The view from my hotel window in Delhi was telling. In the left foreground was an elegant swimming pool adjacent to a white-tablecloth restaurant. Nearby, a spotlight waterfall, a manicured bamboo hedge and then a tall fence. On the other side of that fence was a squatter’s camp of tattered tents, campfires, wandering pigs and dusty, half-naked children, no running water, no sanitation. In India, a few meters separate extremes of wealth and poverty.

Almost all of us who work in this intensely interesting place have a love/hate relationship with it. India is crowded and chaotic. It is friendly and gracious. Its population has huge national pride and almost non-existent civic pride. It makes the best steel in the world and has a very modern plastics industry. It designs software and owns significant pieces of the world, from real estate to car companies. Delhi may have a new airport and subway, but the country’s terrible road system and ancient railroad network remain fundamental flaws.

So it is not surprising that India’s retail industry is right out of the 19th century. Over 90% of India’s retail sales are done through a network of small Ma & Pa businesses called Kiranas, most of which are barely bigger than a closet. To be fair, the system works. Most of those businesses are owned by families that live in the neighborhoods they serve. Serve is the operative word here. Want a cake of soap, or a small tub of yogurt? Call your grocer from your mobile phone and your purchase arrives in minutes. The Kiranas are supplied by a network of small wholesalers. The system is united by family ties and the relationships can go back generations. The network is vocal and politically powerful.

To date, the Indian Government has protected this network, maintaining complicated legal barriers to the entry of foreign merchant organizations in India. The issue has been the survival of the Kirana network and the employment they provide. The fear of foreign control over distribution of basic consumer goods is only heightened by the legacy of colonialism. In recent months, the Indian Government has announced that it is considering reducing those barriers.

Still, several companies have found ways to climb the fence as it exists right now. Walmart operates wholesale clubs as well as small networks of grocery stores. SPAR, the Dutch merchant, operates a hypermarket outside of Delhi. Reliance Retail, owned by the Indian uber-wealthy Ambani family, runs both grocery and hypermarket chains. Compared to the rest of the emerging world and BRIC territories, Indian retail is miserable. The stores are dirty, poorly-lit and badly organized. Merchandising is second-rate. It is especially hard to watch given the fact that, into the 1970s, they were merchants to the world. Across Asia and Africa, Indians ran stores. Visit the historic portion of Delhi and you see the vestiges of the ancient Souks, the jewelry merchants and sari dealers. But that was then, and this is now.

Indians will tell you they like the chaos and tolerate the dirt. They are focused on low prices, and crowded and disorganized stores contribute to the sense of getting the bargain. Their connection to the local Kirana merchant is very real, and almost everyone is eager to share their experience about speed of delivery or the level of service this traditional retail system provides.

Yet with more than 1.17 billion people and rising, the case for organized retail is more compelling than ever, and India need only look to other emerging markets for the evidence. First, the recognition that no one has time to shop a western-style supermarket or hypermarket daily is key. A middle-class population may visit weekly or bi-monthly for staples, but they will continue to patronize their local markets for immediate or fill-in needs. In other words, Kiranas will always be an important factor in India’s retail landscape.

Second, the majority of Indians get paid daily, and thus spend daily. Whether in the Philippines at the sari-sari store or in a tienda in Central America, these merchants serve as the extended pantry for the families they serve. They operate as co-packers selling food in meal-by-meal or day-by-day quantities. Cooking oil, milk and grains get repackaged in small affordable doses. Personal care products are sold in single-serve packets. No matter who enters the marketplace, these businesses will remain.

In emerging markets, the small merchant finds better prices and higher-quality goods in 21st century distribution networks. The farmers who sell goods to the large wholesalers in India get better—and most importantly, consistent—prices for their crops. Those supply-chain savings get passed on to their daily customers, ultimately maintaining and even decreasing the cost of living. Across much of developing world, the small family store has prospered based on access to organized wholesalers. We in the US recognize that Sam’s Club, Costco, BJ’s and even Home Depot and Lowe’s have an important customer base in small business owners; the same would be true in India.

Indian economists predict price increases of between 9 and 15 percent in basic food commodities in 2012. Current wages are simply not keeping pace with food cost. The only controllable factor is supply chain improvements. Just like the Dharma, retail is about birth, life and death. Merchants celebrate their longevity in part because their neighbors have disappeared. India needs to move forward and this is its chance to leap from the 19th to the 22nd century.
India’s network of Kiranas needs to move forward, too. They need to sort through their offerings to include other services that provide better margins and futures for their children. They need to get creative and embrace a new age of retail opportunity. There is no question jobs will be lost, but better jobs will be created.

It is time for India to face the future.