an estimated Rs12.8 trillion in 2006, India''s retailing
sector makes up close to 40 per cent of the country''s
GDP. Of this, food and grocery (F&G) items account
for a significant 74 per cent of total retail sales across
both, the organised and unorganised sectors.
1 per cent of the food items retailed in India flow through
the organised retail channel.
analysis done by CRISIL Research reveals that a robust,
widespread and deeply penetrated organised food retailing
network in India would address some key concerns facing
the Indian economy today viz. limited rural prosperity
and high food prices. Reduced supply chain costs arising
out of lower wastage and storage costs can be shared between
producers and consumers of food items as higher farm incomes
and lower food prices.
organised retail sector makes investments to reduce inefficiencies
of the traditional multi-level F&G supply chain. These
inefficiencies often arise out of restrictive procurement
practices, and multi level storage and commissions. This
pushes up the final retail prices paid by the Indian consumer
to 2.6 times the prices paid to the Indian farmer. Better
supply chain management implies disintermediation, an
associated reduction in commissions and a far lower wastage
of goods by enhancing transportation and storage facilities.
Research has estimated the total avoidable supply chain
costs in the F&G vertical in India at about Rs.1 trillion.
57 per cent of this is due to avoidable wastage and
43 per cent is due to avoidable costs of storage and
the average realisation of the farmer is only 35-40 per
cent of the retail price. This is very low as compared
with farm realisations of 60-65 per cent of the retail
price in countries like the US, which have an organised
retail penetration of about 80 per cent.
Nair, head, CRISIL Research, says "If one-third of
the above-mentioned savings (around Rs 335 billion) are
passed on to the consumer in the form of lower costs,
it amounts to more than 3.5 per cent of the country''s
spend on food items (Rs9,510 billion); this can play a
significant role in lowering food inflation."
the case for organised food retailing in the country,
Nair further emphasises, "Realisations earned by
farmers on food grains and fresh grocery, at current levels,
are estimated at around Rs1.8 trillion. Assuming this
segment shifts entirely to organised retailing, and two
thirds of the savings from reduced supply chain inefficiencies
are passed on to the farmer, farm incomes could grow by
more than 37 per cent to Rs2.47 trillion. With 60 per
cent of India''s population employed in agriculture, this
is very significant."
if farmers spend around 80 per cent of this incremental
income, an incremental spending of upto Rs536 billion
would get added to the Indian economy. This is equivalent
to nearly 1.7 per cent of India''s GDP.