Shop till you grow

Rural India will benefit the most from the increased consumption of urban India.

India is entering a new phase of consumption-led growth and by the year 2010, the impact of organised retail on the country’s growth trajectory will be far more evident not just in the seven major cities but also in small towns and rural India. The total retail consumption in the country is at around $250 billion and macro-economic trends in urbanisation, demographic shifts and income growth is expected to push this to $300 billion by 2010.

The $50 billion rise in consumption in five years will provide a major impetus to economic development in the rural and semi-urban economy. What we are witnessing in India is that shoppers spend more on value-added products when they are shopping at modern outlets than they do it in traditional outlets. We have seen this happening in garments, footwear and home products and now we are seeing this happening in food products as well. The biggest beneficiaries of this increased consumption in value-added food products are the farmers in rural India. In more ways than one, rise in consumption in urban India will bring in a positive impact in the life and livelihood of people in rural India. Organised retail will therefore play a much bigger role in rural upliftment than most government policies have. 

The world over, organised retail has increased consumption and thereby fuelled growth. This was evident during the sixties in the US and Japan, in Korea in the eighties and more recently in China and this is set to repeat in India as well. Retail is the largest employer globally and through efficient sourcing mechanisms, organised retail boosts manufacturing in the small and medium enterprises. A richer, younger and more aspirational India will usher in this consumption-led growth and organised retail will be the major catalyst in this growth story.

What we are also witnessing is that in the last two to three years, urban India too is moving much beyond the eight major cities in the country. There are 85 cities in India with a population of more than 500,000. It is in these 85 cities that 55 per cent of Indians with household income of more than Rs 5 lakh live. These are the cities where the next phase of growth is coming from. We have in the last few years entered smaller towns like Sangli, Ambala, Durgapur, Vishkapatnam and Baroda and have immensely benefited from the consumption-boom taking place in these cities. The cumulative impact of the increase in consumption in over 90 urban centers, fuelled by organised retail, can put India on a much higher growth rate. 

Assuming that Indian GDP growth is likely to be 6-7 per cent over the next five years, research shows that these factors will help income to grow at 11-14 per cent and India’s current per capita income can double from $600 in 2005 to $1200 by 2010. This in turn will create a large pool of young urban consumers willing to spend more money. Organised retail is going to give them the opportunity to spend, thereby setting up a virtuous cycle of consumption and development.