Year after year as February comes modern retailers in India eagerly look forward to the union budget. And they long to hear from the government fiscal decisions that would impact consumption a great deal. Tax exemptions and raising of income tax slabs result in releasing disposable income available for more consumption that would be spent in retail. The GDP growth in India is expected to surge more than 7.5% percent and growth in consumption also this year is expected to go up by more than 30% as compared to the financial year 2011-12.
We’ll remember, a few years ago, the UPA government slapped service tax on rent on immovable properties and the worst affected sector is retail. There is no way the sector can offset any service tax paid as the products sold in retail attract only VAT and no retailer receives any service tax. The retail sector is unique to the extent that a common inclusion of service tax on rent on all commercial properties levied by the UPA government has affected the sector a great deal. Further, the sector sells merchandise at a specified Maximum Retail Price (MRP) following regulations of the weights and measures act and packaged commodities rules and hence margins are unduly squeezed. Various Fast Moving Consumer Goods companies supply more than 70% of the merchandise sold in retail who dictate the MRP and the cost price for the retailer. The food sector is affected the most. So, retailers depend upon efficient merchandising practices and they aim at managing inventories properly to achieve the greatest number of stock turns and thus achieving good Gross Margin returns on Inventory (GMROI). Courts are not able to help the retail sector as it seeks relief from such mistakes committed by the government, because the levies are usually common ones applicable to all sectors made without paying any attention to the exclusive characteristics of retailing in India. Even when the authorities understand the problems of the retail sector, they are helpless too as reversals will not only cost the government and its exchequer an enormous amount but incur the wrath of other commercial sectors as well.
This year the Government of India summoned all its guts to announce changes in the FDI policy to allow 100% FDI in single brand retail, with a 30% domestic sourcing condition though. The government developed cold feet in allowing partial FDI in multi-brand retailing succumbing to the pressures of the allies supporting the coalition government. Whether the government is going to allow FDI in multi-brand retail now or not, it should consider bringing the sector under either the Ministry of Consumer Affairs or under the Ministry of Commerce and Industry immediately. Someone needs to take care of the sector so that retailers will know the authorities to approach for development. On the other hand, many have expressed their fear that if the sector comes under any ministry, it may lose its independence to function. It is necessary to bring retailing under a ministry so that such an institution of well-defined practices will ultimately benefit consumers and retailers at large.
Good infrastructure is required for retailing in India. Every state has to come forward to create special retailing zones so that farmers and retailers are able to set up stores directly. The APMC market is yet laden with a mix of middlemen and channel partners who are so innumerable that the margins get squeezed for the retailer and the end price for the consumer surges high. Spaces are available at vantage points in every city and the states have to tap the potential of retail and make use of the available spaces too. For example, in the city of Mumbai we have the BEST bus depots in every principal area of the mega metro. Just imagine if the whole space above every bus depot is developed with a mezzanine, which can be used to create a mall! It will rain profits everywhere for the municipal corporation and at the same time there will be enough space to establish retail stores for customers to shop in their own comforts as they alight or exit the bus!
Archaic labour laws also urgently need revision in India. Retailing is unique to the extent that footfalls happen only during holidays and during late evenings every day. More than 75% of the daily sales happen between 6.30 and 8.30 pm at retail and similarly in many retail stores 65% to 70% of the week’s sales happens only on Saturdays and Sundays. And the regulations do not allow part-time employment in the sector. It is indeed an irony that the lawmakers do not take cognizance of genuine needs! The GOI needs to pay attention to the real needs of the sector and come up with changes accordingly and we can see a really bright future for organized retailing in India.
Dr. Gibson G. Vedamani
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