchase
facilities to enable them to buy a product immediately and pay the price at their ease.
Retailers also fill orders, promptly process, deliver and install the product at customer
point. Retail sales people answer the customer complaints and demonstrate the
product for the customer to evaluate before making a choice. They also help in
completing a transaction and realising the sale.

Risk Bearing
Retailers bear a different kind of risk to the manufacturers and wholesalers. Even the
customers can come back to the retail point and return the product. In that case, the
risk of product ownership many times rests with the retailers. Many companies have
buy back schemes and return schemes whereby the retailers can always return the
unsold items to the manufacturer.
34 Holding Inventory
A major function of retailers is to keep inventory so that products will be available for
consumers. Thus, consumers can keep a much smaller inventory of products at home
because they can easily access more from the nearby retailers. Retailer’s inventory
allows customers instant availability of the products and services.

Channel of Communication
Retailers are the bridge between the manufacturer or his representative and the end
customers. They serve as a two-way channel of communication. The manufacturer
collects customer choice and preference data and provides information about existing
and new products through the retailers. The point of purchase displays provide serve
as advertisements that provide information about new products and many times
retailers inform the consumers about likely date of availability of a product or entry of
variants into the market. The shoppers get a chance to learn about products and
services from the stores and even acquire trial habits by seeing others buying a
product or service in the store. The manufacturer too collects customer data, data on
gaps in demand and supply cycles and customer satisfaction from retail points.

Transportation
Retailers also help in transport and advertising function. The larger assortments are
transported from wholesaler’s point to retailers point by retailer’s own arrangements
and many times, the retailer delivers the goods at final consumer’s point. So, retailers
provide assistance in storage, transportation and pre-payment merchandise.
The percentage that a retailer gets from the sale price depends on the number of
functions that the retailer does for the manufacturer.

Check Your Progress 1

State whether the following statements are true or false:
1. The growth of the Indian organized retail sector is anticipated to be lighter
than the growth of the gross domestic product.
2. Alterations in people's lifestyle, growth in income levels, and encouraging
conventions of demography are proving favorable for the new emerging
trends in the Indian organized retail sector.
3. The main condition for organised retailing is that the retailer should be
able to manage and influence the supply chain variables in a commercially
viable and sustainable manner.
4. The organized retailer should be able to, through diversified risks and
volume sales command huge concessions on prices from the
manufacturers.
5. The organized retailer should be in a position to disallow a trickle down
of this advantage to consumers out of his saved costs.

2.3 RETAIL SECTOR OF INDIAN ECONOMY

The retail industry is a sector of the economy that is comprised of individuals and
companies engaged in the selling of finished products to end user consumers.
The India Retail Industry is the largest among all the industries, accounting for over
10 per cent of the country’s GDP and around 8 per cent of the employment. The Retail
Industry in India has come forth as one of the most dynamic and fast paced industries
with several players entering the market. But all of them have not yet tasted success 35
Retail Industry
because of the heavy initial investments that are required to break even with other and Economy
companies and compete with them. Retailing, one of the largest sectors in the global
economy, is going through a transition phase not only in India but the world over.
Indian Retail industry, the industry which stands second in terms of employment
generation after agriculture is undoubtedly characterized by the widely dispersed retail
outlets situated at each nook and corner whether its urban India or rural. It is the
industry which is unlikely known for its unorganized formats. In India the vast middle
class and its almost untapped retail industry are the key attractive forces for global
retail giants wanting to enter into newer markets, which in turn will help the India
Retail Industry to grow faster. Indian retail is expected to grow 25 per cent annually.
The Retail Sector of Indian Economy is going through the phase of tremendous
transformation. The Indian retail industry is broadly divided into two segments:
1. Organized retailing
2. Unorganized retailing
The unorganized retailing comprises of ‘mom and pop’ stores or ‘kirana’ stores. These
are very small shops located near the residential areas, popularly known as ‘baniya
shops’. The Unique Selling Proposition (USP) of these stores is the location
advantage. This shop owner, in order to retail their customers, can even go to their
customers houses to get orders. Trading hours are flexible and the retailer to the
consumer ratio is very low due to the presence of several ‘kirana’ stores in the
locality. Credit facility varies from store to store and customer to customer. The
customer’s reliability and relation with the shopkeeper is enough to avail credit
facility. Branding is not the criterion to attract the customers, as the latter prefer low-
priced products. Further, retailer’s suggestion and recommendation regarding any
product or service plays a significant role in the customer’s purchase decision.
Traditionally, retailers produce merchandise from wholesalers in bulk and sell in small
quantities to the final consumers. The following are the reasons explaining the
popularity and growth of retail industry in India.
1. Inclined to international styles
2. Inclined to acquiring property
3. More demanding and discerning
4. High level of education
5. Ready to spend on shopping
6. Shopping is a family fun
Organized retail sector is holding the larger share of the retail market. At present the
organized retail sector is catching up very fast. The impact of the alterations in the
format of the retail sector changed the lifestyle of the Indian consumers drastically.
The evident increase in consumerist activity is colossal which has already chipped out
a money making recess for the retail sector of Indian economy.
With the onset of a globalized economy in India, the Indian consumer's psyche has
been changed. People have become aware of the value of money. Now-a-days the
Indian consumers are well versed with the concepts about quality of products and
services. These demands are the visible impacts of the Retail Sector of Indian
Economy.
Since the liberalization policy of 1990, the Indian economy, and its consumers are
getting whiff of the latest national and international products, with the help of print
36 and electronic media. The social changes with the rapid economic growth due to
trained personnel, fast modernizationand enhanced availableness of retail space are the
positive effects of liberalization.

2.3.1 Growth Factors of the Retail Sector of Indian Economy

The growth factors of the retail sector of Indian economy include the following:
1. Increase in per capita income which in turn increases the household consumption
2. Demographical changes and improvements in the standard of living
3. Change in patterns of consumption and availability of low-cost consumer credit
4. Improvements in infrastructure and enhanced availability of retail space
5. Entry to various sources of financing
The infrastructure of the retail sector will evolve radically. The emergence of
shopping malls is going steady in the metros and there are further plans of expansion
which would lead to 150 new ones coming up by the year 2008. As the count of super
markets is going up much faster than rate of growth in retail sector, it is taking the
lions share in food trade. The non-food sector, segments comprising apparel,
accessories, fashion, and lifestyle felt the significant change with the emergence of
new stores formats like convenience stores, mini marts, mini supermarkets, large
supermarkets, and hyper marts. Even food retailing has became an important retail
business in the national arena, with large format retail stores, establishing stores all
over India. With the entry of packaged foods like MTR, ITC Ashirbad, fast foods
chains like McDonald's, KFC, beverage parlors like Nescafe, Tata Tea, Café Coffee
and Barista, the Indian food habits has been altered. These stores have earned the
reputation of being 'super saver locations'.
With the arrival of the Transnational Companies (TNC), the Indian retail sector will
confront the following round of alterations. At present the Foreign Direct Investments
(FDI) is not encouraged in the Indian organized retail sector but once the TNC'S get in
they would try to muscle out their Indian counterparts. This would be challenging to
the retail sector in India.

2.3.2 Key Challenges of Indian Retail Industry

The major challenges of Indian Retail Industry include:

Location
"Right Place, Right choice "Location” is the most important ingredient for any
business that relies on customers, and is typically the prime consideration in a
customer’s store choice. Locations decisions are harder to change because retailers
have to either make sustainable investments. When formulating decision about where
to locate, the retailer must refer to the strategic plan: (a) Investigate alternative trading
areas. (b) Determine the type of desirable store location. (c) Evaluate alternative
specific store sites

Merchandise
The primary goal of the most retailers is to sell the right kind of merchandise and
nothing is more central to the strategic thrust of the retailing firm. Merchandising
consists of activities involved in acquiring particular goods and services and making
them available at a place, time and quantity that enable the retailer to reach its goals.
Merchandising is perhaps, the most important function for any retail organisation, as it
decides what finally goes on shelf of the store.
Pricing 37
Retail Industry
Pricing is a crucial strategic variable due to its direct relationship with a firm's goal and Economy
and its interaction with other retailing elements. The importance of pricing decisions is
growing because today’s customers are looking for good value when they buy
merchandise and services. Price is the easiest and quickest variable to change.

Target Audience
"Consumer the prime mover", "Consumer Pull", however, seems to be the most
important driving factor behind the sustenance of the industry. The purchasing power
of the customers has increased to a great extent, with the influencing the retail industry
to a great extent, a variety of other factors also seem to fuel the retailing boom.

Scale of Operations
Scale of operations includes all the supply chain activities, which are carried out in the
business. It is one of the challenges that the Indian retailers are facing. The cost of
business operations is very high in India. To become a truly flourishing industry,
retailing needs to cross the hurdles:
1. Automatic approval is not allowed for foreign investment in retail.
2. Taxation, which favours small retail businesses.
3. Absence of developed supply chain and integrated IT management.
4. Lack of trained work force.
5. Low skill level for retailing management.
6. Intrinsic complexity of retailing – rapid price changes, constant threat of product
obsolescence and low margins.

2.3.3 Opportunities in Indian Retailing

Another credible factor in the prospects of the retail sector in India is the increase in
the young working population. In India, hefty pay packets, nuclear families in urban
areas, along with increasing working-women population and emerging opportunities
in the services sector. These key factors have been the growth drivers of the organized
retail sector in India which now boast of retailing almost all the preferences of life –
Apparel & Accessories, Appliances, Electronics, Cosmetics and Toiletries, Home &
Office Products, Travel and Leisure and many more.
With this the retail sector in India is witnessing rejuvenation as traditional markets
make way for new formats such as departmental stores, hypermarkets, supermarkets
and specialty stores. The retailing configuration in India is fast developing as
shopping malls are increasingly becoming familiar in large cities. When it comes to
development of retail space specially the malls, the Tier II cities are no longer behind
in the race. If development plans till 2007 is studied it shows the projection of 220
shopping malls, with 139 malls in metros and the remaining 81 in the Tier II cities.
The government of states like Delhi and National Capital Region (NCR) are very
upbeat about permitting the use of land for commercial development.
Thus increasing the availability of land for retail space; thus making NCR render to
50% of the malls in India.

2.4 EMERGENCE OF ORGANISED RETAILING

The recent years have witnessed rapid transformation and vigorous profits in Indian
retail stores across various categories. This can be contemplated as a result of the
38 changing attitude of Indian consumers and their overwhelming acceptance to modern
retail formats. Asian markets witness a shift in trend from traditional retailing to
organized retailing driven by the liberalizations on Foreign Direct Investments. For
example, in China there was a drastic structural development after FDI was permitted
in retailing. India has entered a stage of positive economic development which
requires liberalization of the retail market to gain a significant enhancement.
Domestic consumption market in India is estimated to grow approximately 7 to 8%
with retail accounting for 60% of the overall segment. Of this 60%, organized retail is
just 5% which is comparatively lesser than other countries with emerging economies.
In developed countries organized retailing is the established way of selling consumer
products. Despite the low percentage, Indian textile industry has grown noticeably in
organized retailing of textile products. The negative phase in exports may have
compelled the Indian textile retailers to explore the opportunities in the domestic
market substantially causing the outstanding growth in the concerned segment. These
indications give a positive notion that organized retailing has arrived in the Indian
market and is here to stay. It is expected to grow 25-30 per cent annually and would
triple in size from ` 35,000 crore in 2004-05 to ` 109,000 crore ($24 billion) by 2010.
India is on the radar screen in the retail world and global retailers and at their wings
seeking entry into the Indian retail market. The market is growing at a steady rate of
11-12 percent and accounts for around 10 percent of the country’s GDP. The inherent
attractiveness of this segment lures retail giants and investments are likely to sky
rocket with an estimate of ` 20-25 billion in the next 2-3 years, and over ` 200 billion
by end of 2010. Indian retail market is considered to be the second largest in the world
in terms of growth potential.
A vast majority of India's young population favors branded garments. With the
influence of visual media, urban consumer trends have spread across the rural areas
also. The shopping spree of the young Indians for clothing, favorable income
demographics, increasing population of young people joining the workforce with
considerably higher disposable income, has unleashed new possibilities for retail
growth even in the rural areas. Thus, 85% of the retail boom which was focused only
in the metros has started to infiltrate towards smaller cities and towns. Tier-II cities are
already receiving focused attention of retailers and the other smaller towns and even
villages are likely to join in the coming years. This is a positive trend, and the
contribution of these tier-II cities to total organized retailing sales is expected to grow
to 20–25%.
Retail trade has emerged as one of the largest industry contributing to employment
generation, revenue generation, increased turn over and many more. Organized
retailing is showing signs of enormous creativity. It has emerged as one of the most
dynamic and fast paced industries with several players entering the market. As a
matter of fact retailing in India is gradually edge its way towards becoming the next
boom industry.
Organized retailing in India represents a small fraction of the total retail market. In
2001, organized retail trade in India was worth ` 11,228.7 billion. The modern retail
formats are showing robust growth as several retail chains have established a base in
metropolitan cities, especially in south India and are spreading all over India at a rapid
pace. However, space and rentals are providing to be the biggest constraints to the
development of large formats in metropolitan cities since retailers are aiming at prime
locations.
In urban India, families are experiencing growth in income but dearth of time. Women
are taking up corporate jobs, which is adding to the family’s income and leading to
better lifestyles rising incomes has led to an increased demand for better quality
products while lack of time has led to a demand for better quality products while lack 39
Retail Industry
of time has led to a demand for convenience and services. and Economy
The demand for frozen, instant, ready-to-eat food has been on the rise, especially in
the metropolitan and large cities in India. There is also a strong trend in favour of one-
stop shops like supermarkets and department stores.
Rural India continues to be serviced by small retail outlets. Only 3.6 million outlets
cater to more than 700 million inhabitants of rural India. Here, provision stores, paan
shops and ration shops are the most popular vehicles of retailing. Apart from this,
there are periodic or temporary markets, such as haats, peeth and melas that come up
at the same location at regular time intervals.
The McKinsey report predicts that FDI will help the retail businesses to grow to US $
460-470 billion by 2010. There has been a strong resistance to Foreign Direct
Investment (FDI) in retailing from small traders who fears that foreign companies
would take away their business, lead to the closure of many small businesses and
result in large-scale unemployment. Therefore, government has discouraged FDI in
the retail sector. At present, foreign retailers can enter the retailing sector only through
restricted modes. Global players in the retail segment have been entering the market
for a while now. Players that entered before the easing of restrictions on FDI in retail
had to come through different modes, such as joint ventures where Indian partner is an
export house (Total Health Care); franchising/local manufacturing/sourcing from
small-scale sector (McDonald’s, Pizza Hut); cash and carry operations (Giant) and
licensing (Marks &Spencer’s).
The main condition for organised retailing is that the retailer should be able to manage
and influence the supply chain variables in a commercially viable and sustainable
manner. The organized retailer should be able to, through diversified risks and volume
sales command huge concessions on prices from the manufacturers. He should then be
in a position to allow a trickle down of this advantage to consumers out of his saved
costs.
Organized retail chains comprise only 3% of the Indian market. Rest 97% market is
comprised of mom-and-pop type shops. Now the number of organized retail stores is
gradually increasing. According to ETIG (Economic Times Intelligence Group), the
size of the organized retail industry was about ` 160 billion in 2001-02. In 2005
budget Government has allowed 26% Foreign Direct Investment (FDI) in the retail
sector.
Organized retailing is on continuous increase of its market share from the past.
Retailing can be categorized as of different sectors like food and groceries, clothing
and textiles, consumer durables, footwear, furniture and furnishing, catering services,
jewellery and watches, books, music and gifts, mobile handsets and others.

2.4.1 Emerging Trends in Indian Organised Retailing

The emerging trends in the Indian organized retail sector would help the economic
growth in India.
There is a fantastic rise in the Indian organized retail sector in a very short period of
time. Eventually, out of the shadows of the unorganized retail sector, India has a
chance of tremendous economic growth, both in India and abroad.
The emerging trends in the Indian organized retail sector are also adding up to the
development of the Indian organized retail sector. The relaxation by the government
on regulatory controls on foreign direct investments has added to the process of the
growth of the Indian organized retail sector.
40 The infrastructure of the retail sector will evolve radically in the recent future. The
emergence of shopping malls is increasing at a steady pace in the metros and there are
further plans of expansion which would lead to 150 new ones coming up in India by
2008. As the count of super markets is going up much faster than rate of growth in
retail sector, it is taking the lions share in food trade.
The growth of the Indian organized retail sector is anticipated to be heavier than the
growth of the gross domestic product. Alterations in people's lifestyle, growth in
income levels, and encouraging conventions of demography are proving favorable for
the new emerging trends in the Indian organized retail sector.
The success of this retail sector would also lie in the degree of penetration into the
lower income strata to tap the possible customers in the lowest levels of society. The
demands of the buyers would also be enhanced by more access to credit facilities.
With the arrival of the Transnational Companies (TNC), the Indian retail sector will
undergo a transformation. At present the Foreign Direct Investments (FDI) is not
encouraged in the Indian organized retail sector but once the TNC'S get in they
inevitably try to oust their Indian counterparts. This would be challenging to the retail
sector in India.

2.4.2 Challenges Facing the Organised Retail Industry

Despite the rosy hopes, some facts have to be considered to positively initiate the
retail momentum and ensure its sustained growth. The major constraint of the
organized retail market in India is the competition from the un-organized sector.
Traditional retailing has been deep rooted in India for the past few centuries and
enjoys the benefits of low cost structure, mostly owner-operated, therein resulting in
less labour costs and little or no taxes to pay. Consumer familiarity with the traditional
formats for generations is the greatest advantage to the unorganized sector. On the
contrary, organized sector have big expenses like higher labour costs, social security
to employees, bigger premises, and taxes to meet.
Availability and cost of retail space is one major area where Government intervention
is necessary. Liberalizing policy guidelines for FDI needs focus as well. Proper
training facilities for meeting the increasing requirements of workers in the sector
would need the attention of both Government and the industry. Competition for
experienced personnel would lead to belligerence between retailers and higher rates of
attrition, especially during the phase of accelerated growth of the retail industry. The
process of avoiding middlemen and providing increased income to farmers through
direct procurement by retail chains need the attention of policy makers. Taking care of
supply chain management, mass procurement arrangements and inventory
management are areas that need the focus of entrepreneurs.
India is now on the radar of global retailers. Accelerated development of retailing
industry in the country and building brand value of domestic products is essential not
only for marketing our consumer products more efficiently, but also for the
development of our own retailing industry.

2.5 TRENDS IN RETAILING

Indian retailing is undergoing a process of evolution and is poised to undergo dramatic
transformation. The traditional formats like hawkers, grocers and paan shops co-exit
with modern formats like Super-markets and Non-store retailing channels such as
multi level marketing and teleshopping. Modern stores trend to be large, carry more
stock keeping units, have a self-service format and an experiential ambience. The
modernization in retail formats is likely to happen quicker in categories like dry
groceries, electronics, men’s' apparel and books.
Some reshaping and adaptation may also happen in fresh groceries, fast food and 41
Retail Industry
personal care products. In recent years there has been a slow spread of retail chains in and Economy
some formats like super markets, malls and discount stores. Factors facilitating the
spread of chains are the availability of quality products at lower prices, improved
shopping standards, convenient shopping and display and blending of shopping with
entertainment and the entry of Tatas into retailing. Foreign direct investment in the
retail sector in India, although not yet permitted by the Government is desirable, as it
would improve productivity and increase competitiveness. New stores will introduce
efficiency. The customers would also gain as prices in the new stores tend to be lover.
The consequences of recent modernization in India may be somewhat different due to
lower purchasing power and the new stores may cater to only branded products aimed
at upper income segments. The Indian retail environment has been witnessing several
changes on the demand side due to increased per capital income, changing lifestyle
and increased product availability. In developed markets, there has been a power shift
with power moving from manufactures towards the retailers. The strategies used by
retailers to wrest power include the development of retailers own brands and the
introduction of slotting allowances which necessitate payments by manufactures to
retailers for providing shelf space for new products. The recent increased power of
retailers has led to the introduction of new tactics by manufactures such as everyday
low pricing, partnership with retailers and increased use of direct marketing methods.
Some of the recent trends in retail trade are given below:
1. Branches: Some retail shops set up their branches in different areas to sell goods
to customers who find it inconvenient to go to the central branch. The central shop
supplies goods to its branches and coordinates and controls their operations.
When a retail shop becomes popular it may find it profitable to open new branches
in the city. All the branches deal in the same products. They are centrally owned
and controlled. All the branches are operated on similar lines.
According to the Federal Trade Commission, it is "an organisation owning,
controlling interest in two or more establishments which sell substantially similar
merchandise at retail prices" Gradually; the various branches become a chain of
stores owned by the same retailer.
When the chain sells a wide variety of goods it is called 'variety store'. If the
goods are sold at fixed prices, it may be described as a fixed priced chain store.
2. Vending machines: A vending machine is a machine from which the buyer can
get an article by inserting coins in it. The articles sold by a vending machine are
prepared and standardised in quality.
Vending machines are installed in busy shopping centres and at public places such
as railway stations and bus stands. In our country Mother Dairy milk, soft drinks,
ice cream, etc. are sold through vending machines. Thus, vending machines
represent automation in retailing.
Vending machines provide quick service and convenience to customers. However,
it is expensive to installment and maintains such machines. Moreover, vending
machines can be used only for selling a few products.
3. Packing: Packing means putting the products into a suitable package. Packing has
become important due to increasing competition and widening markets. Proper
packing protects the goods during transport and storage.
It also gives individuality or identity to the product. The brand name is attractively
printed on the package. The information concerning weight, price and use of the
42 product can be printed or inserted inside the package. Thus, packing helps to
create demand and attract customers.
4. After sales service: In case of consumer's durables such as car, television,
refrigerator, air conditioner, computer, washing machine, etc. consumers require
regular repair and maintenance service.
Such service is called after sale service. It is required both during the guarantee
period and thereafter. During the guarantee period, after sale service is provided
free of charge. After the guarantee period, it is provided on charge.
Prompt, courteous and efficient after sale service, enables the seller to increase his
reputation and satisfaction of consumers.
A manufacturer can provide after sale service in the following alternate ways:
(i) Directly by sending the staff for repair and maintenance of the product as and
when it is out of order. The manufacturer may set up service centres at
different places to repair the product.
(ii) Making arrangements with distributors and dealers to provide the necessary
service. The manufacturer may upgrade the efficiency and reliability of
dealers through appropriate training programmes.
(iii) Putting greater focus on product design through more effective research,
testing and quality control thereby minimising breakdown and the need for
after sale service.
(iv) The manufacturer may leave it to independent service specialist firms to
provide after sale service.
Generally, manufacturers adopt the first alternative. In this alternative they can
earn good profits on spare parts. This alternative also keeps the manufacturer in
touch with the customers and their problems.
In the second alternative, dealers can offer faster services because they are closer
to the customers.
Manufacturer can still make profit on spare parts but give the servicing profit to
the middlemen. Over a period of time independent service firms emerge.
They generally provide cheaper and faster service than the manufacturer or the
authorised dealer. Ultimately some big customers may take over the responsibility
of repairing and maintaining themselves.
For instance, a company having one hundred computers in its different
departments/branches may find it cheaper to have its service staff. It may get its
staff trained in self-serving.
5. Trading stamps: During severe competition, retailers offer sales incentives to
attract customers. Discount sales, gift coupons, trading stamps, etc. are examples
of such incentives.
A retailer offers free trading stamps to customers who buy goods from him on
regular basis. These stamps are issued generally at the rate of 2.5 per cent of the
amount of goods purchased. Customers go on accumulating the stamps.
They can exchange their stamps with any article of equivalent value from the
retailer. Trading stamps induce consumers to buy their requirements from the
retail shop offering such stamps.
In other words, the purpose of trading stamps is to increase loyalty of customers.
Raymon Bonus stamps have been popular in India.
 Check Your Progress 2 43
Retail Industry
Fill in the blanks: and Economy

1. The success of retail sector would also lie in the degree of ………… into
the lower income strata to tap the possible customers in the lowest levels
of society.
2. The demands of the buyers would also be ………… by more access to
credit facilities.
3. With the arrival of the Transnational Companies (TNC), the Indian retail
sector will undergo a …………
4. At present the Foreign Direct Investments (FDI) is ………… in the Indian
organized retail sector.
5. Availability and cost of ………… are one major areas where Government
intervention is necessary.

Case Study: A Revolution in the Making – The Agro-Food

Retailing in India
The Global Context
There is widespread agreement today that across the developing world, retail
sector transformation is spearheading fundamental changes in food systems
and that these changes have happened with stunning rapidity, often within the
span of a decade.
Consider this. In the 1980s there were few large-scale food retailers and
almost no supermarkets in most developing countries. By 2002, supermarkets
claimed close to two-thirds of the share of food sales in parts of Latin
America; more than half in East and Southeast Asia, Central Europe, and
South Africa; and almost a fifth in countries such as China. In fact, in China
food retailing was completely controlled by the government until 1990, and
there were no supermarkets. By 2003, supermarkets accounted for 30 percent
of the urban food market share, and their sales revenue is growing at 30–40
percent a year—faster than in most other developing countries (Hu et al.
2004). Some Latin American countries offer similarly dramatic examples. In
Argentina, supermarkets’ share of retail food sales was 60 percent by 2003; in
Brazil, 75 percent. These figures are close to the 75–80 percent share in the
United States and France. Remarkably, what took five decades to happen in
the United States has taken a mere decade in these countries (Reardon 2006).
It is interesting too that this transformation of the agro-food marketing chain
has come in waves across the regions through a spatial diffusion that mimics
the “flying geese” phenomenon. It started with the richer countries in Latin
America during the early 1990s. Next, came East and Southeast Asia and
Central Europe. The third wave, in the late 1990s and after, hit the poorer,
smaller countries of Central America and Southeast Asia, as well as Southern
and then Eastern Africa. By 2003, the share of supermarkets in food retail
sales in Taiwan and the Czech Republic had reached 55 percent. Similarly, in
Chile, Costa Rica, the Philippines, South Africa, and Thailand, supermarkets
were capturing half of the food retail market in 2003. The fourth wave, which
has only just begun, is in the poorer countries of South Asia and West Africa.

Contd…
44 The idea of such a change is not new. Historical experience suggests that as
countries develop, markets transform from fragmented local markets to larger
centralised markets. This process typically originates in the dry goods sector
before encompassing fresh produce, including fruits, vegetables, and dairy.
Yet in terms of speed and transformative power, what developing countries
are experiencing today is nothing short of a revolution.
In particular, this transformation has taken an unfamiliar path because it is
grafted onto agrarian systems that have often not made the transition to
“modernised” industrial agriculture. It is also taking place in the context of
immense poverty and deprivation.
In 2001 as much as 21 percent of the population in developing countries lived
in ”extreme” poverty, on less than US$1 a day (World Bank 2004).
Supermarkets are apparently no longer a rich-country phenomenon. There is
hence considerable concern that the emergence of supermarkets, especially if
it leads to retail concentration, might have distressing implications for a large
constituency of poor actors along the entire chain, from farmer to consumer.
In short, it is not clear at all if supermarkets will be part of a solution to
poverty or part of the problem.
Until now, India, like South Asia itself, did not enter these discussions.
Untouched by these global waves, India was an exception to the rule. Recent
events, however, suggest that these waves have reached Indian shores. Rated
in 2006 as the number one destination for global investment in the retail
sector—for the second consecutive year— India now finds itself conspicuous
on the radar screens of investors. Quite independently of global retail trends,
the agro-food sector has begun to attract domestic investments from Indian
corporate houses on a scale that suggests that this may well be a revolution in
the making.
This case study takes a critical look at this change. While mapping the
institutional and policy setting of the contemporary agro-food sector in India,
this study attempts to go beyond the much-publicized advantages of this
transformation related to efficiency gains along the supply chain and to train a
lens on its less obvious and possibly more troubling implications. Its scope is
seriously limited by the paucity of data and systematic research. The study is
hence necessarily speculative, going only so far as to lay out the issues and
drawing on studies elsewhere as illustrations. Indeed, this paper raises more
questions than it answers. Yet this lack of research itself makes it important to
examine this phenomenon.
The Retail Mosaic of India: The Story So Far India has in the past earned the
epithet of “lumbering elephant” for being slow in just about everything that
advocates of globalization care about. This is true of the retail sector as well.
For some years now, India has been conspicuous as an outlier.
India’s retail sector today continues to be highly fragmented. It is a complex
mosaic of diverse small-scale actors, including itinerant vendors, government
outlets, cooperative markets, and small-scale corner stores, most of which are
in the informal sector. As recently as 2002, only 2 percent of all retail (food
and non-food) trade in India was in the organized sector—the figure is put at
5 percent in the food sector. Compare this with India’s Asian neighbours, and
the nature of the Indian retail landscape becomes clear. The share of the
organized sector in Malaysia, for instance, is put at 50 percent; in Thailand, 40
percent; and in the Philippines, 35 percent (Sasi 2004).
Contd…
The Indian retail sector, food and non-food together, employ an estimated 8 45
Retail Industry
percent of the work force—the most people after agriculture. Estimates also and Economy
suggest that India has not only the highest number of retail outlets in the
world (at 12 million), but also the greatest density of retailers, at 11 per 1,000
people. In terms of size, only 4 percent of all retailers operate in spaces larger
than 400 square feet. Consequently, in per capita terms, availability of retail
space in India is among the lowest in the world, at 2 square feet per capita.
This is in deep contrast with the 19 square feet per capita in the United States
(KSA Technopak 2005). These characteristics are mirrored in the food
retailing sector, which by all accounts is even more fragmented than the
non-food sector. The informal segment of the retail sector in India thus
comprises a large number of small-scale, low-investment retailers, each
serving a small catchment of consumers.
Despite this umbrella category, the informal retail sector is actually quite
diverse, comprising a wide profile of actors. At one end are itinerant vendors
and handcart vendors, especially for fresh fruits and vegetables. They form the
last link in a long chain of intermediaries. Typically, they procure produce in
wholesale markets and go door-to-door selling these goods. Their margins are
often thin, and they operate with little capital. Often, these vendors have long-
term relationships with buyers, in some cases even straddling generations.
Vendors also congregate in street vegetable markets (plaza markets) or by the
roadside. Although reminiscent of the farmers’ markets of the West, these
vendors function as pure intermediaries. In both cases, the transaction
between consumer and vendors is a social relationship rather than a purely
economic one, something that characterizes most traditional modes of
exchange.
It is difficult to say how many such vendors there are in the country as a
whole, given that there is no systematic enumeration.
Then there are the corner stores (called kirana) that sell groceries, dry goods,
and a limited range of nonfood items. An estimated 5 million of them dot the
retail landscape of India. The majority of food and food products are retailed
through these neighborhood stores, which typically operate in an area of 200
square feet and sell 500 to 800 stock keeping units (SKUs). Like the vendors,
they usually have a loyal local clientele, many of whom buy on credit. Many
of these stores offer home delivery services within a certain distance.
Alongside these neighborhood stores is a network of cooperative stores.
Typically these stores are owned jointly by producers and state agencies and
operated and managed by state agencies. Some are specifically for vegetables,
like the Safal chain in Delhi or HOPCOMS in Bangalore. Dairy products in
particular have always been dominated by outlets of producer-cooperatives
and operate under the aegis of the National Dairy Development Board of
India. This board engineered a “White Revolution” in dairy production under
Operation Flood. There are also more broad-based grocery and cooperative
departmental stores (which sell groceries—only dry goods—and household
and personal items) run by Civil Supplies Departments. These entities were
started with state patronage in the early 1960s at a time when shortages of
basic goods were common. The objective of the Civil Supplies Corporations
is expressly to provide “Common Man’s Needs at Affordable Prices.” Most
are responsible for drawing on the state’s stock of food staples and serve as
channels for some government food schemes.
Contd…
46 There have also been experiments with farmers’ markets in some cities. The
stated objective of these initiatives is to sidestep the exploitative terms of sale
between farmers and traders by enabling farmers to sell directly to consumers.
Several of these markets continue to function and have been regarded as
successful on many counts. One example is the Rythu Bazaars in Andhra
Pradesh, which were established in 1999.
Since the late 1990s a class of supermarket-style food stores has emerged,
especially in cities in southern India. In contrast with traditional stores, these
stores stock both dry and wet goods and often offer value-added or
convenience products and ready-to-cook items, like pancake batter and cut
vegetables. Most often, these supermarket-style stores are local businesses
that have no or few branches and are typically owned by entrepreneurs who
make medium-scale investments.
Because India is a vast and diverse country, there are significant regional and
rural-urban differences in the particular mix of retail institutions. For instance,
until recently, cities in the south have had more supermarket-style stores than
have north Indian cities. Similarly, small towns and vast stretches of rural
India are served predominantly by neighborhood stores and vendors.

Policy Issues
Why has India been Different?
Given this complex retail mosaic in India, why has change, specifically
defragmentation, in the retail sector been so slow in its coming? Starting with
broad-based economic reforms in 1991, perhaps even earlier, there was a
pronounced increase in private participation in many sectors of the Indian
economy—the striking examples being telecommunications and information
technology. At the same time, socioeconomic parameters—such as
diversifying diets and growing urban incomes—that provide the enabling
conditions for such growth were likely already present in the 1990s. Why then
did large-scale food retailing, barring a few cases, not emerge?
The answer to this paradox lies in a combination of factors. On the one hand
are issues relating to the policy environment; on the other hand are demand-
side issues.
One factor driving retail market development has been the flow of foreign
direct investment into developing countries. When retail markets in developed
countries reach saturation, large-scale retailers in these countries begin to look
at other markets to invest and operate in. In several developing countries, the
opening up of economies to FDI spawned investment in food retailing. In
Latin America, for instance, the food retail sector is increasingly and
overwhelmingly operated by multinationals, and 70–80 percent of the top five
chains are multinationals. In most cases, a handful of multinationals like
Ahold, Carrefour, and Wal-Mart and smaller chains such as Casino and Metro
Makro have dominated this transformation within countries (Reardon and
Berdegue 2002). Regional multinationals such as Dairy Farm International
(Hong Kong) and Shoprite (South Africa) have played this role too. Where
FDI has not been directly involved, it has nevertheless influenced the
transformation through participation in joint ventures; in China, for instance,
Lianhua (the Shanghai-based retailer) partnered with Carrefour.
In the case of India, FDI has been disallowed in the retail sector and continues
to be prohibited. The government has repeatedly staved off pressure from
Contd…
different quarters to change this policy. India has allowed foreign participation 47
Retail Industry
only in wholesale cash and carry operations, single-brand retailing, and Economy
franchising and joint ventures, and licensing arrangements. In 2006 the Indian
government permitted only up to 51 percent foreign investment in single-
brand retailing. Owing to this policy framework, multinationals could engage
in only a limited way. Thus, FDI restrictions largely explain the absence of
large foreign retailers in India.
Although FDI restrictions are a valid explanation, it has been argued that this
cannot be an adequate explanation for the absence of large retailers per se,
because India does not lack domestic capital. Yet throughout much of the
1990s, there were few large-scale investments in the retail sector. Some
retailers grew steadily and successfully served a niche market in urban
centers, such as Food World. One of the pioneers in supermarket-style food
retailing in India, Food World was started in 1996 by the RPG Group, later
collaborating with Dairy International of the Jardine Matheson Group.
Food World was one of the first retail players in India to introduce “modern”
inventory management systems and develop its own private label. Similar
ventures were mostly confined to the southern states. For much of the 1990s,
there were only a handful of such retailers. Until about 2000–2001, Chennai
had five organized food and grocery retail chains, whereas other big cities
such as Bangalore, Delhi, and Mumbai averaged only two to three such chains
(Anand and Nambiar N.D.). Several Indian corporate houses had been eyeing
the food retail trade, but they perceived that the policy environment, among
other things, was not entirely conducive. For instance, industry sources often
cited urban real estate laws as a constraint on operations; the Urban Land
Ceiling Act limits the physical space available to businesses. Industries also
claimed that the many taxes and octroi levied on organized retailing
complicated operations.
The other aspect of policy that has confined large businesses is in the area of
procurement and agro processing. Here, potential investors had to contend
with several issues. Corporate involvement in agricultural production and
trade has traditionally been severely curtailed in India. As in retailing, FDI
was disallowed, except in tea plantations. The highly fragmented supply
chain, coupled with the lack of high-quality infrastructure, meant that food
retailing posed an extraordinary logistical challenge. Of those early entrants
that took up food retailing in the 1990s, some exited soon after, ostensibly
because of logistical problems (Nanz, for example, closed down in 1999).
There was also a perception that demand was not large enough to support the
scaling up of operations—something that is critical given thin margins on
groceries. Although urban incomes, especially among the middle class, were
rising and consumption patterns changing, the trend had only just begun and
had yet to gather momentum. Furthermore, given strong and resilient regional
preferences for consumption baskets, the consumers themselves were too
heterogeneous to be served by large supermarkets. In fact, large-scale retailers
that recently entered the market acknowledge this heterogeneity: “The product
offering in two stores 12 kilometers away is totally different” (A.T. Kearney
2005, 4). For this reason many of the supermarket-style ventures have
confined themselves to a particular region within India, even particular cities.
For example, the RPG Group’s Food World, Nilgiris, Margin Free, Giant,
Varkey’s, and Subhiksha all operate in southern cities; Sabka Bazaar operates
in the capital region of Delhi; Haiko and Radhakrishna Foodland are Mumbai-
centric; and Adani has been Ahmedabad based (Anand and Nambiar N.D.).
Contd…
48 The Beginnings of a Revolution Despite the early languor of retail
transformation, much of this has changed, especially since 2001. It seems that
the Indian retail sector has taken flight. On the demand side, there is no
denying that most of the socio-economic parameters that drive the growth of
organized retail food marketing are present in India today more than ever
before. The average Indian household spends around half of total household
income on food. Diets have diversified considerably in favor of new foods,
including other cuisines. There is broad agreement that since liberalization
and economic reforms in 1991, a marked shift has taken place in the mindset
of the Indian consumer from need-based shopping to lifestyle shopping.
Twenty-four percent of India’s population falls in the 20- to 34-year-old age
group (A. T. Kearney 2005) and seems to spend more freely than the previous
generation did. High incomes fueled by tertiary sector growth have also
created a new professional middle class that has begun to find intrinsic value
in shopping experiences and consumer choice. This attitude permeates all
areas, including food. This class has greater mobility and more contact with
other countries and cultures, so that urban upper-class consumers look more
like one another than before, blurring socio cultural boundaries. Urban
lifestyles have changed perceptibly, and the growth in urban consumerism and
a new “way of life” translates directly into huge potential demand for branded,
packaged, and ready-to-eat foods. At the same time, there is rising concern
about food safety among these classes, raising demand for foods and
beverages that are hygienic, safe, and trustworthy.
The growth of the bottled water industry in India, for instance, is testimony to
this fact. Mainly on account of these trends, the food retail sector in India
today is worth about US$200 billion. Given that organized retail has been
registering growth rates of approximately 40 percent a year over the past three
years, it is expected to grow to US$460–470 billion by 2010 (CII and
McKinsey and Company 1997).
Simultaneously, there has been a reorientation of government policy. This has
its roots in the economy-wide reforms that began in 1991. Over the decade
since, there has been a gradual change in policy in favor of greater private
sector participation in different sectors. Recent policy changes for food
processing have spawned the growth of that industry, both for export and for
the domestic market. Policy changes have also provided some enabling
conditions for retailers in terms of logistics and supply chain management (see
Box 1 for examples).
Box 1: Recent Policy Initiatives in the Food – Processing Industry
1. Most processed food items were exempted from licensing under the
Industries (Development and Regulation) Act, 1951, except items
reserved for the small-scale sector and alcoholic beverages.
2. Food-processing industries were included in the list of priority sectors for
bank lending in 1999.
3. Automatic approval for foreign equity up to 100 percent is available for
most processed food items except alcohol, beer, and those reserved for the
small-scale sector, subject to certain conditions.
4. The excise duty on processed fruits and vegetables was lowered from 16
percent to 0 percent in the 2001–2002 budgets.
Contd…
5. Licensing powers were delegated to regional offices under the Fruit 49
Retail Industry
Products Order, 1955. and Economy
Budget of 2004–2005
1. Under the Income Tax Act, the government allowed a deduction of 100
percent of profits for five years and 25 percent of profits for the next five
years for new agro processing industries set up to process, preserve, and
package fruits and vegetables.
2. The excise duty of 16 percent on dairy machinery was reduced to zero to
help promote the dairy processing industry. The excise duty on meat,
poultry, and fish was reduced from 16 percent to 8 percent.
Budget of 2005–2006
1. The customs duty on refrigerated vans was reduced from 20 percent to 10
percent.
Domestic firms have started responding strongly to this latent demand, helped
along by a more conducive policy environment. The star entrant has been
Reliance, a leading Indian conglomerate with no prior agribusiness
experience, which announced that it would invest US$3.4 billion to become
the country’s largest modern retailer by establishing a chain of 1,575 stores by
March 2007. Hypercity Retail, a subsidiary of K Raheja Corp Group, plans to
open 55 hypermarkets by 2015, and Bharati is set to follow with similar plans.
Besides these examples of recent ventures and corporate expansion plans,
several other enterprises have expressed similar ambitions, pointing to the
immensity of the transformation currently underway.
Meanwhile, foreign investors are exploring ways to overcome policy
obstacles to operating in India. Wal-Mart is considering opening a Sam’s Club
wholesale business through a joint venture and selling strictly to other
retailers. This strategy skirts the issue of not being able to sell directly to
consumers and establishes a presence in the local market. Tesco is planning to
enter the market through a partnership with Home Care Retail Mart Pvt. Ltd.
and expects to open 50 stores by 2010.
Organized food retailing is still in its infancy. For instance, food retailers in
India today are quite different from their counterparts in the developed world.
Indian retailers have extremely high average SKUs for fruits and vegetables
relative to their western counterparts, mainly on account of their
heterogeneous clientele with particular cultural and regional preferences.
Store areas are not particularly large—anywhere between 2,000 and 10,000
square feet. Arrangements for sourcing vary across actors. Some retailers
choose to buy from the wholesale market, whereas others have dedicated
suppliers, small and large. Investments at the front end and in consumer
interface, observers concur, have been tremendous. The extent of investment
in the back end, in terms of on-farm handling, storage, and transport, has been
lower. One exception is Metro, which made deep investments in building a
high-quality supply chain to support its operations. Observers suggest that
whereas some retailers have adopted a “big bang” approach and sought to
maximize the number of new outlets and spatial reach, others have adopted a
measured approach and focused on putting reliable supply chains in place.
Metro, with only two stores in operation in over five years, is often cited as an
example of the latter approach.

Contd…
50 With the fledgling transformation in flux, a shakeup is inevitable and
impending. How it unfolds is a matter of current interest. For instance, in
some urban neighborhoods, where there was just 1food retailer five years ago,
now there are 10. In some of these outlets, turnover of merchandise has fallen
by half in the face of competition; others are even losing money. Observers
predict that in the near future, retailers will end up carving out niches for
themselves within the food retail sector or will reposition themselves and
consolidate. Only time will tell.

Stakeholders
So far, the discussion of the retail transformation in India’s agro-food sector
has been largely celebratory, at least in the popular media. Yet this complex
transformation is bound to have both winners and losers. Clearly, two issues
merit careful scrutiny. First, how will the efficiency gains from this
transformation are distributed among actors? Will it be equitable, or will the
rents be cornered by those with greater economic power? Second, what kinds
of costs will be associated with the displacement of livelihoods that such a
transformation will entail?
Policy makers clearly recognize the importance of these issues. In a speech in
early 2005, Union Minister of Commerce and Industry Kamal Nath told a
gathering of business leaders, “If any of you have come here to hear from me
whether or not the Government is about to announce FDI in the retail sector,
you are going to be disappointed.... The nature of the retail sector in India is
too complex for a hasty decision to be taken in this regard” (Nath 2005). It is
therefore imperative to examine the exact nature of potential gains and losses
to the different stakeholders.
Indian corporate houses would stand to gain the most, especially given current
FDI regulations. Recent years have seen a concerted effort by industry groups
such as Federation of Indian Chamber of Commerce and Industry (FICCI) and
the Confederation of Indian Industry (CII) to secure important changes in
retailing policy. Their pitch to the government centers largely on efficiency
gains from the technological changes brought about by large-scale retailers.
This approach could be a way to address the huge waste in Indian agriculture.
Figures suggest that as much as 30 percent of produce is wasted annually, and
only a fraction of agricultural produce is processed—as low as 2 percent for
horticultural crops (Ministry of Food Processing Industries 2006). Investment
in cold storage and processing by large-scale retailers would redress this
situation and lead to huge efficiency gains. Industry groups also argue that
retailing is a highly labour-intensive sector and would generate employment.
Some also claim that larger retailers would bring in more tax revenue and
conform to labour laws, because it is much easier to monitor and enforce these
regulations for large retailers than it is for the informal retail sector, which is
diffuse and small in scale.
The supporting and ancillary sectors, such as processing, cold storage, and
transport, constitutes the other group of stakeholders. Large investments in
these facilities, especially in the rural areas, would be welcome in the context
of a weak rural industrial base if they generate employment.
As far as FDI policy goes, domestic industrial groups have been somewhat
more divided. Some lobbying groups recognize that Indian industry would
likely benefit from joint ventures with foreign counterparts, which would
bring in new, state-of-the-art technology and larger investments. Industry
Contd…
observers suggest that Indian retailers have an advantage over foreign retailers 51
Retail Industry
because success in the retail trade in India has a significant component and Economy
relating to home-ground advantage— that is, understanding the heterogeneity
and particular characteristics of the Indian consumer— not to mention that
Indian retailers have a head start. In fact, the swiftness with which Indian
businesses are entering the retail sector suggests they recognize this! On the
other hand, some fear that domestic firms might lose out to larger foreign
retailers.
This concern is universally true for another stakeholder group—small traders,
who form a large constituency. As expected, they have been at the forefront of
protests against large retailers with deep pockets. When Metro, the German
cash-and carry wholesaler, opened an outlet in Bangalore, the “Silicon
Valley” of India, the joke went that it probably saw more protesters than
customers. Whereas retail traders often have professional associations that
enable some sort of collective action, itinerant vendors have little power or
voice, let alone say, in matters of policy. They are diffuse and operate at a
small level, and although they network with one another, they rarely have
collective lobbying power.
The nature of actors in the informal retail sector in India merits attention. It is
often mentioned that the retail sector serves as a receptacle for the self
employed.
A large section of this group has few employable skills and turns to retailing
produce or groceries for lack of better opportunities. Although not true across
the board, this is certainly true of itinerant vendors and street vendors. From
this perspective, a supermarket that captures their clientele could simply
dismantle their livelihoods.
As it is, this group has in the past suffered the consequences of city-level
actions, such as forced evacuations. It is also difficult to imagine that they will
be absorbed into the formal retail sector in any way, given their lack of
marketable skills. There are supermarkets, however, that incorporate vendors.
A retail format called store within- store (adopted by Fabmall, for instance)
accommodates existing vendors within the supermarket, providing them with
not only store space, but also equipment like refrigerators. Similarly, Safal’s
chain of fruit and vegetable outlets in Bangalore serves as a supplier to
vendors in the morning and an open shop to individual buyers during the day.
These formats may aid rather than displace local vendors.
Consumers, another stakeholder group, are of course central to the discussion
on retailing. They are often used prominently as mascots for the retail industry
to tout consumer benefits such as greater choice, higher quality, and improved
shopping experiences. Moreover, the emergence of supermarkets, with their
sophisticated supply chains, ensures safe products that conform, typically, to
recognized grades and quality standards.
This conformity is perhaps the hallmark of supermarket – style food retailing
and is particularly important in India, where food-borne diseases and rampant
adulteration by unscrupulous dealers are prevalent.
On the question of price, however, the benefits may not be as widespread.
Consumers straddle the entire spectrum of socioeconomic classes in India and
are therefore highly heterogeneous. It may well be that the ones who are most
likely to benefit from supermarkets are the urban middle and upper-middle
classes. This group has emerged from the post-liberalized India with the
Contd…
52 greatest spending power. The less visible, but certainly much larger, class of
consumers consists of the poorer segment of the population. It is difficult to
say how supermarkets will change things for them.
Only a few supermarkets in India have made claims of cheaper food.
Specialized discount chains like Subhiksha, which focus on own-brand
retailing of grains and pulses, are indeed much cheaper. Food World claims
that its produce is 15 percent cheaper than alternative sources. Most other
retailers, however, have focused on exploiting consumers’ willingness to pay
for convenience, choice, or a high-quality shopping experience. It is difficult
to imagine these supermarkets catering to low-income groups. Over time,
however, given the high contestability of retail markets, it is conceivable that
supermarkets will indeed offer lower prices across the board.
In a country like India, this situation still leaves the issue of social access.
Will supermarkets coexist with traditional food retail markets that will
continue to serve the excluded segment? It is difficult to say. If, for instance,
consumers patronizing the informal retailers are wooed into supermarkets, it
would jeopardize the survival of the former. In that case, poorer consumers
may be hurt by the coming of supermarkets.
Retail power also raises important questions about the relative position of
farmers, and “manufacturers” more generally, in the agro-food supply chain.
Questions about the supply chain are especially relevant in the context of
India, where the industrialization of agriculture is happening in tandem with
the retail transformation, and these questions have attracted the most attention
from researchers. Studies of the Indian case, however, are relatively scarce at
present. Vertical linkages are sometimes beneficial to small, poor farmers, and
at other times they are not. The effects of vertical linkages for small farmers
seem to vary across crops and regions and with the exact nature of
arrangements.
In India, procurement strategies cover the entire spectrum. At one end, for
instance, is Bharti’s Field Fresh, which contracts only with large farmers
cultivating a minimum of 1,000 acres? Its executive explained, “I can manage
ten or twenty farmers, but not thousands” (Witsoe 2006). On the other hand,
Choupal Fresh plans to source from small farmers with as little as one acre
under cultivation. Others procure from wholesale markets as well as farmers.
Systematic research would yield a clearer picture of this aspect of the agro-
food industry.
Irrespective of whom retailers purchase from, these sources face one common
problem: Strategic decisions at the retail end can have sudden and costly
impacts on producers up the commodity chain. For instance, given that retail
markets can be highly contested, retailers face pressure to keep procurement
costs low. If the retailers are monopolists at the farmer’s end, they achieve this
by driving down the price paid to the farmer. This issue is of course an
empirical one, valid in some instances and not in others. In a country like
India, however, with a huge population of small farmers, this risk to farmers
must be an important consideration.
Although the coming of supermarkets clearly has both positive and negative
ramifications, the issue is complicated by a woeful lack of data and research.
In India, more than elsewhere, there is not much clarity on how these
developments will affect the different stakeholders, partly because the
phenomenon is so recent.
Contd…
Policy Options 53
Retail Industry
For the government, this retail transformation presents a confounding and Economy
problem. As control over the agro-food chain devolves to large-scale private
sector players with deep pockets, several critical questions emerge at various
levels.
On the one hand, the ongoing agrarian crisis and the erosion of rural
livelihoods are pressing concerns. In that context, and given the enormous
postharvest wastage, the emerging food retail scenario could solve some
problems—it could ensure postharvest efficiency in supply chain management
and stable markets for farmers. It can also be an instrument for bringing about
changes in cropping patterns, agronomic practices, pesticide use, and
harvesting techniques, with important implications for farm incomes. Modern
supply chains would also ensure traceability, and with monitoring, contribute
to safe food that measure up to recognized quality standards. The retail sector
would generate employment along the entire supply chain, including in
intermediate sectors such as cold storage and transport. Needless to say,
consumers would presumably benefit not only from having greater selection
of produce and shopping experiences, but also from having access to high-
quality produce.
At the same time, there are those who would almost surely be hurt—
wholesale traders, retailers, itinerant vendors, and even poor consumers. As
for farmers, it is not clear how much of the efficiency gains would in fact
accrue to them. How can the government negotiate this?
At one level, the issue is to what degree the government should enable such a
transformation. This issue relates to two sets of policies. First, should it press
on and ultimately open up retailing to foreign investment? Second,
disregarding FDI, should it reconfigure domestic policies, including those
related to urban real estate and agricultural marketing, to allow businesses to
link up and scale up operations?
At another level, how should the government address the livelihood issues of
those who might be swept away by these changes? Should its policy be
compensatory so that it helps them cope, or should it enable players in the
informal retail sector or farmers to be part of this change?
A third critical question pertains to institutional diversity. Regardless of how
inclusive this retail transformation may be, is the preservation of institutional
diversity in agro-food marketing channels desirable for its own sake, as an end
in itself? If so, what kinds of policy instruments can ensure that diversity is
preserved?
Opening up FDI in retailing, much fear, is the thin end of the wedge. With it
will come, inevitably, the tendency toward concentration. Historically, a
period of mushrooming supermarket ventures first generates a highly
contested market; in the second phase, there is a shake-up that promotes a
trend toward consolidation in the sector. In Latin America the top five chains
in each country control 65 percent of the supermarket sector, compared with
40 percent in the United States and 72 percent in France (Reardon and
Berdegue, 2002).
This consolidation can happen in two ways: Foreign chains can acquire local
chains, or larger domestic chains can acquire smaller chains and independents.
Alternatively, consolidation can occur through development of new outlets.
Both processes have happened in Latin America. FDI is thus bound to amplify
Contd…
54 and hasten the process of consolidation, owing to the sheer amount of capital
available to large multinationals. In the first eight months of 2002, for
example, five top global retailers spent US$120 million to build new stores in
Thailand.
During 2002 Wal-Mart spent US$660 million in Mexico (Reardon 2006).
Multinationals have already begun acquiring Indian firms in the food
processing industry, and this process could occur in food retailing as well, as a
prelude to consolidation. On the other hand, it is clear that even in the absence
of FDI, the retail revolution has well and truly begun and India’s domestic
firms are not particularly capital constrained. Opening up retailing to FDI
would only accentuate the trend and not alter it in any significant way. The
next question pertains to the policy environment for domestic industry. Can
the government incorporate this retail transformation, driven by the private
sector, into its broader agenda of poverty alleviation and food security? If so,
how?
The arguments straddle both positive and negative responses to this question.
If supermarkets are to aid poverty alleviation rather than obstruct it, then they
need to be inclusive of the poor—not only the poor farmer, but also the poor
consumer and poor trader.
Few would disagree that many informal sector food retailers need better
livelihoods and that it is desirable to enable them to achieve this goal, if
necessary by helping them exit this sector. Whether supermarkets can do this
in a positive way, however, is the critical question. If supermarkets do in fact
crowd out the vendors, these people are unlikely to be absorbed into the sector
as employees. A recent entrant to food retailing,
Reliance, announced that its strategy is to employ students and housewives in
addition to hiring employees from other retailers. On the other hand, firms
such as Food World have specifically trained youth from economically
weaker segments of the population as staff. In terms of aggregate employment
effects, studies suggest that the traditional retail channels are far more labour
intensive than the formal retail sector. A study of retail food channels in
Vietnam found that every metric ton of vegetables sold accounted for three
times as much employment for street vendors as for supermarket staff (Asian
Development Bank 2004). If this is true in India, it makes a strong case for
supporting the informal retail sector, improving the condition of informal
actors, and indeed maintaining the institutional diversity of the food retailing
sector.
Experience in Latin America suggests that small traditional stores and plaza
markets have been losers. In the six largest countries of South America, there
was a marked shrinkage in plaza markets in the 1990s: 64,198 small shops
went out of business in Argentina between 1984 and 1993, and 5,420 in Chile
between 1991 and 1995. The exceptions were fruit and vegetable specialty
shops (Reardon and Berdegue, 2002). One cannot assume that smaller traders
will be able to make the necessary investments to be able to compete with
largescale retailers. On the other hand, they do not always fail. Farina et al.
(2004), for instance, document that in Brazil the number of traditional retailers
and independent supermarkets increased by 33 percent and 7 percent,
respectively, between 1994 and 2002, whereas the number of chain retail
stores declined by 21 percent. In India, industry observers point out that
informal food retailers are very resilient and may have risen to the challenge.
Some informal retailers have upgraded their storefronts, improved in-store
Contd…
displays and customer service, and adopted more sophisticated stock 55
Retail Industry
management and billing procedures. These changes show that traditional and Economy
retailers can adapt, and even thrive, against the odds.
As for consumers, supermarkets in India have focused exclusively on niche
markets in urban areas catering to the upper middle class. There is some
evidence that poor consumers in developing countries, including Vietnam,
rarely have access to supermarkets owing to distance as well as higher prices.
In other countries, however, supermarkets tend over time to cater to poorer
sections and serve non-urban centers, often by developing satellite chains with
different formats (such as Shoprite in Zambia). About 40 percent of Chile’s
smaller towns now have supermarkets, as do many small to medium-sized
towns even in low-income countries such as Kenya. In China, supermarkets
are now spreading beyond the top 60 cities. The fact remains, however, that as
long as there is a large segment of extremely poor people, supermarkets will
find it a challenge to reach out to them. In this context, will the retail
channels, public and private, that already serve them survive and continue to
do so?
Finally, what about small farmers? To what extent do supermarkets procure
from local producers as opposed to importing from other countries? Also, to
what extent are small and marginal farmers included in the supply chains of
the retail food sector?
The evidence on domestic and small farmer participation in the supermarket-
driven food chains is mixed. Reardon and Berdegue (2002) estimated that
supermarkets in Latin America buy 2.5 times more fruits and vegetables from
local producers than all the exports of produce from Latin America to the rest
of the world. On the other hand, Shoprite Checkers in Zambia has been
criticized for sourcing supplies through its parent company in South Africa
rather than from Zambian producers (Mpundu 2005). In general, evidence
suggests a range of procurement systems, from total reliance on traditional
wholesalers delivering to individual stores (for small chains), to outsourced,
decentralized procurement systems (for small to medium-sized chains), to
procurement from large scale, specialized wholesalers or processors
(Berdegue et al. 2005). Some studies find that supermarkets tend to source
from large-scale processors in order to reduce transaction costs, because those
processors possess adequate logistics and transportation capacity and are able
to meet the private standards of the retailer. For example, the Xiaobaiyang
chain in Beijing is known to have shifted from 1,000 to 300 processed food
suppliers in two years as it centralized its procurement system (Hu et al.
2004). Similarly, leading Russian chains focus only on a handful of foreign
and domestic suppliers for dairy products (Dries and Reardon 2005). Some
other studies show substantial involvement of small growers (such as for
tomatoes in Nicaragua and Guatemala and lettuce in Guatemala). Nonetheless,
small farmers who do not have the capital to meet the requirements of
supermarkets tend to be excluded, as illustrated in studies of potatoes in
Ecuador (Zamora 2004) and vegetable producers in Thailand (Boselie 2002).
Also, the net benefit to the farmer of selling to supermarkets rather than to
traditional markets is not always higher. For Guatemalan tomato farmers,
Hernandez et al. (2004) show that there is not much difference in net return
between selling to wholesalers that sell to supermarkets and selling to
wholesalers that sell to traditional retailers. There is a perception, however,
that the market risk is lower when a farmer enters a relationship with a
wholesaler dedicated to the upper-tier market, such as supermarkets. For
Contd…
56 growers to enter these markets, it appears that farmers’ associations or
cooperatives tend to be necessary to reduce transaction costs, but these do not
guarantee market access.
Conversations with farmers in southern India suggest diverse outcomes. In
some areas farmers are immensely pleased with the advent of retail food
buyers, who pay them competitive prices and have had a disciplining effect
on the commission agents and wholesalers. In other places farmers are
disenchanted with these buyers for reneging on oral commitments to buy and
forcing prices down. What is certain, however, is that supply chain issues are
critical in a country where smallholders predominate. Given this mixed
evidence, it is difficult to draw up a prognosis for the small farmer in India.
Although the empirical evidence clearly offers several lessons and insights,
the government walks a tightrope and must weigh the potential benefits of
such transformation against its possible negative consequences—and find a
way to make supermarkets a part of the change it seeks to bring. As more
research on these various aspects of agro food retailing filter in, the situation
should become clearer. No wonder then that the minister in his 2005 speech to
business groups appealed for caution in policy making, and against haste.
Question
You are required to recommend to the Government of India a set of policies to
be pursued to guide future developments in the food retail sector, taking into
account the interests of the different stakeholder groups.
Source: http://cip.cornell.edu/DPubS/Repository/1.0/Disseminate?view=body&id=pdf_1&handle=
dns.gfs/12004 28172

2.6 LET US SUM UP

Retailing can be defined as the business products and services to consumers for their
own use. It has its origin in the French word, retailer meaning ‘to cut a piece off’.
According to Kotler: “Retailing includes all the activities involved in selling goods or
services to the final consumers for personal, non-business use.
There are many factors responsible for the growth of the retail sector like economic
and political, demographics, consumer behaviour, etc. which are discussed below.
1. Economic Factor
2. Political Factor
3. Demographic Factor
4. Change in Consumer Behaviors
5. Others
Retailers also help in transport and advertising function. The larger assortments are
transported from wholesaler’s point to retailers point by retailer’s own arrangements
and many times, the retailer delivers the goods at final consumer’s point. So, retailers
provide assistance in storage, transportation and pre-payment merchandise.
The Retail Sector of Indian Economy is going through the phase of tremendous
transformation. The Indian retail industry is broadly divided into two segments:
1. Organized retailing
2. Unorganized retailing
Indian retailing is undergoing a process of evolution and is poised to undergo dramatic 57
Retail Industry
transformation. The traditional formats like hawkers, grocers and paan shops co-exit and Economy
with modern formats like Super- markets and Non-store retailing channels such as
multi level marketing and teleshopping. Modern stores trend to be large, carry more
stock keeping units, have a self-service format and an experiential ambience

2.7 LESSON END ACTIVITY

Gather more information on Organized retailing vs. Unorganized retailing.

2.8 KEYWORDS
Retailing: Retailing can be defined as the business products and services to consumers
for their own use.
Packing: Packing means putting the products into a suitable package.
Economic Factor: It consists of the government’s liberalized policies which are now
allowing FDI into retail.
Branch: It is "an organization owning, controlling interest in two or more
establishments which sell substantially similar merchandise at retail prices".
Vending Machine: A vending machine is a machine from which the buyer can get an
article by inserting coins in it.

2.9 QUESTIONS FOR DISCUSSION

1. Define the term retailing and discuss the concept of retailing.
2. Discuss the nature of retailing.
3. Describe the growing importance of retailing.
4. Identify various Functions of Retailing.
5. Discuss Retail Sector of Indian Economy.
6. Identify Growth factors of the retail sector of Indian economy.
7. Identify Key Challenges of Indian Retail Industry.
8. Discuss various opportunities in Indian Retailing.
9. Discuss the emergence of organized retailing.
10. Explain various recent trends in retailing.

Check Your Progress: Model Answers

CYP 1
1. False
2. True
3. True
4. True
5. False
Contd…
58 CYP 2
1. penetration
2. enhanced
3. transformation
4. not encouraged
5. retail space

2.10 SUGGESTED READINGS

Levy IM. and Weitz B.A (2004), Retailing Management, 5th ed., Tata McGraw Hill.
Berman B. Evans J. R. (2004), Retail Management, 9th Edition, Pearson Education.
Barry Berman, Joel R. Evans, Tom Mahaffey(2005), Retail Management: A Strategic
Approach, Pearson Education.
David Gilbert(2002), Retail Marketing Management, 2nd edition, Pearson Education.
Swapna Pradhan(2009), Retailing Management Text & Cases, Tata McGraw Hill.