The head of Pantaloon, India 's leading retailer, has warned that high property prices in big Indian cities are threatening the country's burgeoning retail industry and adding to the pressures brought on by soaring construction and labour costs.
Kishore Biyani, chief executive of Pantaloon, told the Financial Times: "At current property prices, you can't exist in the modern retail business.
"Either productivity has to increase significantly or rent has to come down."
Rents in the main Indian cities such as Delhi and Mumbai are among the highest in Asia, in spite of the poor infrastructure and uneven quality of properties.
Rent for prime retail space in Delhi is $1,146 per square metre a year , according to Jones Lang LaSalle, the real estate adviser.
Prime retail space in Beijing fetches $951 per square metre a year.
Rising steel and cement prices have boosted construction costs of shopping malls in India by as much as 40 per cent over the past two years, said Mr Biyani, who pioneered "organised retail" in the country a decade ago.
Running offices, supply chains and back-end technology systems have also become more expensive as costs in India rise.
He said: "Volumes become very important. For anyone who starts at a smaller scale, the pressures become much higher".
Some relief could be on its way as retail rents soften. A correction in India 's property market is already happening, said Mr Biyani. He also said Pantaloon was more insulated from the shock of high rents than new rivals because it signed many of its leases before prices increased.
But Mr Biyani predicted many of the shopping malls under construction across India would fail because of miscalculations on size, tenant mix, location and management. "There are too many coming up. People's understanding of how consumer space works is not there so there will be casualties," he said.
Yet Mr Biyani said plans that Pantaloon laid out in 2006 to invest $1bn and expand retail space ten-fold by 2010 are on track.
Mr Biyani unveiled his expansion plans shortly after Reliance Industries, the Indian conglomerate, launched a $5.5bn fresh grocery chain in 2006.
Organised retail, or formal shops, account for just 3 per cent of India 's $322bn retail industry.
Mr Biyani has also been steadily launching new speciality stores focusing on books, electronics, accessories, furniture and home décor, in addition to his core fashion and hypermarket brands Pantaloon, Central and Big Bazaar.
The company has begun offering "financial supermarkets" within its stores that offer credit cards, insurance and mortgages.
Future Group, Pantaloon' parent company, has formed several joint ventures, including Staples the US office supply store and Generali, the Italian insurer.
Others are clamouring to get into India 's nascent organised retail sector. Wal-Mart and Bharti, owner of India 's largest mobile phone operator, forged a joint venture in 2006 that has yet to launch.
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