GROWTH
DRIVERS OF RETAIL SECTOR IN INDIA
Debarati Chakraborty (Mukherjee)
Liberalisation
of the Indian economy in 1991 brought about a radical shift in economic
policies and possibilities. It was also marked with unprecedented economic
growth. There was a significant jump in the GDP growth rate and a spurt in
national income. Traditionally, the principal measure of a growing economy is
its rising Gross Domestic Product. India today is growing and is considered to
be one of the largest economies of the world. Over the past decade the Gross Domestic
Product (GDP) has grown at an average annual rate of seven percent. The gross
domestic product (GDP) jumped to nine percent in 2005-06, up from 5.56% in
1990-91 and to 8.5% in 2010-11from 8% in 2009. In the year 2010, GDP in India
was worth US dollar 1729.01billion; according to a report published by the
World Bank. According to a quarterly report published by Technopak (volume 3, 2010);
the annual household income is now almost US$ 4,000, and if it is calculated on
the basis of purchasing power parity, then it is over US$ 12,000 per year.
Further it is quite likely to double in the next ten years. As India’s economy
has grown so has the spending power of its citizens. This in turn has led to
the growth in the retail sector. The Indian retail market currently stands at
USD 396 billion and is likely to grow further at 12% to increase to USD 574
billion by 2015 (Source:
Deloitte Retail POV “Indian Retail Report - Changing with the changing times”; IBEF
report). This sector is the second largest employer after
agriculture, employing more than 35 million people with wholesale trade
generating an additional employment to 5.50 million more. The growing
disposable income in the country is resulting in increasing consumer spending
habits.
One of the key
determinants of GDP is private consumption or consumer expenditure in a
nation’s economy. The report of the 60th round of the National Sample Survey on
‘Household Consumer Expenditure in India’ carried out by the NSSO for the
period January to June 2004 records an all-India monthly per-capita consumer
expenditure (MPCE) as Rs. 565 for rural India and Rs. 1,060 for urban India
(i.e., average urban MPCE exceeded average rural MPCE by 88 per cent).
Furthermore, for rural India, average MPCE of Rs. 565 which could be split into
Rs. 305 for food and Rs. 260 for non-food items. Similarly, for urban India,
the average MPCE of Rs. 1,060 could be split into Rs. 441 for food and Rs. 619
for non-food items. Interestingly, apart from the rise in consumption of other
items, the percentage of households with durable luxury goods have also increased.
The total retail spending is going to double in the next five years.
This
scenario is also reflected in the state of Jharkhand. With per capita income of
Rs.21,465 in 2008-09, Jharkhand has come a long way from its inception, when
per capita income was just Rs.10,345. The GSDP (Gross State Domestic Product
(GSDP) at Current Prices) rose from Rs. 32,093crore
at 2001-2002 to Rs.119, 386 crore in 2011-2012 as per the Central Statistical
Organisation under the Planning Commission of India.
It
has left behind its parent state Bihar whose per capita income in 2008-09
remains a mere Rs. 12,643. Though income growth has significant fluctuations on
a year to year basis, the economy has moved to a higher growth path since its
conception in 2000, with an annual growth rate of 7.8 percent compared to 5.9
percent in the period 1993-94 to 1999-00. There has been a decline in the poverty
levels as the percentage of people living below the poverty line came down from
44 percent in 1999-00 to 33.15 percent in 2004-05, but this is still a
significant proportion of population whose needs need to be addressed. The state
has also emerged as the highest spenders of GDP much ahead of other progressive
states. The share
of average monthly per capita expenditure on household goods and other services
is 44% in food and 2.3% in durable goods in the urban areas (Source: Household Consumer
Expenditure in India, 2007-08 NSS 64th Round).This
has resulted in the growth in the retail sector.
The many factors
that contribute to increase in consumption include the emergence of a young population with increasing disposable income,
changing lifestyles, mounting aspirations, penetration of satellite TV,
increasing appetite for western goods, international exposure, options for
quality retail space, and greater product choice and availability. The
Indian population of one billion is growing and they have the demand for, and
the discretionary income to purchase, premium products and services. Many in
the growing
"middle income" segment look for international quality products and
this trend is likely to continue for the next five years and beyond sustaining
the demand growth.
Higher Disposable
Income and Economic Prosperity
Disposable
income of Indian consumers has increased steadily. During 2003-04, India’s
total personal disposable income was Rs. 23,585 billion and 24.6% of this
income was directed into savings by the household sector. By 2008-09, our
estimates show that India’s total annual personal disposable income has grown
to Rs 36,059 billion
(about 52% being urban) and the annual savings have grown to Rs 9,239 billion,
at present (Source:
www.indicus.com, “Consumer Market Trends for India-Incomes and Savings” by A. Sinha).
High growth has contributed to greater incomes for Indian households, which in turn
has enabled Indian households to both save and spend more. We have in the
past few years observed that household sector savings have in fact grown by far
more than any of the other macro-indicators. This is of course a
desirable outcome. Greater incomes do imply greater expenditures in the
short term, but greater savings (if translated into good quality investments)
ensure long term growth of the economy, employment opportunities, and household
incomes.
The proportion of
major consuming class (with income above Rs 90,000 per annum) is expected to
reach 48% by 2009-10 from 20% in 1995-96. (Source:
NCAER Demographic Changes).These changes are also visible in the state of
Jharkhand where per capita income rose from US$ 281.4 in 1999-2000 to US$ 540.7
in 2008-09 (Source:www.ibef.org)
Higher Level of Working
Women
According
to census 2001, working women population has increased to 26% in 2001 as
compared to 22% in 1991. This would lead to a higher retail spending as the
buying behaviour of working women differs from that of housewives because of
low availability of time. Also, working women’s propensity for spending is
higher by 1.3 times as compared to Indian housewives. Income of women living
and working in cities increased to Rs 9,457 a month in 2010, up from Rs 4,492
in 2001, according to a recent IMRB survey of about 9,000 urban Indian women
giving them more freedom to choose the things that they will buy. In the state
of Jharkhand, there is a spurt in the population working women, bringing in
about a rise in the retail sector.
Urbanisation
Urbanization, in
developing countries has a positive effect on economic development and the
efficient management of cities. Over the last 10 years (1990-2000),
urbanization has increased at a rate of 2.7 percent. Around urban centres, huge
sub-urban agglomerates are developing and expanding at a huge scale. This trend
is expected to continue and urbanization is likely to grow at 2.4 percent
between 2000 and 2015. Over the next 10 years, growth in organized retailing is
likely to be concentrated in urban and semi-urban areas. Jharkhand
has at present (as per census 2001) 152 small and medium towns with an urban
population of 22.24%. The Urban population is growing at the rate of 2.3% per
annum. As per India Urbanisation Econometric model-McKinsey Global Institute
Analysis conducted in 2008, the urban population of Jharkhand consisted of 7.6
million people which will go up to 12.1 million by the turn of the decade. The
urban centers will be the seat of economic development which in turn will fuel
retail development.
Baby Boomer Effect
Demographic
change in India is opening up new economic opportunities. As in many countries,
declining infant and child mortality helped to spark lower fertility, effectively
resulting in a temporary baby boom. As this cohort moves into working ages,
India finds itself with a potentially higher share of workers as compared with
dependents. India has the lowest median age of 24 as compared to developed
countries like USA, UK, Japan etc. The composition of the Indian population is
shifting towards the age group of 20-49 i.e. the working population with
purchasing power. Approximately 60% of the Indian population is below 30 years
of age. Thus, India has the largest young population in terms of sheer size and
this young segment is the major driver of consumption as they have the ability
(disposable income) and willingness to spend. The population of Jharkhand also
recorded an increase from 26.946 million in 2001 to 32.966 million as recorded
in the Census of 2011.
Changes in Consumer Needs, Attitudes and
Behaviour:
The growth of
modern retail is linked to consumer needs, attitudes and behaviour. Rising
income levels, education and global exposure have contributed to the evolution
of the Indian middle class. As a result, purchasing and shopping habits have
been inculcated and are increasing day by day. Today, Indians are willing to
try new things and look different, which has increased spending on health and
beauty products apart from apparels, food and grocery items. Also, in the last
4-5 years, Indian markets have witnessed a strong shift towards branded
products. The brands consumer wears, eats, drives, uses or experiences are
connected to his/her status. Consumers are finding increasingly diverse ways to
acquire their status fix. For the consumer who values individuality, owning or
experiencing something no one else has, is the ultimate status fix. Products
and symbols which were seen as status enhancers previously have taken a back
seat.
India today is
changing. The obvious signs of challenges in the field of retailing are quite evident
by the nature of the innovations and changes that occurred in the last decade
in the global markets. It seems future will witness the spread of these changes
to cross –sections of product class, customer segments and creative forms of
retailing business.
Every
society has to undergo change and neither
consumer nor society in general is spared from the effect of the phenomenon of
changing demographics and income levels, which leads to their new and revamped
lifestyle. In the recent times, India has been facing a sea of alteration in
every sphere. While the family structure is modifying and shrinking from joint
to nuclear, income has heightened, leaving consumers with increased disposable
income.
Consequently, the
wish list and aspirations of consumers is not inert but is ever changing. What
they want to use and experience alters with progress in time since they always
tend to seek novelty. Subsequent to which, there has been a drift in their
consumption attitude and pattern as well as a difference in the way they buy,
leading to a wide range of alterations in their standard of living. Thus, with changing
consumer trends retail scenario in the country and in the state of Jharkhand
will also undergo a sea change. Unorganised retail will give way to organized
retail. The economic
liberalization of the country has not only facilitated the entry of
international retailers but also provided Indian retailers the opportunity to
adopt the best practices and formats from some of them. There is no doubt that
traditional retail has been performing a vital function in the economy and is a
significant source of employment. However, it suffers from huge inefficiencies
as a result of which consumers do not get what they want, and farmers often get
prices for their produce much below what is considered fair. In contrast, organized retail provides
consumers with a wider choice of products, lower prices, and a pleasant
shopping environment.
As in other countries, government policy can
and should play an important role in modernizing the unorganized sector and
improve its competitiveness. On the other hand, a policy of protection of
traditional retailers by
restricting organized retail
will harm the
growth prospects of
the country by foregoing the enormous benefits that are
generated by organized retail.
No comments:
Post a Comment