Retail Expects High from Budget 09

June 26, 2009	(Be the first to rate this story!)  Loading ...
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UPA coming into power in good numbers raises new hopes for the retail sector in India. Like any other sector, retail has also been witnessing a sharp decline in revenues. Given that the retail trade functions on paper thin margins; this decline in revenues has had a cascading effect on the profitability. There is credit crunch in the market and bankers are not easily lending money. In such a scenario, retail players are concentrating on promoting in-house brands, changing product profiles, adopting innovative means of funding operations, relooking at supply chains, repositioning the business model and are also on a look out for opportunities of consolidation.

Opening up of foreign direct investment ‘FDI’ in multi brand retail has been the long standing demand of retail sector. As this has been one of the budget wish list of the retail sector, it is the industry’s expectation that the UPA coming into power in good numbers will help in getting through this proposal. Recently, Department of Industrial Policy and Promotion (DIPP) had clarified by means of a Press Note that if the Indian investment company (IIC) is owned and controlled by residents, then a step down investment by IIC in any Indian company is not considered as FDI. This would be the case, even if, there is a foreign investment in IIC upto 49 percent.

A primary reading of the above press note gives an indication that even though FDI in retail is not permitted through direct route, the same can be achieved indirectly provided that the Indian investing company (IIC) is owned and controlled by the residents. As there is considerable ambiguity in interpreting the provisions of the aforesaid press note in relation to retail sector, it is expected that the Government should issue a clarification laying down the applicability of the aforesaid press note in case of multi-brand retail. The other major bottleneck, which retail sector is witnessing today is inability to raise debt in foreign currency. External Commercial Borrowings (ECB’s) are not permitted in the retail sector. Though, Reserve Bank of India (RBI) has in 2008 liberalized ECB guidelines by permitting hotels, hospitals and software companies to avail ECB upto certain prescribed limits, retail sector has been left wanting. Opening up ECB route for retail players will give a big boost to their operations by providing a big solution for their funding requirements for capital projects.

For revival of the retail sector, consolidation is imperative. Fiscal incentives, if any, provided by the Finance Minister would be a welcome move. The Finance Minister should look at extending the benefit of carry forward and set-off of losses for income-tax purposes in case of amalgamation in the retail sector. Presently, this benefit is primarily applicable to amalgamation of companies owning an industrial undertaking. Further, lowering corporate tax rate and changes in Fringe benefit tax ‘FBT’ will go to a large extent in improving the margins of the retail industry. Retail should also be given an industry status, which has been a long standing demand of this sector. This will also help in making retail industry more organized. The levy of service tax on renting of immovable property should be done away with. The service tax on renting of immovable property constitutes a significant component of tax cost in the retail sector for which no credit or offset is available.

The process of refund of Special Additional Duty of Customs (’SAD’) allowed to the importers on goods meant for resale in India poses a lot of administrative difficulty for the tax payers. The Government should either totally exempt SAD or simplify the procedure associated with refund claim. This would help tax payers reap the intended benefit as envisaged by the Government. No doubt the consumer spending has dropped owing to global meltdown, still growth in retail sector is inevitable and the potential is huge. What is required to achieve the growth is a little impetus by way of economic reforms by government. Even in these turbulent times small and big retailers are going ahead with their expansion plans. The industry’s expectations this time around are that the government should not leave the retail players wanting and should open the doors for growth by doing its bit on the policy front and providing other fiscal stimulus.

News Published Under:   Retail Market in India |

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