Shopping around

Shopping around

Last Updated: Thu, Sep 20, 2012 21:31 hrs

India’s striking shopkeepers needn’t worry so much about proposed reforms to the retail sector. New reforms proposed by Prime Minister Manmohan Singh will eventually open the door to global retailers like Walmart, Carrefour and Tesco, all currently limited to running wholesale businesses. But India’s small shops won’t go out of business any time soon. Competition may even be good for them.

There are an estimated 50 million “mom and pop stores” in India, and some 220 million people depend on them for their livelihoods, according to the Confederation of All India Traders. In developed markets small shops have suffered under competition from big-box retail. The suggestion of letting foreign retailers own 51 per cent of retail joint ventures saw shopkeepers join waves of strikes across the country on September 20.

In reality, there’s plenty to go round. A mere 10 per cent of India’s $500-billion-a-year retail sector is captured by large stores. The sector is still growing, too, and by 2015 retailing is expected to top $800 billion, according to the Confederation of Indian Industry. The average Indian is unlikely to give up the convenience of a local shop to an out of town hypermarket.

New investment won’t happen overnight. Individual state governments will decide whether to allow supermarket chains to enter and retailers will only be allowed to set up shop in cities with a population of more than one million. The inflated cost of real estate in big cities with force the big shops to the outskirts of the large metros.

Opposition may be mostly among middle men who supply the sector. Their scale allows them pricing power over the millions of small shops. That could change if the likes of Tesco and Walmart have their way. It’s telling that farmers’ groups have supported the change, believing that cutting out such middlemen will raise the prices they can charge the retailers directly.

At least 10 states have already said they would welcome foreign investment. Once they do, it will be only a matter of time before others follow. Consumers want more choice and cheaper prices, and India needs the additional infrastructure and productivity big retail will bring. And, the moms and pops should relax: if the going gets too tough, they might even be able to sell out one day to deep-pocketed foreign buyers.

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