By Anand Ramanathan, Manager, KPMG Advisory Services
Indian retail employs about 8% of the country's workforce and accounts
for about 12 per cent of national GDP. It is second to only
agriculture in terms of inefficiencies in utilizing the factors of
production such as land, labour and capital. This is not to say that
the local kirana down the road is inefficient. On the contrary some
of the most efficiently run stores in terms of ROI and net stock turns
are not large chain stores but family operated small standalone kirana
shops. However, what make the overall retail sector look unproductive
is disguised unemployment, alarming levels of wastage, lack of scale
in sourcing, multiple levels of intermediation and lack of industry
status for a sector that is one of the largest employers and
contributors to national income. Unlike the issue of FDI regulation
that has received sustained activism on the part of retail
professionals these issues of productivity and realization of
efficiencies have not received the same levels of attention and
intervention at an industry and policy level.
The upcoming budget is set in the context of a stable government being
sworn in after a decisive mandate - with a strong focus on enhancing
infrastructure and promoting inclusive growth and an economy that
would be on a rebound trajectory reversing the slowdown that was
witnessed over the past year. Given this context of global recovery
and economic stability the budget presents an opportunity for policy
to clearly spell out the discourse for the retail industry. The
exercise provides an avenue for the present government to demonstrate
its credentials for promoting inclusive growth in a sector that has
pan India presence – rural and urban and is the largest segment within
the services pie of the economy from both an employment and income
perspective.
The Road ahead – Strategy, policy and initiatives
There has been a rising demand for giving industry status to the
retail sector. Industry status to retail is the first basic step
needed for reforming the retail sector. According to Assocham, the
industry status will not only give boost to the retail sector but also
make availability of organised financing and establishment of
insurance norms easier. Granting Industry status may also enable the
high potential retail sector to receive fiscal incentives and the
growth rate of retail would also be higher with simple legislations.
Retail operations currently need to obtain multiple licenses and
permits, ranging from basic trading licences to product-specific
licences to pollution clearances thereby adding time and cost to the
process of establishing a retail chain.
There is a need for a national marketing policy for the retail sector
in India as is the case for manufacturing, agriculture and tourism, to
increase penetration levels. Organised marketing in India has been
growing over 15% and has given a boost to real estate. It has,
however, not helped rural marketing, supply chain, consumption and
purchases by tourists. Malls have not gone into ethnic goods either.
A number of variants would have to be considered by the Government
while formulating a comprehensive policy including wholesale vs
retail, rural vs urban, lifestyle goods vs basic goods and organised
vs unorganised marketing.
The Government had earlier proposed further liberalisation in the
retail sector allowing 51 per cent FDI in consumer electronics, sports
goods, stationery and building equipment. The government has to follow
it up and implement it to attract more investment into the economy.
The government also needs to be clear regarding the rationale behind
allowing only 51 per cent FDI as against 100 per cent in single-brand
retailing. This question becomes imperative considering the benefits
offered by investments in the single-brand retail segment. There are
huge benefits in the form of better job opportunities, superior human
resource skills, enhanced consumer satisfaction and support to
ancillary industries.
Development of a regulatory framework is required for retail
establishing a proper and simplified licensing system, keeping in mind
the interests of all - the large and the small retailers, the farmers
and the national economy besides checking the private monopolies.
Since the operations of organized retailers impact upon various
sectors of the economy, policy guidelines should be framed involving
all the relevant Departments, including Commerce, Agriculture and
Urban Development. Moreover, since regulation of the large format
retailers would mainly be in the domain of the states and local
bodies, State Governments have to be consulted and involved in the
process of framing policy guidelines. A Central legislation or a Model
legislation, which can be enacted by the State Governments, may also
be considered for this purpose.
Strong labour reforms are also required for the retail sector as the
stricter labor regulation has a strong negative effect on employment.
Labor regulations fall under the jurisdiction of the state governments
and are contained in the Shops and Establishments Act (SEA).
Provisions like Compulsory registration of shop/establishment within
thirty days of commencement of work and certain Obligations of
employers and employees create a difficulty although ensuring proper
enforcement is also a big challenge.
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