The challenge with modernizing India’s retail sector.
Opening up the retail space to foreign investment would help in overhauling the country’s antiquated supply chain. Shortcomings in the distribution systems have created huge differences between wholesale and retail prices. Inefficiencies are common. The government estimates that 40% of the fruit and vegetable production in country is lost due to inadequate storage and transport infrastructure. Waste of this magnitude, troubling in the best of times, is appalling as the country battles double-digit inflation.
Yet, despite a consensus among policymakers that opening up of the retail sector to foreign investment has benefits both in the near and long term, the government shied away from reaching a decision. The reason behind the hesitation is the political clout of existing traders. An estimated 35m people or 7.3% of India’s workforce, are employed in the unorganised retail sector. The traders have been very vocal about their opposition to any form of organised retail and have regularly conducted mass protests and ransacked supermarkets to make their sentiments known. They fear that the arrival of big-box retailers will price the corner grocery stores out of business. There is some truth to this. As this article notes, the advent of an organised retailer can lead to reduced sales in the first year. But after a few years the stores are more or less back to where they started.
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