The Hindu Business Line : ‘Organised retail enhances gains for consumers’

“In India, given a very large price-sensitive population, holding the price line for a large mass of consumers could be a great boon to consumer welfare.”

Our Bureau

Chennai, May 27 The report on the impact of organised retailing on the unorganised sector by the Indian Council for Research in International Economic Relations (ICRIER) says that organised retail could enhance gains for consumers. It explains that the emergence of organised retail “undoubtedly gives consumers a wider choice of goods, more convenience, and a better shopping environment, among other benefits.”

This, the report says, is feasible because organised retail can take several formats — from small neighbourhood stores in densely populated cities with high real estate prices to large air-conditioned malls on the periphery where real estate is cheaper. Organised retail can appear small but spread in all local markets, providing the convenience of a neighbourhood kirana store but with procurement on a mass scale that keeps prices low and provides greater variety.

The report goes on to cite the US example where with a reasonably long history of organised retail, the retailers have been able to hold prices down, especially for mass-consumption goods. Retailers like Wal-Mart, it quotes a study, have held the US inflation rate down by at least one percentage point (normal inflation hovers around 2–4 per cent). The success of such retailers to hold the price line comes largely from their efficient national and global sourcing and scale economies. “In India, given a very large price-sensitive population, holding the price line for a large mass of consumers could be a great boon to consumer welfare,” it elaborates.

However, the report strikes a word of caution. The lesson, it emphasises, seems clear: any relief in food prices makes consumers happy. But, policymakers need to remember that policies to rein in inflation should not conflict with the interests of other major stakeholders in the economy, especially producers (farmers). “If falling prices for food are achieved by making transportation, logistics, and procurement more efficient then both producers and consumers benefit. However, reducing consumer prices by suppressing prices for producers could lead to a conflict, and policymakers would have to make difficult policy choices,” says the report.

But the benefits on prices with the spread of organised retail won’t be quick, says the ICRIER report. Organised retailers, it says, tend to start off from first-tier cities with high purchasing power and then go to second- and third –tier cities with more price-sensitive populations. Several chains in India have started in cities like Hyderabad and Bangalore, which are prospering from the IT boom, to the cities of Delhi, Mumbai, Chennai, and Kolkata, and then very quickly moving to smaller cities like Jaipur and Chandigarh. In many countries, it takes decades for retail to extend into rural areas. In India, however, it appears that organised retailers are moving very fast in all cities and in all product segments (except meat and meat products). The expected benefits of that expansion are lower consumer prices for the same quality, wider variety, and a better shopping experience. “These benefits should soon percolate to the mass of Indian consumers, assuming that organised retailers have free access to global- and pan-Indian sourcing directly through producers, processors, and specialised agents,” elaborates the report.