Retailing in India ... more from GEF

I am really just pointing here as Chetan Ahya and Mihir Sheth from Morgan Stanley's Global Economic Focus posts their third article in the recent series of articles investigating the aspects, opportunities and questions related to the rapidly changing landscape of the Indian retail sector. See here and here for my posts linking to part one and part two. This time we are looking at the potential positive spill-over effects from the 'retail revolution' into SME manufacturing. 

India’s liberalization program has so far been very successful in developing a large-sized private corporate sector. However, the small and medium-scale sector has underperformed the large-scale sector. A combination of improving demand due to organized retail sector development and an increasing trend of capital deepening is likely to drive a significant change in the SME sector to meet the demand from the emerging middle-class population. We believe that some of the large players in the retail business will encourage the emergence of efficient small and medium-sized suppliers of modern retail goods. Although in the near term, organized retail chain stores could rely on imports for certain segments such as toys, select types of general merchandise and electronics goods, over the medium term most of these players will focus on higher domestic sourcing, boosting demand for small and medium-scale manufacturing.

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India’s organized retail sector is likely to attract major investments over the next few years. The entry of large players like Reliance and the Walmart-Bharti joint venture will hasten the pace of development for the sector. As the scale of front-end distribution builds over the next 3-4 years, we believe that there will be major structural change in the supply chain, including logistics and production line for the agriculture sector and SME sector. We believe that this will help accelerate productivity growth and reduce inflation, increase export competitiveness, and increase productive job opportunities.