The Indian Economy Blog

December 25, 2007

India’s Retail Revolution: Question 1

Filed under: Basic Questions,Business,Labour market,Retail — Prashant @ 3:10 am

How many jobs have the new retailers actually created?

The Wall Street Journal, in an article last month, writes that jobs in India’s booming retail industry are a ticket out of the slums for many. The article, titled Humble Jobs at the Mall Are Lifting Legions of Indians Out of Poverty and told from the viewpoint of three employees of Pantaloon in Mumbai, goes on to say that

Such basic sales jobs, unremarkable and often derided in the West, are providing careers, confidence, and a shot at entering the consumer class to millions (emphasis mine) of impoverished young men and women across India. As their ranks swell, these children of slum dwellers, servants, sweepers and others low on the socioeconomic totem pole are forming a new stratum of workers. They are likely to play an important role in determining the future of the world’s second-most-populous nation.
….
Firm data are hard to come by, but available statistics and anecdotal evidence suggest an explosion in service jobs. Over the next three years, says the Images Group, a research and consulting group in India, the retail sector will create more than 2.5 million new jobs in the country. India’s Reliance Industries Ltd. says it will hire close to 500,000 people to staff its new chain of supermarkets. Pantaloon Retail Ltd., India’s largest retailer with annual sales of around $1 billion, hires more than 500 people a month. [link - subscription required]

The story seems very encouraging. However, I’m a tad puzzled at the evidence — it’s rather slender and the three data points don’t jell.

Data point # 1: Pantaloon, India’s biggest retailer is adding 500 people a month (extrapolating, that makes it 18,000 over the next three years. An assumption, here)

Data point # 2: Reliance will add 500,000 new employees.

Data point #3: The Images Group forecasts 2.5 million new jobs in retail over the next three years.

This might seem like a quibble, but are we to believe that

a) Reliance will add 83 times more employees than Pantaloon — 500,000 vs 18,000

b) Pantaloon, India’s biggest retailer will add only 0.72% of the new hires — 18,000 out of a total of 2.5 million, or

c) Reliance alone, with 500,000 new employees, will contribute 20% of the new jobs?

Q) Any hard data available regarding employment growth in India’s retail sector?

Update: Earlier posts on India’s retail industry
Protect The Chain But At What Cost
Kirana Will Still Rule
The Better, Faster Road To Development
The Wrong Behind
A Nation Of Self-Employed
More Bang For the Government Buck
FDI In Single Brand Retail
Rice, Roads And Regulations

21 Comments »

  1. The retail and wholesale trade sector contributes to 13% of GDP and employs about 40 million people (9% of workforce).

    Therefore, going by this figure, the projected growth of 2.5 million new jobs is quite possible. (increse of only 6% to the existing people in this sector).

    Also, I think you are confusing “organised retail” to be represented by Reliance and Pantaloon alone. ITC-eChaupal and other initiatives in the rural sector also need to considered. But I would agree with you that the figures are a bit puzzling and frankly, I cannot explain where this full 2.5m will come from given my humble knowledge of economics.

    Akshay

    Comment by Akshay Jain — December 25, 2007 @ 3:42 pm

  2. No doubt Retail, or any other chain, will create thousands of jobs. The question is, how many jobs it is eating up in the process. E.g., the e-choupal – Big companies buy directly in the Mandis in towns, stocks it to try to sell at premium later. In the process, it will render hundreds of small businesses in town jobless. You can make this case for every small business, Reliance Fresh will replace “gadiwala” in the Subzi-mandi. There are millions of small businesses in India, which are now in danger due to retail chains, or at the very least, will have to compete with the giants. I hear Walmart has also made its debut in Delhi.. Well we all know how dangerous Walmart is for small businesses. I have recently been to India, and saw this happening, heard stories. All the growth we see is benefiting higher middler class, and some middle class. The farmers, small businesses and lower class are in trouble… Unlike US or other developed nations, where job change is easy and all help for this is easily accessible and so unemployment is as low as 5%, its not true for India. Indian mix of economy, political, social and demographical environment is very different. The gadiwala and a small grain merchant wont be able to migrate to Nagpur or Bhuvaneshwar and find job in Reliance Fresh. The picture in India today looks very promising, but I am always concerned about the future of poors, and to much extent the middle class also. We should look at towns and villages for real picture… Land prices have shot up so much that its beyond reach of common middle class… not anymore.
    I dont know what does legendary economist Manmohansingh and other Economists who brought India on this undoubtedly development path have in mind about this little aspect, or backlash of development..

    Comment by Shyam Tambi — December 26, 2007 @ 12:48 am

  3. Shyam,
    Large super markets might actually benefit farmers, as it eliminates the middle man, who actually makes all money while contributing nothing in the present structure. Farmers actually have no chance to make any margins in the present structure with thousands of middle men, and mom ‘n’ pop stops.

    Comment by vj — December 26, 2007 @ 1:20 am

  4. I am sure that advent of big retailers will be not good for all. Small venders and shopkipper will suffer. But then farmer will probably be benefited and they represent a major population of india.. The middleman ,generally politically affiliated, keep all the profit and both end of suppy chain loose. Also these middleman profit are always black money hence goverment loose in tax. Storage facility are so horrible in india that makes the agriculture a big gamble. Also, there is likelyhood that it will rekindle interest in agriculte and hence will make the small vender go back to their village and earn a better living there. Only catch i see that if the big retailers starts agriculture on their own than they will loose incentive to educate villager. All in all in see it positive.

    Comment by Shailendra — December 26, 2007 @ 5:37 am

  5. Change is inevitable and it will leave winners and losers in its wake. Opposing change because there might be more losers in the imemdiate term is luddite thinking. As such it is doomed to both failure and ridicule.

    Which is why economists, to escape the dragnet of immediate term winners and losers, pass judgement on how good/bad a scheme is based on what happens to the deadweight loss in the market. The best scheme eliminates this loss. Equivalently, the sum total of consumer and producer surplus must be maximized.

    The middlemen, as they currenly stand, would lose big. I’m not about to shed tears for them. ITC’s e-choupals reportedly manouvered around the obstacles they could creat by giving them a stake in managing the choupal at the village level. Maynot be a model other retailers could feasibly replicate, IMO.

    Whatever happens, with transport and comm infrastructure building up, a lot of the DWL we suffered (as much as 30% of vegetabl output would rot beforte reaching the consumer etc) can hopefully be eliminated.

    This is HUGE. Impacts our rurals where live 2/3rds of our folk. Nothing could be better than if the retail foray is able to directly benefit small farmers, IMO.

    Comment by sud — December 26, 2007 @ 7:12 am

  6. Prashant,
    Why are these figures puzzling? I won’t contest the or support 2.5 million figure, but on the other two points I see no reason to dispute the figures stated.

    All three of your points can be explained simply by the fact that new jobs are added by new retailers, not existing ones. That Pataloon is the largest retailer only explains it currently may have the largest workforce. But the largest additions will come from retailers that have to build their workforce – such as Reliance.

    Comment by Dweep — December 26, 2007 @ 9:50 am

  7. “Firm data are hard to come by,but available statistics and anecdotal evidence suggest an explosion in service jobs”
    Let us look at the anecdotal evidence.According to Jones Lang Lasalle
    1)India is urbanising at a rate of 2.5 % per year and at this rate the number of cities with population over 1 million is expected to double from 35 in 2001 to 70 cities by 2025
    2)Favourable demographics,i.e. large,relatively young and urbanising population with rising disposable incomes is unleashing significant demand for products and services
    3)Retail developers and retailers are currently focusing on opportunities in Hyderabad,Chennai,Kolkata,Banglore and Pune.Over the medium term organised retailing is expected to spread to smaller cities,cities with population of 1 million and above
    4)Retailers in India,of all categories(home & interior;sport apparel & equipment;departmental store;jewellary,watches and accessories;food speciality;beauty,health & welness;adult fashion apparel & footwear; I.T,telecom & electronics;super market;leisure & entertainment; children’s apparel) are the most aggressive among the retalers in Asia in regard to expansion plans with many of them looking forward to increase the number of stores and to expand the product range.

    According to A T Kearny
    “In India modern retail accounting for 2 to 3 % of the market is expected to grow at a compound annual growth rate of 40 %,from $8 billion to $22 billion by 2010.Overall India’s retail sector is expected to grow from it’s current $350 billion to $427 by 2010″
    Talking about the forecast of 2.5 million new jobs in reatil over the next three years.If they are talking about modern retail,i have no comments.But if they are talking about retail sector as a whole,including modern retailers like Pantaloon and ordinary Paan-bidi walas,subji walas.Possible

    Comment by con man — December 26, 2007 @ 1:32 pm

  8. “India is urbanising at a rate of 2.5 % per year and at this rate the number of cities with population over 1 million is expected to double from 35 in 2001 to 70 cities by 2025″.

    That makes it 35 million people out of a population of about 1150 million today, a meagre 3%…I read elsewhere (link followed), the gap between rich and poor is at the level which can be called an economic emergency in India… just another perspective to pause and look back. I always wondered what has suddenly happened to India in last 5 years that people got so rich as never before. I have been watching Indian economy since 1987 (since I got into job and started understanding a thing about it). I remember the Budget presented by the then Fin. Minister Manmohansingh in 1991, I also remember the balance of payment crisis at that time, and then how IMF bailed India out on condition of “reforms” (“Enough – you guys cant do it, let our multinationals do it for you, and we will share profits and benfits”). By the way, I am all for reforms and liberalisation, as it is the only way to get work done from lazy and confused people like us (who talk more and work less, are corrupt and only know how to dream. Remember Public sector white elephants?) and benefit customers.
    Anyway, please follow the link below to know the real story of liberalization of food grain purchase, e-Choupal and others, with already evident dire consequences for the farmers. It will also falsify the claims made here somewhere that farmers will get better price – this is impossible. They will actually be looted once a full monopoly of these giants is established. Thats what every Multinational/corporate culture is, anywhere in the world. Remember a 3 % elite and prospering Indians can not live happily if more than 85% of others are engaged in never ending struggle of survival. Long term consequences ( 25 to 50 years) could be stunningly dangerous.
    By the way, the real development of India would have lied in its increase in industrial production, investment in agriculture, increase in real employment etc. etc., and all other fundamentals of economics. And employment not in just a few hundred call centers doing low end jobs, or software outsourcing firms doing basic programming or operational support, which could be very easily replaced/eliminated in future, (Automation softwares already entering the market). There is no R&D in India, no investment in Technology development, nothing of its own. Everything, including money, is borrowed, which eventually will have to be repaid and will be repatriated.
    So relax and look back guys.. like I said I am throwing out another perspective for everybody to pause and think about.
    By the way, I easily got bought into the idea floated on rupe-india.org, a Mumbai based research foundation, that the India becoming a “Global Power” is a deliberate slogan floated by the US to further its own interests….nothing more than that ! India will see prosperity in pockets, or islands, but can never become a global power !

    http://rupe-india.org/42/crisis.html

    Comment by Shyam Tambi — December 27, 2007 @ 8:30 am

  9. //a) Reliance will add 83 times more employees than Pantaloon — 500,000 vs 18,000

    b) Pantaloon, India’s biggest retailer will add only 0.72% of the new hires — 18,000 out of a total of 2.5 million, or

    c) Reliance alone, with 500,000 new employees, will contribute 20% of the new jobs? //

    Pantaloon has fewer stores than Reliance, so less employees.

    Reliance has been aggressively expanding, so I expect it employ more than Pantaloon. 500 hyper-marts and 500,000 employees for next three years is just a plan. Great if they could achieve that.

    May be the forecast of 2.5 million jobs in retail sector over next 3 years includes both the organised and un-organised sectors.

    Comment by Anonymous — December 27, 2007 @ 8:26 pm

  10. Two of the things that are often missed in the road towards modern retail is the expansion of organized labor and the addition tax base. The fragmentation of current retail system makes it easier to evade taxes at various levels and almost all the labor belong to the unorganized sector with no mentionable rights. One of the goals for India is to move its massive unorganized labor into organized sector where they could get more rights and the same time there will be better accountability. Also, with bar-coding and automatic billing the modern retail aids in tax collection – sales, corporate taxes and employee income taxes.

    In the end it would benefit everybody – farmers, investors, infrastructure developers, laborers and also the government would have more tax revenue at its coffers to spend on the people. The jobs of few middlemen are not worth to stop such a massive potential to change the contours of Indian economy. If the middlemen are enterprizing enough they could adapt to the new India that will enable the creation thousands of new opportunities for entrepreneurship – supply chain management, cold storage, back end data processing.

    Comment by Balaji Viswanathan — December 28, 2007 @ 3:09 am

  11. Great, but first they will have understand definitions of those new opportunities, leave aside the training and most importantly the money needed to start those businesses….
    I dont think there are too many businesses as middlemen which are threatened here, and some of them probably will end up competing with these giants and keep them on earth by becoming a “menace” for them – quite possible in Indian scenario which is culturally and economically very unique. This is a brighter side of course, and remains a hope,and strongly depends on Government’s will not to get too much manipulated by the Corporations.
    The farmers are the ones who have a real threat. There is a history of this in Mexico and Phillipines. Many of their farmers literally got bankrupt, once the MNCs entered their grain markets. The consumers of Maize and rice, on the other hand are paying 30% to 50% more price after they took over. This could very easily happen in India, where political manipulation and fooling the people is so easy. There also, the carrot for farmers was to enter cash, export oriented crops to earn more. In reality, only a few could do that because it involves lot of investment to enter those cash crops. Indian farmers, already struggling, could hardly do so. Again, only those very few who have money could do that.
    I think the FDI is very legitimate in the industrial and possibly some service, technology and infrastructure sector, but I smell something else when it is done on things like Grain and retail ! The goverment owned FCI had a might to do better, and they were, until it is privatized for some unknown reasons in the wave of privatization, which nobody is looking at !.

    Cheers !!

    Comment by ST — December 28, 2007 @ 4:08 am

  12. Organized retail clearly will lead to a mix of winners and losers.

    The winners would be:
    - the urban consumer – better choice, a better shopping experience and lower prices.
    - the farmer – a larger share of end product prices
    - the semi educated urban poor – who get higher quality jobs (the numbers will depend on the penetration of organized retail)
    - the economy as a whole – less wastage – a McKinsey study had shown that 75% of fruits and vegetables are wasted between the farm and the plate in the current supply chain -further, there will be a temporary boost in jobs in construction as the malls and organized retail formats are rolled out

    The losers will be:
    - Middlemen who are unwilling to adapt – but these are the same @sshls who do not pay taxes, adulterate foods and rip off consumers at every opportunity
    - Uneducated, illiterate vendors who cannot shift to working in an organized retail environment

    Comment by Unknown Indian — December 28, 2007 @ 2:08 pm

  13. I happened to read somewhere last night, the Retail MNCs entered in Thailand and the small businesses there started collapsing, as one might expect. The government then changed the clauses and restrained their further expansion.
    With this experience, the retail giants have been successful in manipulating indian law makers to practically make their entry irreversible.
    I was talking to a local shop in my town which is a manufacturer outlet of the best kitchen crockery in the world. I asked them why doesn’t walmart carry this? They said walmart tries to squeeze us so much that we cant afford to sell it to them. Walmart is very wellknown for this, no doubt it benefits me as a consumer.
    I was also looking at some stats, what % does farmer get out of total produce export price, it was less 5%, in some cases 10% (developing/poor countries exporting to Europe).
    For consumer goods and others this sounds not so bad, one has to loose when many are in win situation. But for foodgrains for farmers, I dont know if I can argue that !

    Cheers !

    Cheers !

    Comment by ST — December 28, 2007 @ 10:19 pm

  14. well numbers quoted are really debatable. even if reliance opens 500 stores – 1000 people per store is a big number. maybe they are counting indirect job creation but then many of these guys are already employed it is not new employment. e.g. son of a corner kirnan shop owner who will normally take care of shop will now go to work with this retail store. but there are qualitative differences

    1. concentration of wealth – even if same no of people are employed money now goes to big companies which would have gone to all these small guys in earlier scenario
    2. point about economy becoming organized is well taken
    3. more importantly it forces complete supply chain to be efficient and removes inefiicient middleman. role of government become more important here and it need to act as watchdog while protecting interests of consumer, farmer and marketer. the key will lie in deciding pecking order of these competing interests

    Comment by anshul — December 28, 2007 @ 11:55 pm

  15. Shyam Thambi (aka ST)

    Tried to respond to your comments but they left me confused. We’d like your comments to continue but please respond to the contents in the post, specifically.

    BTW, I would recommend you read the other posts related to retail in this site. They address whatever concerns you have raised

    Comment by Prashant — December 30, 2007 @ 8:06 am

  16. Prashant, I hope you will let out discuss slightly outside the framework of your question. Some of us have related concerns. It is good that Shyam has brought them up.

    The real question is how many of these jobs are direct jobs? How many are new? How many jobs were lost? How many net direct jobs were created (or lost)? How many net indirect jobs were created (or lost)? Data is very hard to come by in India. Even the private sector studies make huge assumptions and their data is of much poorer quality than the one used in the West.

    Others like ST and anshul have raised serious and relevant concerns. I will just add that one shouldn’t only go by the statistics provided by the organized retailers themselves and thos who are trying to consult to them. We need independent studies to balance them.

    Another aspect is should we encourage entrepreneurship or get everyone to become a salaryman? India does have a high entrepreneurial culture but it is out of necessity. What we are talking about are the poor building up small businesses to earn the bare minimum. This has been borne out in several studies. From these entrepreneurs should rise new successes. If we discourage it at the very beginning, we are going to lose some precious talent.

    We are trying to make a leap. Instead of an Indian Sam Walton rising from the mofussil town of Sholapur, we will have the established elite taking over a whole industry. People will try their best to survive and if they can’t they will riot. We are definitely going to huge disruptive social changes.

    Also, let us not be under the illusion that these corporations that aspire to build vertical monopolies are going to fairer to the farmers than the middlemen who themselves seem to have become the bogeymen in this debate.

    Is there any Parliament study group on this like Congressional Studies in the US? I hope there are. The US came to this point through an organic growth process. We could also take the same path but do it faster as we already have examples of past successes. What concerns me is that we are trying to make a leap and cut out millions of people. Let us see the result of this experiment.

    Comment by HmmBut — December 31, 2007 @ 10:22 am

  17. As a consumer, every day I have to pick my way through muddy wet pathways, rotting garbage, cow-dung and hordes of shoppers to haggle at individual stalls for vegetables or meat, whose quality and hygiene is highly suspect, with rude shopkeepers who increasingly do not seem to be concerned if I take my business to the next thelawallah. Oh for some proper organised retail stores! Probably the thelawallahs themselves may wish to find themselves in a nice clean organised selling environment, such as wet markets in South East Asian regions. Plastic sheets on the roadside can surely be transformed into covered pucca stands where the same individual sellers can do business with more value addition and less harassment from local police and goons.

    Comment by Sharmila — January 7, 2008 @ 1:59 pm

  18. [...] nearly a decade are suddenly termed illegal, because reliance needs profits. There are a hell lot of people who think reliance retail is a bright idea, the argument being the state should not [...]

    Pingback by Things they do in a civilized society — January 7, 2008 @ 11:22 pm

  19. what’s the career scop in retail industry

    Comment by sneha — January 14, 2008 @ 10:24 am

  20. there are a plethora of scopes available in retail and management industry
    with hundreds of retail otlets across the country an many more opening its all sunshine in this industry
    infact a lot of B schools have initiated the management programmes under retail and management

    Comment by sreeram — January 23, 2008 @ 9:09 am

  21. Dear Sir,

    I need all the statistical data related to the inidan retail business & name of the site from where i will be able to collect the data.

    Regards,

    Dhananjoy Datta.

    Comment by DHANANJOY DATTA — October 1, 2008 @ 4:00 pm

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