Retail: An essential part of India’s growth story

India’s retail sector is in the midst of a rapid revolution and is one of the most dynamic and fastest growing sectors, claiming the third largest position in the country’s economy. This particular sector contributes 11% of gross value added. Being amongst India’s largest employers, it directly employs 11% of the total working population and indirectly positively affects other sectors such as warehousing, logistics, construction, and packaging. Unlike construction and agriculture, where seasonal factors affect employment, retail provides stable jobs for most of its workforce.

The Retail sector’s contribution to India’s GDP is very significant. Currently growth is primarily led by e-commerce (5-year CAGR at 28%) and modern retail (5-year CAGR at 18%). Traditional retail too is expected to grow at a rapid clip of 8% CAGR. While e-commerce and modern trade will continue to clock faster growth within the sector, traditional retail will continue to contribute to 75% of the retail market. Hence, there is a need to ensure harmonious coexistence of traditional and modern retail.

With continuous modernization it is essential to empower the youth with new skills. The Government of India has launched initiatives such as Deen Dayal Upadhyaya Grameen Kaushal Vikas Yojana and Pradhan Mantri Vikas Yojana to partner with private companies to upgrade skills and increase employability. State and company driven initiatives like National Skills Academy offer business support to train employees in the retail sector. Private organizations such as the Trust for Retailers and Retail Associates of India(TRRAIN) work with non-governmental organizations and corporations to train retail employees.

The past 3 years have seen the establishment of nearly 22,800 start-ups, out of which 14% have been in retail. It is essential that modernization of this sector goes hand-in-hand with evolving traditional retail.

In order to enable a balanced growth of the retail sector, India needs to overcome certain factors. Lack of a single cohesive policy, covering all retail formats makes it difficult to attain the desired results. Lack of incentives hinders modernization of traditional retail, which is essential for its growth. Little importance is paid to the improving productivity and upgrading the skills of the employee. One other important factor that needs to be addressed is the insufficient FDI flow, which hinders growth and expansion.

The government should provide a hassle-free single-window clearance for retailers to set up their business. This will also encourage foreign investments. There should be a larger representation of women in the workforce, which is imperative in achieving India’s growth. The government needs to ensure the ease of doing business in the country. Adopting new technologies and modernizing skills not only improves productivity, but also creates employment opportunities. Hence, it is crucial for traditional retail to modernize.

One very important factor for the growth of any sector is its access to capital and funds, which are essential for modernization at the stores and supply chain. The government should motivate financial start-ups and private financial institutions to provide aid to MSMEs and traditional trade players. It should also encourage public sector banks to extend short-term financing to MSMEs in areas where private enterprises have limited reach.

Measures should be taken to promote enhancing of skills to improve labour productivity. Platforms such as TRRAIN, which trains employees to upscale these programs and make them accessible to a larger population. Retailers can also be incentivized to conduct skill development programs by reimbursing a portion of the total cost.

A uniform National Retail Policy will bring a substantial number of new retailers and boost the government’s tax revenue. The policy will enable a structured effort towards boosting India’s ease of doing business, which in turn will support higher foreign investment inflows and improved labour productivity. This will fuel the momentum retail has gained over the past decade, and ensure that it plays a larger role in achieving India’s growth ambition.

Thus, with a simplified, cohesive policy and a focused effort on modernizing the traditional retail sector, India’s government can ensure higher growth of the overall retail sector, larger traditional stores, improved back-end efficiency and improvement in the overall ease of doing business.

 

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