As part of the economic reforms, the Finance Minister Mr. Pranab Mukherjee said in the budget session this morning that the efforts are on for achieving retail FDI consensus to allow 49% in multi-brand retail with as many as 35 conditions! That’s however a serious message in the budget presentation today to expressly announce the fact that the proposal of FDI in multi-brand retailing is not shelved or forgotten. At the outset the budget speech reverberated with a positive sentiment for FDI in retail.
It is critical for the government to take aggressive efforts to bring down inflation that will have a direct impact on generating the much-needed augmentation of internal demand resulting in increased consumer buying. No adequate efforts have been seen to contain spiraling prices. The standard rate of excise duty has been increased form 10% to 12%, which will result in a general increase in prices. Similarly the increase in the rate of service tax from 10% to 12% also will result in the increase in prices of products and services as retailers now have to shell out more as service tax on the premises they rent for running the retail business. The basic import duty on gold and platinum has been increased to 4% from the earlier 2% and jewellery retailers will pass on the price increase to customers. The increase in the taxable income slab to Rs 2 lakhs a year and the revised taxation of 10% tax from Rs 2 lakhs to 5 lakhs income, 20% from Rs 5lakhs to 10 lakhs and 30% from over Rs. 10 lakhs income per annum will offer some respite for the mid-segment consumer masses with some disposable income to spend at retail.
Implementation of the Direct Taxes Code (Goods and Services Tax - GST) is deferred without any idea on the implementation date yet. The finance minister has not put any timeline on the implementation of GST and he has come under heavy criticism for that. GST will bring a complete taxation discipline in the entire supply chain, which will benefit retailers and consumers. Under the structure of GST, tax will be collected by the states where the goods or services are actually consumed. GST is a part of the proposed tax reforms in India that would evolve an efficient and harmonized consumption tax system in the country. Presently, there are parallel systems of indirect taxation at the central and state levels. Each of the systems needs to be reformed to eventually harmonize them. In the Union Budget for the year 2006-2007, it was proposed that India should move towards national level Goods and Services Tax that should be shared between the Centre and the States. It was proposed that GST will come into effect from April 1, 2010, but the implementation is yet delayed. The good news though, is the approval of the structure of GST network by the state finance ministers, which opens up feasibility of its implementation by perhaps August 2012.
As almost 40% of modern retailing sells readymade garments, the reduction in excise duty in readymade garments may push prices down and this may create more demand. Similarly the demand for processed raw food too may go up with this marginal reduction in excise duty. The waiver of excise duty totally on silver jewellery may help ornamental jewellery retailers gain more momentum to create a very attractive fashion product mix for the youth who may love to sport such jewellery as fashion wear. The excise duty on mobile phones has been retained at 1% and this is a welcome gesture that will keep the mobile market booming even in the rural areas of India.
The budget also announced an infusion of a further Rs. 1000 crores to the National Skill Development Council (NSDC) taking its total corpus to Rs. 2500 crores. This talent development effort will see many vocational training initiatives established to skill millions of people in India and retail training is a major focus area of NSDC.
This budget is no big deal for modern retailing in India!
- Dr. Gibson G. Vedamani
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