Essential reforms

India, as one of the five largest retail markets in the world, occupies the fourth position after China, Japan, and Germany in household consumption, valued at USD 2,068.84 billion among 141 nations surveyed by the World Bank in the year 2022. It is a great blessing to have such enormous domestic consumption, guaranteeing markets and fuelling economic growth—a advantage that even most advanced countries do not possess. According to Statista, the retail sector in India—the cutting edge of the economy, both organised and unorganised—is estimated to be at USD 1.2 trillion, with food and grocery holding the maximum share.

However, the glitter of shopping malls and multi-brand outlets in the formal sector doesn’t truly reflect the big picture of the retail sector. The formal or organised sector constitutes only 10 per cent of the entire retail industry, contributing about 3-4 per cent to GDP, while the remaining 90 per cent is in the informal or unorganised sector, contributing around 7-8 per cent to GDP. Moreover, the former employs only 1-2 per cent of the workforce, whereas the latter employs 7-8 per cent. With over 12 million retail outlets, the informal sector, as one of the highest densities of retailer countries, plays a pivotal role in the economy.

Formal and informal retail sectors stand poles apart regarding customer base, business operations, and technology. Organised retail is governed by the Companies Act and, thanks to technological advancement and the digital revolution, is highly evolved, empowering consumers in terms of choice, value, and satisfaction. On the contrary, unorganised retail, consisting of local shopping marts, small outlets, Mom and Dad shops, Kirana stores, etc., suffers from a severe dearth of professionalism in operations such as store management, supply chain, procurement, and the use of information technology (IT). Lack of standardisation, poor financing, and an untrained workforce adversely affect the productivity of unorganised retail, which, in turn, impacts consumer rights.

Today, the average consumer feels insecure in local markets due to the lack of a guarantee for goods at the right value in return for their money. Adulteration in groceries and the sale of fake and substandard goods impact low-income groups the most, as they allocate a significant portion of their earnings to food and groceries. While in 2014-15, according to the Annual Public Laboratory Testing Report, out of 49,290 samples of foodstuffs, around 20 per cent were found to be adulterated. In 2018-19, the National Accreditation Board for Testing & Calibration Laboratories (NABL) found 28.56 per cent of 106,459 samples to be adulterated or non-conforming.

Effective control on unorganised retail is conspicuous by its absence, despite specific laws such as the Prevention of Food Adulteration Act, 1954, Vegetable Oil Products (Control) Order, 1947, Essential Commodities Act, 1955, the Fruit Products Order, 1955, the Solvent Extracted Oil, Deoiled Meal, and Edible Flour (Control) Order, 1967, etc. The Comptroller and Auditor General of India (CAG) observed in the 2019 audit report that "Neither FSSAI nor the state food authorities have documented policies and procedures on risk-based inspections, and the FSSAI does not have any database on food business." The situation is not much different in most other consumer goods either produced by MSMEs or 'dumped' by China in Indian markets. Adding to the misery, compliance with labour laws, including those on minimum wages, child labour, working hours, and safety, is pathetic in unorganised retail.

Unsurprisingly, the dubious performance of the unorganised sector made the way for a revolution in the organised sector when FDI was permitted in retail in 2012. Cities with populations above 1 million have become centres of growth in retail, with shopping malls, retail outlets, and shops in both Multi-Brand Retail Trade (MBRT) and Single-Brand Retail Trade (SBRT). Investment by MNCs helped redefine retail with a consumer-centric approach, ensuring better services and quality products at competitive prices and establishing linkages with the farm sector as well. In 2023, formal retail leased an all-time high of 7.1 million sq. ft across eight cities, marking a 47 per cent increase from the previous year. Alongside brick-and-mortar stores, e-retail has also acquired a huge consumer base over the years. Deloitte India, in its report 'Future of Retail,' forecasts that online retail in India, which stood at USD 70 billion in 2022, will surge to USD 325 billion by 2030.

A study by McKinsey & Company (The State of Grocery Retail in India) suggests that access to knowledge and epicentres of growth momentum are responsible for the transformation of household shopping behaviour. Positive market sentiment and capital inflow have created five disruptions in the grocery ecosystem: E-b2b platforms like UDAN and ShopeX, Payment digitisation and data analytics by Fintech firms, new MT formats and private labels leading to ‘minimart’-isation by Walmart and Polymerase, Direct-to-consumer (D2C) Kiranas offering home delivery by Dunzo and D-Mart, etc., and finally, omnichannel end-to-end ecosystems connecting brands and consumers by Reliance, Jio, Flipkart, Walmart, etc.

No doubt, the formal sector has revolutionised the retail narrative in India, but it is primarily city-centric, catering to the educated middle- and higher-income sections, a market barely 10 per cent of the entire retail industry. Moreover, forecasts of a boom in formal retail seem ambitious in the face of an increasing number of ghost Malls (57 out of 271 operational in the country). Expensive foreign brands do not attract average consumers as much as the grandeur, food courts, and amusement avenues do in the Malls. Besides, FDI in retail is potentially a double-edged sword, which, if not controlled, can siphon off the wealth of the nation. Hence, restrictions such as the limit of USD 100 million with 50 per cent of it to be invested in back-end infrastructure, and foreign companies owning more than 51 per cent of equity, to source 30 per cent of goods from MSMEs in India.

The majority population of low-income sections, both in urban and rural areas, still depends on unorganised retail, warts and all. The inequalities in the value of goods in exchange for money are evident between both sectors and become more striking during food inflation. Competition between both sectors is unthinkable as there is no level playing field. Unorganised retail involves a huge public good since ensuring access to goods with quality is a social obligation for the State. Besides, it has tremendous employment potential locally, for skilled, semi-skilled, and unskilled workforces alike. But sadly, unorganised retail is the most unregulated. Necessary interventions to improve the performance of the sector will benefit the economy and society immensely. Schemes such as PMMY, Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), Stand-Up India, etc., encourage entrepreneurship in retail. But what we need more is an effective policy framework to regulate the sector in terms of consumer welfare and the modernisation of operations. It goes without saying that spreading consumer awareness is equally important.

The writer is a former Addl. Chief Secretary of Chhattisgarh. Views expressed are personal