Budget 2010: Allow more FDI in Retail sector

The retail sector in India is expecting that in this Budget 2010 it is seeking industry status, which can reduce the cost of capital and to allow FDI in retail that can increase investments and global competitiveness

Indian organized retail industry is one of the sunrise sectors with huge growth potential. Total retail market in India currently stands at USD 350 billion in 2007-08 and estimated to attain USD 573 billion by 2012-13. Organised retail industry accounts for only 5.5% of total retail industry and expected to reach 10% by 2012.

The key factors that drive growth in retail industry are young demographic profile, increasing consumer aspirations, growing middle class incomes and improving demand from rural markets. After downturn of 18 months, retail industry is witnessing improving signs.

With key parameters like customers entry, same stores sales, average transaction per bill improving at faster pace, the industry expects the recovery to be fast going forward. Most of the front line players who have freezed their expansion plans have renewed it in the last couple of months.

Proposals made by Retail Association of India:

1. Retail industry can be recognized as an industry

Providing industry status is the first basic step needed for reforming the Indian retail sector. This will enable better financial processes due to benchmarking and enable prudent practices in retail. Retail industry will also eligible for support and incentives as applicable to other industries.

2. Policy Clarifications to allow investments by financial investors

Current FDI policy allows 100% FDI in Cash–and-carry wholesale formats and 51% FDI is allowed in single brand retailing. However, the regulations have been interpreted as guiding to a blanket ban on foreign investments in the sector. Thus, even investments by financial investors like FIIs and PE funds are prohibited, limiting the flow of capital required for the growth of the sector.

A clarification if issues will enable investments by financial investors in the retail sector. This can be done by allowing investments by investors such as FIIs, Venture Capital Funds and other financial investors in the sector.

3. Permission to operate 24*7 and Revision of labour laws

To strengthen the retail industry, it is important for a serious revision of the labour laws to bring them at par with the western world. The laws should be suitably changed to factor hourly employment and reasonably modified to bring all retail business on par with restaurants etc. expects 365 days working permission for stores.

4. Open FDI in Retail

FDI in Retail trading should be opened up to substantially improve productivity and distribution system through modern format retailing. The government should come out with a policy statement laying down the roadmap for modern retail and allowing foreign investment in retail.

5. Create a Single Window clearance

To strengthen retail industry in India, the government can provide a single window clearance system. The single window clearance will further streamline license processes associated with the establishment and management of retail stores.

6. Consumer Affairs- Weights & Measures Act can be changed

The current weights & Measure Act formulated in 1976 had relevance at the time when it was formed. However, there are some provisions which are not in tune with the times. The blurred accountability for the contravention of the guidelines between the manufacturer and the retailer allows for further propagation of fear psychosis. This creates chances for unscrupulous interpretation of law and encourages corruption.

7. Retail and Entertainment Zones can be created

In order to augment the living standards of people in the city, the government could look at creating Retail and Entertainment Zones (REZ) similar to SEZ and IT parks. Retailers in REZ to get benefits like exemption from stamp duty, octroi and cheaper power.

8. Customs Duty and other entry taxes

A reduction in the customs duties relating to consumer items would greatly channelise funds to boost the economy.

9. Served from India Scheme

"Served from India Scheme" should be made available for Retailers. Any sales using foreign currency/international credit cards must be counted against this and duty credit entitlements must be credited for retailers. This can be used for import of items. Income tax depreciation rate on Furniture, Fixture and Building improvement etc should be increased to 25%.  

10. GST Regime

Government need to give enough notice about the proposed GST model for industry to study and also plan for compliances. GST is a consumption based tax also because of the lower tax rates, uniformity in taxation and virtually no harassment in the movement of goods across the country, there would be an increase in consumption, and individual states would stand to gain revenue by this increased consumption.

11. Consumption incentive

Provide a consumption incentive in the form of personal income tax relief to consumers, who can spend upto 25% of their income on consumer goods to services. This will bring a substantial amount of consumer spend into the indirect tax net, while incentivizing consumers. Such scheme also supports the government current initiatives.

12. Direct tax incentives

In order to promote employment in the sector, tax incentives in the form of 100% deduction on expenditure incurred on employment of new workmen could be considered (Similar to deduction available under Section 80JJAA of the income tax act 1691 to an industrial undertaking engaged in manufacture of articles or thing.

A weighted deduction could be allowed for payment made by retailers towards training and development of their personnel in order to improve their skill sets for example contribution made to technical universities, institutes etc.