Draft Report of the High Level Group on Services Sector

Chapter 7

Retail Trading Services

7.1 Profile of the Indian Retail Sector¹⁷

According to CSO estimates, the share of domestic trade rose from about 13.0 per cent of India’s GDP in 1999-2000 to about 15.2 per cent of India’s GDP in 2006-07. Of this it is estimated that retail trade accounts for 11-12 per cent. In 1998 the country had a total of 10.69 million enterprises engaged in retail business, of which 5.23 million were in the rural areas and 5.46 in the urban.

NSSO’s Employment and Unemployment Survey for 2004-05 shows the employment in retail trade to be 29.95 million, divided almost evenly between rural (14.94 million) and urban (15.01 million). The contribution to employment of wholesale trade is relatively modest at 4.6 million, of which 3.0 million is in the urban areas and 1.6 million in the rural.
Retailing in India is largely unorganized, dominated by the kirana shops or groceries in every locality, supplemented by paan & beedi shops, handcart or head load hawkers and pavement vendors. The urban areas also have owner-manned general stores and specialty stores, the most common being those dealing with apparel, footwear, drugs and medicines. Until a few years back, organized retailing was uncommon, although the States in the South have had a few small retail chains for decades. However, recent years have witnessed considerable activity by the organized sector and several corporate-backed retail chains have come to the fore and are opening large numbers of stores all over the country. What has helped this trend is the rapid growth of the upper middle class, with increasing disposable incomes, and working couples, who have less time for daily shopping of groceries. Even so, organized retail is in its infancy in India and its share in 2006 is estimated to be only 4 % of the retail sales in the country. As against this the share of organized retail in United Kingdom, Germany and France in that year was 80 per cent and in the USA it was 85 per cent. Even in emerging economies the percentage share of organized retail was considerably higher than in India: Brazil (36); China (20); Indonesia (30); Korea (15) and Malaysia (55).
Retailing turnover in India has grown at a CAGR of 11.2 % over the period 2004-07, and the sales in 2006-07 are estimated to be Rupees 14,574 (US $322 billion). Food and grocery constituted almost 60 % of the sales in 2006-07, although the share has fallen from the high of more than 66 % in 2003-04. Organized retail has grown at the faster rate of 19.5 % during this period. Organized retail has so far been concentrated in the clothing and footwear, with furniture, furnishing, appliances and services in the second position. Food & grocery retailing by the organized sector is less than one per cent of the total retail turnover. It may be observed however that some large retail chains, which have entered the scene lately, would be dealing with grocery as well.
The ICRIER study referred to earlier has summed up the rapid growth of organized retail in recent years as follows:
“The growth in organized retailing in recent years can also be gauged by the rise of shopping malls as well as by the rising number of modern retail formats. Back in 1999, India had just 3 shopping malls measuring less than 1 million square feet. By end of 2006 the country had 137 shopping malls equivalent to 28 million square feet. The pace of construction of shopping malls is going rapidly and the number of malls is expected to be about 479 by end of 2008 with a capacity of 126 million square feet (ICICI Property Services-Technopak, 2007).
…..The total number of organized retail outlets rose from 3,125 covering an area of 3.3 million sq. ft. in 2001 to 27,076 with an area of 31 million in 2006. Small-sized single-category specialty stores dominated the organized retail in the beginning with almost two thirds of total space back in 2001. Departmental stores came next with nearly a quarter of total space and supermarkets accounting for the balance of about 12 per cent of organized retail space. There were no hypermarkets in India in 2001. Specialty stores are still the most common modern retail format with over a half of total modern retail space in 2006. Supermarkets and department stores occupied nearly an equal space of 15-16 per cent each in 2006. India had in 2006 about 75 large-sized hypermarkets carrying a tenth of the total modern retail space in the country. This format is expected gain more prominence in the future.”