IndiaRetailBiz

Indians are expecting a lot from Pranab Mukherjee, the union finance minister, who will today be presenting the first annual budget (2009-10) of the new UPA government.

The high hopes are on account of this budget being the first budget of the ruling Congress in recent times free of ideological shackeles of the regressive ‘Left’ parties.

While, business and industry, which appears to be coming out of the worst economic downturn in many years, is expecting the fiscal stimulus   to improve domestic demand, consumers are hoping for more discretionary incomes in their wallets.

Retail sector, nascent as it is, has faced many challenges in the past one year, even before it could consolidate. Most fly-by-night operators, who had flocked to the sector assuming that there will be no tomorrow, have either already left or have been badly bruised as a consequence of falling footfalls and declining basket size.

The retail sector, which provides second largest employment, and is critical to overall economic growth of the country is, therefore, looking at the government provide several incentives that apart from consolidation will put it back on path of fast growth.

While wish list of the retail sector from the budget, as to be expected, is long, I discuss below a few salient demands that merit favorable consideration of policy makers along with present status of their implementation:

Industry Status: This is a long standing demand but quite important from the sector’s perspective. Apart from many minor benefits, accordance of ’industry’ status to the retail sector will, on the one hand, bring it under the purview of a single ministry entrusted with the responsibility for both its regulation and growth. On the other, it will allow easy flow of credit from banks and other financial institutions. Today, as no lending norms have been created for the sector, lenders extend credit to retailers in an ad-hoc manner and on discretionary basis.

Goods Service Tax: The single most reform that can bring efficiencies of scale and movement of goods from one place to the other will be to implement the policy of levying Goods Service Tax on the proposed date of 1st april, 2010. While, given the current status of steps taken in this regard and differences among the states ruled by the UPA on the one hand and NDA on the other, do not augur well for its easy and smooth implementation, one should expect that wisdom will prevail among political dispensations and the country will be brought under the purvie of GST regime at the earliest. Another hurdle needs to be crossed is the amendment of the constitution as the central government under the current laws is not authorised to collect taxes beyond factory gates. all the states will have to enact new laws to make the central government pass the constitutional amendment.

FDI: Although, retail sector is partially opened to foreign investment (FDI) as present policies allow for up to 100 per cent FDI in ‘cash and carry’ wholesale (back-end retail), and up to 51 per cent in single-brand front-end retail, the real opening of the sector will only happen when multi-brand, front-end, retail is opened for direct infusion of FDI. This, apart from bringing much needed investment, will bring technology and competition to make the sector cost effective and consumer friendly. While, Economic Survey (2008-09) has stringly recommended opening of the sector to food retailing, there are still many hurdles in the way as not only a committee of parliamentarians has opposed entry of big money in retail, ruling allies Trinamool Congress and DMK are vehemently opposed to opening of the sector.

Service Tax on commercial lease rentals: Despite Hon High Courts of Delhi & Bombay pronouncing the levy of Service Tax on lease rental on commercial properties as illegal, the draconian tax, which has a direct adverse impact on profitability of retail establishments, continues to be levied by the govenment. It is, therefore, necessary that this tax is withdrawan in the current budget.

APMC Act: If the dream of ‘farm to fork’ is to be realised in any meaningful manner, it is necessary that APMC Acts enacted by most state governments, that do not allow purchase of farm products directly from growers, need immediate change. While, farmers do not benefit, consumer also suffers because large margins are currently gobbled up by intermediaries. This has, however, to be done by state governments.

Investment in Infrastructure: If modern retail has to pass on the benefits of scale and movement efficieny, it is imperative that necessary infrastructure particularly in the area storage, warehousing, and transportation is created. In order to reduce wastage of perishable goods like fruits, vegetables, and even grains, it is necessary that large scale cold chains are created all across the county. This, among others, would include creation of facilities for cold stores, refrigerated storage and refrigerated vans, on an urgent basis. Of course, the creation of large ware housing facilities, roads, and rail carridors, are equally imperative. While, Mamta Benerjee, Railways Minister, has announced setting up of cold storage facilities at railway stations in the new budget, one only hopes that she succeeds as many such schemes were also announced in the past by ex-minister Lalu Prasad Yadav.

Single Window Licencing: Depending on the number, category, and variety of products handled, a retailer may be required to take as many as 30 licences from different authorities ranging from VAT to FDA, S&E to Weights & Measures, Police to Municipal Commissioner. Retailers should, therefore, be provided with single licence clearing authority. Moreover, there is a need to rationalise validity period of such permissions fro 1 to 5 years to a single licencing period of 5 years. Also, certain permissions are given storewise. They should be given statewise and across the chain so that front-end staff like pharmacists could be rotated depending on requirements.

VAT setoff: Allow adjustment of service tax paid on all inputs (like tax on commercial rent, communication bills, consultancy fees, etc, against sales tax collected on goods from consumers.

Repeal of FBT: Fringe Benefit Tax has been widely criticised on account of its regressive outlook and hassels involved in its computation. Every one appears to convinced that this tax will be withdrawn in the new budget.

Reduction in Custom Duty: Retailers are required to import a number of assets including equipment to create interiors, etc. It would help the retailers a great deal to reduce network rollout cost if the custom duty on import of such items is brought down from 32 per cent (overall 35 per cent) to 16 per cent.