India: Effects of Tariffs and Nontariff Measures on U.S. ... - USITC

customers, the operators <strong>of</strong> kiranas <strong>of</strong>fer the ability to anticipate habits <strong>and</strong> needs for
special occasions. 36
Organized retail outlets, or supermarkets, can be generally characterized as modern retail
businesses, owned by companies who hire employees to work in the store. They include
small chain stores, grocery stores, <strong>and</strong> hypermarkets. 37 The sales share <strong>of</strong> such stores in
the <strong>India</strong>n marketplace is very small. The sector caters mainly to a small slice <strong>of</strong> the more
affluent urban population for a small fraction <strong>of</strong> their overall grocery purchases. In
FY 2006/07, only 0.8 percent <strong>of</strong> <strong>India</strong>’s estimated $168 billion in food <strong>and</strong> beverage sales
were made by organized retailers. 38 In theory, supermarkets <strong>of</strong>fer a wide range <strong>of</strong> <strong>India</strong>n
<strong>and</strong> imported products <strong>and</strong> cater to a population wanting a wider selection <strong>of</strong> foods. 39 In
reality, <strong>India</strong>n supermarkets <strong>of</strong>ten have a rather small product range, although they <strong>of</strong>fer
multiple types <strong>of</strong> each product, whereas some kiranas have a large variety <strong>of</strong> products. 40
Reducing the costs <strong>of</strong> the “back end” <strong>of</strong> retail <strong>and</strong> controlling purchase costs has been a
key feature in organized retail in many developing countries. The same is true in <strong>India</strong>.
Organized retailers in <strong>India</strong> have tried to increase efficiency by eliminating some <strong>of</strong> the
middlemen. 41 The expansion <strong>of</strong> organized retail in developing economies has generally
led to lower consumer prices <strong>and</strong> higher quality, with the effects noted first for sales <strong>of</strong>
fruit <strong>and</strong> <strong>of</strong> processed <strong>and</strong> semiprocessed foods. 42 Research suggests that information on
quality particularly benefits organized retailers more than those in the unorganized sector,
as larger firms have more ability not only to supply high-quality goods but advertise
them. 43 To date, organized retailers in <strong>India</strong> have not been able to significantly lower
prices on the majority <strong>of</strong> grocery products below those charged by the unorganized sector
because organized retailers have not been successful in reducing the complexity <strong>of</strong> the
supply chain. 44 As the organized retail <strong>and</strong> the HRI sectors grow, the dem<strong>and</strong> for
processed agricultural products <strong>and</strong> br<strong>and</strong>ed products is expected to exp<strong>and</strong>. For a
discussion <strong>of</strong> foreign direct investment (FDI) regulations on organized retail, see chapter
8. Information on grocery products <strong>of</strong>fered by type <strong>of</strong> establishment is presented in
table 7.2.
36 Industry representative, interview by Commission staff, New Delhi, <strong>India</strong>, May 9, 2009; government
<strong>of</strong>ficial <strong>and</strong> industry representative, interview by Commission staff, New Delhi, <strong>India</strong>, May 26, 2009;
industry representative, interview by Commission staff, Mumbai, <strong>India</strong>, June 3, 2009; <strong>and</strong> Singh, <strong>India</strong>:
Retail Food Sector, December 21, 2006, 12.
37 Hypermarkets are large supermarkets that <strong>of</strong>fer a variety <strong>of</strong> nonfood items.
38 Singh, <strong>India</strong>: Retail Food Sector, December 21, 2006, 2; Joseph et al., Impact <strong>of</strong> Organized Retailing
on the Unorganized Sector, May 2008, 10. Organized retail in the grocery segment has lagged development
in other sectors. In FY 2006/07, the share <strong>of</strong> organized retail in <strong>India</strong>’s total retail sales <strong>of</strong> all products was
approximately 4.1 percent.
39 Govindan, <strong>India</strong> Exporter Guide, October 1, 2007, 10; Govindan <strong>and</strong> Dhankhar, <strong>India</strong>: Exporter Guide,
October 1, 2008, 10.
40 Industry representative, interview by Commission staff, Mumbai, <strong>India</strong>, June 2, 2009.
41 Industry representatives, interviews by Commission staff, New Delhi, <strong>India</strong>, May 26, <strong>and</strong>
May 27, 2009.
42 Reardon <strong>and</strong> Berdegue, “The Retail-led Transformation <strong>of</strong> Agrifood Systems,” November 2006, 2.
43 Reardon <strong>and</strong> Hopkins, “The Supermarket Revolution in Developing Countries,” December 2006, 543.
44 Retailers have generally been unable to significantly reduce the number <strong>of</strong> middlemen, even for
products that undergo little processing. Industry representatives, interviews by Commission staff, New Delhi,
<strong>India</strong>, May 29, 2009, <strong>and</strong> Mumbai, <strong>India</strong>, June 1, 2009.
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