FDI in Retail Allow

8/8/2019 FDI in Retail Allow

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Retail: Allow FDI in retail sectorFebruary 23, 2010 19:52 ISTTags: Trent Outlook If FDI, GST Regime Government, Koutons, REZ, India Scheme

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Retail sector seeks industry status, which can reduce thecostofcapital and to allow FDI in retail thatcan

increase investments and globalcompetitiveness.

Indian organised retail industry is one of thesunrise sectors with huge growth potential. Total

retail market in India [ Images ] currently stands at

$350 billion in 2007-08 and estimated to attain

$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 madebyRetail Association ofIndia, Shoppers Stop and Koutons.

Retail industrycan berecognised 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.


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Policy Clarifications to allow investments byfinancial investors

Current FDI policy allows 100% FDI in Cashand-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.

Permission tooperate 24*7 and Revision oflabourlaws

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.

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.

Otherproposals

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.

ConsumerAffairs- Weights & Measures Actcan bechanged

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.

Retail and Entertainment Zones can becreated

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.

Customs Duty and otherentrytaxes

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


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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%.

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.

Consumption incentive

Provide a consumption incentive in the form of personal income tax relief to consumers, who can spend up to 25% of

their income on consumer goods to services. This will bring a substantial amount of consumer spend into the indirect

tax net, while incentivising consumers. Such scheme also supports the government current initiatives.

Directtax 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.

Analyst Expectation

Indian Retail sector has successfully passed the downturn and started recovery. If the government sanction key

industry proposal like (i) Granting of Industry status (ii) Allowing FDI in Retail sector (iii) Permission to operate 24*7

(iv) Create a single window for clearance, the retail industry will grow at faster pace. (v) Increase personal tax break

can lead to increase non-discretionary spending, which augurs well for organised retail.

Scrip to watch

Pantaloon [ Get Quote ], Shoppers Stop, Koutons and Trent

Outlook

If FDI in Retail industry is allowed, it will help domestic players to capitalise MNCs players supply chains and

distribution network experiences. The grant of industry status will help companies borrow at lower costs, and will also


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bestow them fiscal incentives etc. If the government of India increases personal tax breaks, which is currently Rs

160,000 for men and Rs 190,000 for women, it will increase the disposable income with public, which will boost the

consumer spending.

But no major direct benefit is expected from Union Budget 2010-11. Overall, the union budget 2010-11 is expected to

be neutral for the Indian organised retail industry.

Documents

FDI in Retail Allow