The Hindu Business Line : Indian retail sector most fragmented: Study

THE $180-billion Indian retail market is, by far, the most fragmented in the world, with just 2 per cent of the entire retailing business being carried out by the organised sector, according to a Crisil report.

While organised retail makes up for over 70-80 per cent of the total business in developed countries, the Indian organised retail segment pales in comparison with even other Asian countries such as China, South Korea and Thailand. Retailing is the largest private sector industry in the world economy, with the global industry size exceeding $6.6 trillion, according to Euromonitor. In China, the organised retail segment accounts for about 20 per cent of the overall business; in Thailand, it is around 40 per while in Malaysia it makes up for nearly 50 per cent of the total business, according to the data.

Of the 98 per cent "traditional retailing" happening in India, much of the business is handled by local kirana stores, according to analysts tracking the sector.

The disadvantages of having much of the retail business in the unorganised sector is apparent with most local small-scale retailers operating on a low-cost-and-size format, thereby evading tax and following cheap labour models to offer customers low prices, the analysts said. The Indian retail sector, largely due to its fragmented structure, suffers from limited access to capital, labour and suitable real estate options, they said.

Over the past couple of years, however, the sector has shown signs of aligning itself with global trends. Retailing companies such as Shopper's Stop and Crossroads have entered the fray to entice the middle class. A host of traditional brick-and-mortar companies such as the Tatas have entered the retail business. International companies such as Metro AG of Germany are operating under the cash-and-carry format.

While there has been talk of allowing up to 26 per cent foreign direct investment (FDI) in certain retailing activities, a decision on the issue is yet to be taken by the government. According to the Crisil report, with China allowing FDI inflow up to 49 per cent in 1992, foreign players have taken the initiative and at present, around 40 foreign retailers constitute almost 20 per cent of the organised retailing in the country.

Organised retailing, the mainstay in many of the developed economies, leverage size and established supply chains to deliver greater choice and better prices to consumers.

Despite its largely fragmented structure, the retail business in India is one of the largest in the world and a joint CII-McKinsey report has pegged the size of the Indian retail market at $180 billion, with the market growing at a rate of 11-12 per cent annually.