To answer this question, Ravi Shingari, Associate Director, KPMG, takes me back to what he calls ‘the dark ages of retail in India’…
When India gained freedom in 1947, the country was still recovering from the effects of the World War II, he narrates. “Low agriculture output, high poverty and unemployment rates, modest industrialisation, undersized national income and slow economic progress marked the country’s economy scenario,” he continues, in the course of a quick email interaction with Business Line.
During the 70s and 80s, the country produced marginal results with a compounded annual growth rate of 4.3 per cent per year. The Government was busy dealing with basic sustainability issues, and accordingly retail and retail-related policies took a backseat in this era, Shingari observes.
Excerpts from the interview.
On the post-1990s era.
Following a series of reforms beginning in the 1990s, India enjoyed a decade of unprecedented growth. From 1995 to 2000, India’s GDP (gross domestic product) clocked a compounded annual growth rate (CAGR) of 5.8 per cent which increased to 6.8 per cent from 2000 to 2005. With growth in the GDP, the spending power of the Indian consumer also grew significantly.
Your take on the retail-related policies.
Opening of the FDI (foreign direct investment) in the retail sector has always been a sensitive issue with considerable debate for and against this move. Frequent protests by traders, farmers and shopkeepers against the entry of private retail giants into India, which they say would destroy millions of livelihoods, have always made the Government tread cautiously on the issue.
Prior to 1997, when the FDI policy recommended that specific approval be sought from the FIPB (Foreign Investment Promotion Board), applications were considered on a case-by-case basis under the retail-trading segment.
Not many companies applied for such approvals, and approvals granted were minimal. Only a few companies which emerged successful in the process gained the first-mover advantage. For instance, Foodworld, a 51:49 joint venture between the RPG group and Dairy Farm International of Hong Kong, was established during this period.
At the close of 2009, where are we?
Post considerable deliberation, the Government opened the FDI up to 51 per cent under single brand retail trading, and 100 per cent in cash-and-carry wholesale formats under the automatic route.
However, FDI in retailing of goods under multi brands, even if the goods are produced by the same manufacturer, still remains prohibited under the current guidelines. The industry has constantly been advocating that FDI should be allowed in multi brand retailing, as they believe it would speed up the growth of organised formats in the country leading to lowering of prices, improving the quality of products and widening the choice of products available to consumers.
Additionally, the industry has long been demanding that the Government give retail its due credit and recognise it as an industry, something that the Government has not paid heed to for decades.
The following routes (along with examples) are available to the foreign players for entry into India:
• Franchisee route – Pizza Hut, Domino, Marks & Spencer, Tommy Hilfiger, Subway.
• Cash and carry wholesale retailing – Metro, Shop Rite.
• Manufacturing – Bata, United Colors of Benetton.
• Distribution – Swaroski, Hugo Boss, Mango.
• Joint ventures – Reebok, Miss 60.
For 2010, what should be the agenda?
The retail industry is placing all its hopes on the Government to bring about positive changes to the current regulatory regime.
To begin with, the industry expects the Government to allow FDI in multi brand retailing – if not completely, possibly partially to begin with. In line with the same, the industry also expects that 100 per cent FDI should be allowed in single brand retail trading.
Retail being one of the fastest growing sectors in India, its patrons have always rallied to grant retail an industry status. Further, it is desired that regulatory norms related to small-scale industries reservation (particularly for items of food and apparel) should be made less stringent.
The industry players are also anticipating the implementation of the Goods & Services Tax (GST) which they believe shall resolve multiple taxation issues and maintain uniform prices across geographies.
Additionally, the ancillary demands made by the industry representatives include: flexible labour laws, better enforcement of tax collection from small retailers, single-window clearance for retail chains, and elimination of bureaucratic hurdles at the local and State Government levels.
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