New Delhi, Sept. 5: Large doses of foreign direct investment in the Chinese retail market has helped India’s northern neighbour boost demand and drop prices, according to a study by the Federation of Indian Chambers of Commerce and Industry (Ficci).
The study, conducted for circulation among Ficci members, says one of the major reasons for India’s sluggishness in the retail market is due to the dismal size of its organised retail sector which accounts for a mere 2 per cent.
In sharp contrast, China’s share of the organised sector in total retailing is as high as 20 per cent, 10 times India’s figure.
Citing the traditional differences in giving momentum to retail industry, the study goes on to say that compared with China, which began retail reforms as early as 1992 culminating in provisional rules on retailing and wholesaling in 1999, Indian industry has largely been “neglected in terms of policy changes essential for its development.”
The study also suggests India is missing out on foreign direct investment (FDI) from countries like USA, Germany, Netherlands, France, Japan, Hong Kong, Thailand, Malaysia and Singapore, because of restrictive rules in the sector.
On the other hand, FDI has worked well in the Chinese retail market initiating “growth efficiency, low price trends, excellent shopping environment, pressure on domestic retailers to perform better and competitive and voluminous purchases of made-in-China goods, thereby providing a direct outlet for their exports.”
Positive and timely decisions by the government propelled the retail sector to reach incredible heights in China, whereas in India, basic issues and reforms on real estate, tax labour laws and infrastructure still need to be addressed properly. Experts say this is one of the major impediments to the growth of the retail sector in India.
Another reason obstructing the retail sector is lack of government backing and restricted inter-state movement of goods causing hindrance for large retail chain developers.
China not only recognises the potential of this sector but also channels it through appropriate rules and policies.
Ficci argues that India needs to open up the retail market to FDI in order to improve growth and efficiency even as it boosts demand. The entry of top class world retailers in the Indian subcontinent will lead to improved process flow, management style and quality control, effective market information and management expertise through co-operation.
India also needs to remove infrastructure and other bottlenecks concerning roads, power, real estate and construction, parking, high taxes, time-consuming bureaucratic procedures, antiquated labour laws, shortage of good quality retail space, high rents, rigid building and zonal laws and strong pro-tenancy laws, the study says.