Reghelini , Retail Today
Once again the Central Government doesn't seem to have
listened to retailers' calls. Janees Reghelini analyses this year's
Modern retail might be growing fast, but it is now starting to
face considerably more obstacles than it did in its nascence.
It is also having a much wider impact on Indias economy.
Traditionally, retail has been known to be one of the
largest employment generators in the world. For a country like
India this is the biggest advantage. Policy changes by the government,
for example, will open up strategic investment opportunities for
global retailers. This, along with spurring employment creation,
will have a significant positive impact on all stakeholders and
will provide a necessary fillip to the growth of the Indian economy
on the whole, says Rajendra Kalkar, senior centre director,
High Street Phoenix.
Having great expectation from the Union Budget 2012-13, retailers
voiced a number of demands they feel would help.
One of the most obvious demands was granting industry status,
although it wasnt addressed once again.
Contributing to over 10 per cent of the countrys GDP, Indian
retail is Indias second largest employer after agriculture.
With an increasing market demand, the sector is expected to grow
at a pace of 25 to 30 per cent annually. Providing industry status
would be the first basic step to reform the sector, politically.
Kalkar feels retail would benefit from having a ministry for
a number of reasons, not least because its role has changed profoundly
over the last few years. Today, large-scale retailers are
no longer perceived as mere sellers of products. A modern, advanced
retailer must be able to innovate and enrich the value of its
offering throughout its network, integrating more goods and services
under an umbrella brand that increases distinctiveness and loyalty.
In order to do so, it is necessary to have an entrepreneurial
Retail still in the cold towards the evolution of demand, a socially-focused
company mission, and also a legislative landscape that allows
for this innovation process, he says
The present value of the Indian retail market is estimated
by the India Retail Report to be around $500 billion. For consumption
of this size, a ministry is entirely justified for us.
CHALLENGES FACING INDIAN RETAIL INDUSTRY
Tax structure in India favors small retail business
Lack of adequate infrastructure facilities
High cost of real estate
Dissimilarity in consumer groups
Restrictions in FDI
Shortage of retail study options
Shortage of trained manpower
Low retail management skillretail in India.
The advantages of such a status include greater focus on retail
development, fiscal incentives for the industry, an availability
of organised financing and the establishment of integrated insurance
norms. Currently, retail businesses are answerable to a number
of authorities, from local municipalities to a hotchpotch of central
ministries Consumer Affairs, Commerce, Urban Development
and Human Resource Development, to name a few. Due to the
nature of the sector, while the accountability to many authorities
will remain, many of the larger retailers are lobbying
to be taken under the wing of one ministry that can be a single
source of cohesive policy and also champion the sectors
cause, similar to other significant business sectors, such as
the Ministry of Commerce Industry, Mining, Textiles and Telecommunications,
says Devangshu Dutta, CEO of Third Eyesight.
We must provide retailers with the necessary incentive
to improve their overall standards and practices by recognising
retail as an industry. This also means encouraging large companies
with large investments, so they will be able to bring new methods
of working into the market much more quickly.
Dutta firmly believes that, if given due attention and supported
by a planning and policy infrastructure, organised retail could
become an unexpected source of widespread economic benefit.
Indian retailers were expecting much more by way of GST from
the Union Budget 2012; they had hoped to see definite plans for
the roll-out of a formal GST regime. But no significant announcements
were made on the FDI and GST fronts, although it was announced
that efforts were underway to arrive at a consensus on FDI in
Guruduth Prabhu of the Shopping Centres Association of India
(SCAI) has been particularly vocal about the contents of the Budget:
It was insignificant from a shopping centre point of view.
The industrys much awaited FDI in multi-brand retail was
not even considered as the government is yet to arrive at a consensus.
So what will it take to convince the government to open up FDI
in multi-brand retail? There is a dire need to find a catalyst
to speed up this process. Can agencies like SCAI play a role to
make this happen?
As a body, SCAI has been attempting to meet with ministers
and convince them of the advantages of retail, but it is a process
that is so time consuming. As an association, we will be attempting
to motivate relevant ministries and educating them about organised
retail, and particularly retail real estate, as a future driver
in terms of employment opportunities and the growth of economy,
Shopping centres are an important asset class for investors and
developers who believe in returns over a long-term investment.
Presently real estate itself is trying to motivate the government
for recognition. We are also approaching the government
for separate status for the retail real estate industry as we
believe that this sector will be one of the major drivers of economy.
Secondly, the sector feels that shopping centres should be considered
as part of urban infrastructure. Opening up of FDI will have a
positive impact by opening up a number of avenues for both retail
and real estate. We urgently need a catalyst, and any directives
by the Government to assist with the inflow of international retailers
and brands into India would be welcome, Prabhu says
Agreeing with Prabhu, Dutta also believes that we must view
retail as part of urban and social infrastructure, and it needs
adequate planning, support and guidance for growth, rather than
being treated as a trading activity, an afterthought
in the urban planning of the last few decades. It should
also not be overly consolidated. A healthy mix is needed between
the large and the small, between local, regional, national and
international, he insists, adding that opening up FDI will
help bring more international brands into the country to fill
the ample retail space that India has on offer and plug the gap
made by a shortage of Indian-grown brands.
The budget might have fully exempted branded silver jewellery
from excise duty but it has still imposed a four-per cent import
duty on gold bars and ore, and 10 per cent on platinum and coloured
This has led to a setback in the jewellery industry and
the jewellers association has planned a three-day nationwide bandh
to protest against new excise, customs duty and consumer tax on
gold imports, says Subhash Verma, CEO of Aerens Gold Souk
Group. Also, the downside of this increase in custom duty
is that it will lead to the trafficking of gold through illegal
channels and will reduce demand among consumers, who will have
to pay more.
It is important to consider both the positive and the negative
aspects of the impact of FDI, says Ian Douglas Watt, director
of Pioneer Property Zone. Regrettably, most of the discussion
revolves around the perceived negative aspects, rather than the
opportunities that exist for both local and foreign retailers
by embracing it as a positive contribution toward India becoming
a major player in the retail space internationally.
Comparing retail to the Indian cricket team, Watt says that to
be considered one of the best in the world, it is important to
look at developing strengths overseas. The cricket team cannot
only play under a protected umbrella locally where wickets are
prepared to suit their strength and nullify the strength of the
competing teams. They need to master all conditions, and that
is also the case for retail.
Given the size of the Indian population and their aspirations,
it needs to be recognised that the Indian retailer has to plan
to be a major player in world markets in the future. Right now,
because the retail industry has not had the opportunities to become
globally competitive, it is at a disadvantage as it really does
not have a full understanding of the standards of the other players,
The sheer force of weight once this happens will mean that Indian
companies will have the potential to become significant players
internationally, even if this might not be immediately obvious
as there is just so much to do to meet local needs. Every international
retailer that enters the Indian market creates an employment opportunity
for local Indians and the demand for their goods will only be
as much as the Indian consumer sees as the need.
It is important to note that by preventing international players
from having a presence in India will only compel them to establish
a rather stronger online presence to meet Indian demands. This
will eventually place them at an advantage as they will have established
a presence and developed a customer base without even having entered
They scrape off the cream with very little cost whereas
if they were to establish a physical presence, they would have
to do so with local conditions influencing how they operate,
Kalkar says: Reforming the corporate tax system is an international
innovation we should look at. Retailers pay the highest effective
tax rate of any industry. Simplifying the tax code will ease the
industrys tax burden so retailers can grow.
He continues to address the supply chain as another huge challenge.
The government must support efforts to streamline the transportation
of goods from manufacturer to retailer to customer. The industry
opposes regulatory proposals that lengthen the supply chain, raise
transportation costs, or undermine the rapid delivery of affordable
On the governments part, harmonisation of taxes and
tarriffs across the country is another area that needs immediate
attention, says Dutta. We might be one nation, but we are
not yet one economically integrated zone. This leads to fragmentation
of manufacturing and distribution, inefficiencies and additional
supply chain costs that are entirely avoidable.
By the next general election in 2014, retailers hope that the
scenario would have improved significantly.
Payal Chopra, director of PS Srijan Group, spells out his perfect-world
scenario for 2014: The ministry will understand the importance
of the retail industry and the advantages of a regulated sector
in retail. Retailers and retail developers will have a healthy
understanding and will work together in bringing an organised
set-up to India. Small- and medium-sized players will receive
assistance from a ministry so that their presence is not eliminated;
and big chains will also receive incentives so investment can
Recently, Tier- II and III cities have become major drivers for
the progress of retail. It is for sure that these cities
offer major potential for more retail giants by 2014, not least
with their low lease rentals compared to the metro cities; they
also require lower overhead costs and offer greater availability
of manpower at much lower cost, states L.V.S Rajasekhar,
CEO of LEPL. One can only hope that by the next general
elections, Indian retail will be a stronger entity by itself and
work towards ensuring that all their current demands are met by