Retail Trade and Its Importance to Indian Economy

Retailing in India is one of the pillars of its economy and accounts for about 15% of its GDP. After Agriculture it largest sector, which employs the largest number of people in India. The Indian retail market is estimated to be US$ 450 billion or 2, 34,952.20 Crores and one of the top five retail markets in the world by economic value. It is estimated that there are around India's retail organized industry, employs directly about 40 million Indians (3.3% of Indian population)  or 4 Crore   people with around 1.3  Retails organized outlets in India. If we include the unorganized sector and the employees of organized sector and their dependents this figure will sour to above 20 Crores peoples. . India has about 11 shop outlets for every 1000 people. The organized retail market is growing at 35 percent annually while growth of unorganized retail sector is pegged at 6 percent. Organised retailing, absent in most rural and small towns of India in 2010, refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the publicly-traded supermarkets, corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses. Unorganised retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the local mom and pop store, owner manned general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc.

India has topped the A.T. Kearney’s annual Global Retail Development Index (GRDI) for the third consecutive year, maintaining its position as the most attractive market for retail investment.

Foreign retailers have already started operations in India through various routes: (i) joint ventures where the Indian firm is an export house; (ii) franchising  (eg. Kentucky Fried Chicken, Nike); (iii) sourcing of supplies from small-scale sector; (iv) ‘cash and carry’ operations (Giant in Hyderabad, Metro in Bangalore)3; (v) non-store formats – direct marketing (Amway). Large international retailers of home furnishing and apparels such as Pottery Barn, The Gap and Ralph Lauren have made India one of their major sourcing hubs. Up to 100 per cent FDI is allowed in ‘cash and carry’ operations. The Great Wholesaling Club Ltd is one such example. In February 2002, the world’s largest retailer, Wal-Mart, opened a global sourcing office in Bangalore. In November 2006, it announced its entry under a joint venture with the Indian corporation Bharti.

Economist Mohan Guruswamy of the Centre for Policy Alternatives warns that companies like Wal-Mart,  Tesco, and Carrefour will serve only to elite Indians. The average Wal-Mart store will displace 11,200 people and replace them with 285 people.

Throughout the world it is known fact that huge investment is not required to open a retail shop. Investment is required to build infrastructure for shop, sophisticated technology is not required in retail trade.    Small retail shops provide more employment then large chain of Retail stores.  Big FDI Companies, instead of developing under developed areas these stores capture prime commercial property in cities. If allowed in India they will first buy good from producers in bulk and sell it at less margin and hence routing out small traders from trades. When small traders are out then they will monopolise the trade and charge exorbitant price for goods and commodities. Independent stores will close, leading to massive job losses. Walmart will lower prices to dump goods, get competition out of the way, become a monopoly, and then raise prices. A typical Walmart store sells 60,000 types of things. We have seen this in the case of the soft drinks industry. Pepsi and Coke came in and wiped out all the domestic brands. India doesn't need foreign retailers, since homegrown companies and traditional markets may be able to do the job. Work will be done by Indians, profits will go to foreigners. Remember East India Company. It entered India as a trader and then took over politically and ruled for over 200 years. More than 50 such companies are entering into India and they will control first economically then politically. Experience in Developing Nations as Brazil, Argentina etc. has shown how these Companies have damaged their Economy and made them Bankrupt.  Righty the NDA has called for a Total closure i.e. the bund in the whole if India.

India's Selective Rage Over Corruption - NYTimes.com

This is what the world Media thinks about India . Please comment and enlighten us.


India's Selective Rage Over Corruption - NYTimes.com

Causes of Inflation in India and its Remedy

 

How and Why of high and persistent inflation in India

Inflation in India moves up

Inflation in India has remained high and persistent in the last six years. As the Indian economy grew at an unprecedented rate of almost 8.5 per cent during the period, rising incomes propped the purchasing power of the population, driving consumption demand. The surge in demand triggered inflationary pressures, particularly in sectors where supply lagged behind. Gradually, inflation became generalised, as public policy continued to spur growth in  consumption demand and wages.

Inflation is the increase in the average prices of a basket of goods and services, measured by an index. There are three measures of inflation in India: WPI, CPI, and the gross domestic product (GDP) deflator. The third measure is the most comprehensive, as it takes into account all goods and services produced in the economy. All three measures reveal signs of an early pick-up in inflation in 2006-07 and persistence thereafter. WPI inflation consistently surpassed the RBI's comfort threshold of 5 per cent in 51 of the 70 months between April 2006 and January 2012. It averaged 6.6 per cent over 2006-07 to 2010-11, rising from 4.7 per cent during the previous five years. CPI inflation, over the same reference period, rose to 9.0 per cent from 4.1 per cent, and inflation measured by the GDP deflator climbed to 7.4 per cent from 3.9 per cent. During April 2011- January 2012, CPI and WPI inflation averaged 8.8 per cent and 9.1 per cent; inflation measured by the GDP deflator averaged 8.2 per cent in 2011-12. Regardless of how you measure it, inflation in India has become high and persistent.

The past six years, since 2006-07 were punctuated with a series of adverse supply shocks. The shocks arose from a shortfall in food-grain and non-food grain commodities (vegetables, fruits, protein-based foods - pulses, milk, eggs, meat and fish). Sharp increases in international prices of fuels and commodity too were a trigger. Persistence in inflation, however, did not arise from supply shocks. Although supply shocks can trigger sudden and sharp inflationary pressures, the pressures diminish when supplies revive. Persistence in inflation stemmed, instead, from government policies that stimulated consumption demand by increasing wages and salaries but did not do enough to remove supply-side bottlenecks. Under fiscal policies that boosted consumption, the supply shocks had a more lasting effect, reinforcing inflationary pressures.

  Inflation was generalised; all the categories of the WPI contributed to inflationary pressures. Food inflation, however, was the most stubborn. It averaged 10.2 per cent over 2006-07 to 2010-11, and prevailed at over 15 per cent in the last two years of the period. Manufacturing inflation averaged 5.3 per cent, whereas fuel inflation averaged 10.2 per cent over the five-year period. Although food inflation has declined significantly since December 2011, it is likely to bounce back once the impact of seasonal factors and the effect of high base wear off. 
    Fiscal policy is the means by which a government adjusts spending and taxation to influence demand and the economy's capacity to produce goods and services. In India, an expansionary fiscal policy (through cuts in taxes, increase in government expenditure) has boosted consumption demand in recent years.

Consumption expenditure of the government increased by` 5,300 billion between 2004-05 and 2010-11, in comparison to an increase of ` 1,800 billion in expenditure on capital formation (Figure 1). Of the total direct government consumption expenditure, wages and salaries accounted for almost 50 per cent. Since 2008-09, the government expenditure focused more on boosting consumption demand in the short term.

CRISIL Insight

The rapid growth in consumption expenditure drove up total government expenditure, increasing the fiscal deficit. Fiscal-deficit-to-GDP ratio averaged 5.8 per cent in the post-crisis period (2008-09 to 2010-11), compared to the initial target of 3.0 per cent set by the Fiscal Responsibility and Budgetary Management Act (FRBM). In 2011-12 we expect the fiscal deficit to slip to 5.5 per cent of GDP vis-à-vis a budget target of 4.6 per cent (Figure 2). The higher fiscal deficit – and inadequate focus on expanding productive capacity – laid the breeding ground for inflation.

Government policies fuel wage rise across income categories

The sharp increase in wages which was near simultaneous across income groups in urban and rural India since 2004-05 (Box 1) boosted consumption demand. Urban and rural wages rose by 12.0-14.0 per cent over 2004-05 to 2009-10, compared to an increase of 7.0 per cent in the previous five-year period. Increases in income were especially sharp after 2007-08 (Figure 3). After the implementation of MGNREGS, rural wage growth gained momentum. Since 2007-08, rural wages rose faster than the inflation rate, as indicated by the sharp rise in real wages (Figure 4).

The rise in urban wages was an outcome of three factors: first, the supply of skilled labour did not increase in line with demand; second, the implementation of the 6th Pay Commission recommendations increased public sector wages; and lastly, rising demand for corporate- and house hold support services drove up wages of urban casual workers almost twofold.

 Such sharp wage increases, which more than compensated for inflation, had no explicit link to productivity improvement. Wage growth without productivity improvements is a recipe for inflation. The wages of a large section of workers in the economy rise in line with inflation. Wages in the public sector are linked to inflation. In February 2011, the government also linked wages under the MGNREGS to inflation. As MGNREGS - wages have become the benchmark floor for rural wages, wages of other rural workers too increase along with inflation.

The linkage between wages and inflation through MGNREGS will spread a wage-price spiral across sections of the economy. As the wage-price spiral threatens to fuel growth in consumption demand across the economy, it is critical to link wage increases to productivity, to augment supply in line with rising demand.

Key messages

Immediate steps to reduce and stabilise inflation at low levels

n Fiscal consolidation with a focus on increasing investment spending

- Develop a credible roadmap to reduce the fiscal deficit to GDP ratio

- Reorient government spending from consumption to investment to remove supply-side bottlenecks

n Productivity improvements in bottleneck areas

- Implement policies to improve farm productivity

- Step up efforts at skill development in sectors that face acute skill shortages

- Devise mechanisms to link wages to productivity in the public sector and in government safety-net programs such as the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS)

n Reduce shocks from sudden changes in administered prices of petroleum fuels, by aligning them to global prices.

How and why of high and persistent inflation

n The Indian economy appears caught in a high-inflation trap. Per-year WPI (wholesale price index) and CPI (consumer price index) inflation rose to 6.9 per cent and 9.0 per cent over April 2006 to January 2012, from 4.7 per cent and 4.1 per cent in the preceding five years. No matter how you measure it, inflation has been high over the past six years.

n Adverse stocks from shortfall of food articles, and higher global fuel and commodity prices triggered inflationary pressures. Persistence in inflation, however, originated from government policies that stimulated consumption demand but did not do enough to raise the supply potential of the economy.

n MGNREGS, sharply increased wages for rural workers from 2007. These wage increases, which were not linked to productivity improvements, added to inflationary pressure. This coincided with wage increases in the public sector and in the private sector (arising from skill shortages) which generalised inflation.

n Inflation inched further up in 2010-11; despite monetary tightening, inflationary pressures continued in 2011-12. A series of interest rate increases by the Reserve Bank of India (RBI) attempted to curb demand, which the higher fiscal deficit fired by consumption-oriented spending continued to spur. The nature and quantum of fiscal spending thus muted the effectiveness of the monetary policy.