by Chetan Ahya – Morgan Stanley
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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