Is infrastructure development in the country keeping pace with the fast-paced development in organised retail trade? While internationally modern trade followed infrastructure in India the story is unfolding the other way round. With rising incomes, favourable demographics and consumer spending at an all-time high, it is the advent of organised retail that is expected to give a fillip to the poor infrastructure in this industry, which is expected to touch a whopping $30 billion by 2010.
However given the peculiarities of the Indian logistics market, such as its highly fragmented nature, domination by only local players (utmost regional players) and a high logistics cost component in the total cost, logistics could prove to be a big hurdle for the growth of retail. Analysts point out that internationally the logistics cost component of the total retail price is 4%-5%, while in India it is as high as 7-10%, a high error margin for an industry, which operates on wafer thin margins of 2-3%.
Also the logistic requirements of different categories in retail may differ greatly amongst themselves. The fruits and vegetables segment, for instance requires a cold chain like the pharmaceuticals sector. Other segments like apparel and consumer durables, on the other hand require a completely different kind of logistic requirement.
India is the world?s second largest producer of horticulture, but around Rs 60,000 crore of fruits and vegetables perish due to lack of proper storage facilities. This by all means is a substantial loss, especially when one takes into account the fact that the segment constitutes over 55% of the retail trade in this country. One of the fast and effective ways of controlling damage in this regard could be to encourage private investment in this sector.
This could be in the form of public-private partnerships, long tax holidays for 5 or 10 years, and making this sector at par with other infrastructure. This would not only benefit the modern trade but will give a much-needed impetus to the floundering agriculture sector, which unlike the industries and services has been a laggard.
If the challenges thrown up by the advent of organised retail aren?t addressed on time, then this industry could well be a domain where even international logistics giants will find hard to crack given the peculiarities of the highly fragmented Indian logistics market.