Column: Fuelling the retail boom
(FE 29/06/2006) Mumbai - India is in the midst of a retail boom. Organised retailing is growing at the rate of 20% and many Indian business houses and foreign retailers have already invested/shown interest in investing in this sector. There is no doubt that the sector is growing on its own. However, one cannot deny the fact that the growth has been much slower as compared to the rest of the world. Over a 10-year period (1995-2005), the share of organised retailing in total retailing has grown 40% in Brazil and 20% in China. In India, it is only 2%.
Government, as a facilitator, plays a significant role in the growth of this sector. Positive interventions are needed since the sector has huge employment potential and substantial backward linkages. At present, there is no clear policy on retailing. Although 51% FDI is allowed in single-brand retailing, it is unclear whether the policy would be extended to multi-brand outlets and, if so, when? Rather than a piecemeal effort, the government should come up with a comprehensive policy for opening up the sector with clear timelines. This would make it easier for domestic players to plan their future growth.
Many laws relating to retailing, such as the Agriculture Produce Marketing Committee Act (1976) and Essential Commodities Act (1955), are outdated and should be amended. Although franchising is an important mode of conducting business, unlike countries such as the US, India does not have a comprehensive legislation governing franchising. Such legislations should be implemented for protecting franchising rights.
Certain legislations in the real estate sector (e.g. Rent Control Act, zoning regulations) limit the availability of land for retail use and increase the prices. Regulations relating to land ownership should be made more flexible. Appropri-ate urban planning and supporting infrastructure (approach roads, transport, parking, etc) is needed for the sector’s healthy development.
A retailer requires 12 to 15 clearances at the central/state/local levels to conduct business. A single- window clearance process would immensely reduce uncertainty, delays and red tapism. There are various restrictions on inter-state movement of goods, especially foodgrains. This forces retailers to source locally and they are not able to reap the benefits of economies of scale.
For retailing to succeed, India should be treated as a single market. Uncertainty relating to lack of land ownership , vendor-owned and fashion driven inventory, etc makes it difficult for retailers to access bank loans in the absence of collaterals. The government should set up a separate bank on the lines of the Small Industries Development Bank of India for meeting the financial requirements of this sector.
By Arpita Mukherjee, senior fellow at Icrier
Government, as a facilitator, plays a significant role in the growth of this sector. Positive interventions are needed since the sector has huge employment potential and substantial backward linkages. At present, there is no clear policy on retailing. Although 51% FDI is allowed in single-brand retailing, it is unclear whether the policy would be extended to multi-brand outlets and, if so, when? Rather than a piecemeal effort, the government should come up with a comprehensive policy for opening up the sector with clear timelines. This would make it easier for domestic players to plan their future growth.
Many laws relating to retailing, such as the Agriculture Produce Marketing Committee Act (1976) and Essential Commodities Act (1955), are outdated and should be amended. Although franchising is an important mode of conducting business, unlike countries such as the US, India does not have a comprehensive legislation governing franchising. Such legislations should be implemented for protecting franchising rights.
Certain legislations in the real estate sector (e.g. Rent Control Act, zoning regulations) limit the availability of land for retail use and increase the prices. Regulations relating to land ownership should be made more flexible. Appropri-ate urban planning and supporting infrastructure (approach roads, transport, parking, etc) is needed for the sector’s healthy development.
A retailer requires 12 to 15 clearances at the central/state/local levels to conduct business. A single- window clearance process would immensely reduce uncertainty, delays and red tapism. There are various restrictions on inter-state movement of goods, especially foodgrains. This forces retailers to source locally and they are not able to reap the benefits of economies of scale.
For retailing to succeed, India should be treated as a single market. Uncertainty relating to lack of land ownership , vendor-owned and fashion driven inventory, etc makes it difficult for retailers to access bank loans in the absence of collaterals. The government should set up a separate bank on the lines of the Small Industries Development Bank of India for meeting the financial requirements of this sector.
By Arpita Mukherjee, senior fellow at Icrier
posted by InCar Group Press Room at 12:46
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