Primie Minister Narendra Modi's demonetisation move has a had a major impact on the country's economy. While many have welcomed this move, some have denounced it as the worst decision made by the government. The retail sector, particularly, has been hit with some sectors more than the others due to the impact on cash transactions. In an exclusive chat wityh International Business Times, Kumar Rajagopalan, CEO, Retailers Association of India, talks about demonetisation, FDI in retail and the challenges the Indian retail sector faces.

International Business Times: How has demonetisation affected retailers across India?

Sales of retailers have seen a drop between 50% and 70% in the first five days. However, sales of essential consumable goods by super markets, hypermarkets and neighbourhood stores that accept cards/digital money have seen an uptake. Sales of large items, especially discretionary items like electronics, have dropped drastically.

The longevity of the impact will depend upon the speed with which currency is made available to citizens. We estimate that sales of retail overall may be less by about 25% over a month's time. In the long run though, demonetisation will be favourable for modern and modernising retailers.

Demonetisation, coupled with introduction of GST, would eradicate non-accounted sales for retailers. This is a loud message for all retailers that haven't yet embraced modern retailing practices. Retailers of all sizes need to modernise and account for every sale since all transactions will become traceable in the future.

IBT: What are some of the challenges facing the retail industry at present?

The biggest problem for retailers currently is lack of consumer spending, thanks to demonetisation. The industry is also faced with competitive deep discounts being offered by foreign funded e-commerce entities. This makes retailing in India not very profitable for some key categories like electronics. Lack of clarity on FDI (Foreign Direct Investment) across channels of retail is also a worry since legitimate Indian retailers are not able to access international funds while some e-commerce companies do retail in the garb of marketplace with FDI funds.

Kumar Rajagopalan
Kumar Rajagopalan, CEO, Retailers Association of IndiaPR Handout

IBT: The Modi government has allowed for 100% FDI in most areas. How big a growth will we see in the retail sector as a result?

FDI in retail has been a taboo topic for the current government. This has made legitimate needs of Indian retailers for international funds inaccessible. However, the laws in the country allow for 100 % FDI to international single brand retailers. The so-called marketplaces are also allowed to access the funds. Now there is a move to allow food retailers selling food made in India access global funds.

IBT: Which are some sectors of the retail industry which will grow over the next decade?

Consumption in India can definitely grow across sectors and across segments. Demand across categories like processed food to luxury items to capital items like automobiles will see increase when market stabilises post demonetisation impact.

IBT: Indian start-ups and technology companies are going through a low at this point. Do you think the e-commerce bubble has burst in India?

E-commerce is definitely here to stay. However, startups that only focus on valuation and not on value to customers (without sound business architecture) will definitely fail. Concepts like valuation based on Gross Merchandise Value will see complete erosion.