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Industry cries foul: Move to ban corporates in retail
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Friday, 12 June, 2009, 08 : 00 AM [IST]
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Our Bureau, Mumbai
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The organised retail industry has reacted strongly to the recommendation of the parliamentary standing committee on commerce about imposing a blanket ban on domestic corporate and foreign retailers from entering retail trade in grocery, fruits & vegetables.
Most of the retailers are of the view that traditional retail and organised retail are not adversaries to each other but rather complement each other.
Said Kumar Rajagopalan, CEO, Retailer's Association of India, "Retail industry is complex and large employing 25 million people with a business of Rs 2000 billion and being the second largest employment generator after agriculture. We need to understand the issues of the retail before banning the growth. A separate ministry is needed to be formed to know the intricacies of the industry before placing a ban on it. "
The industry is dismissing the recommendation as a premature response without any substantial thinking. According to Rajagopalan, organised retail also supports agriculture which is the backbone of Indian economy. The productivity of agriculture is increased through efficient supply chains and the overall wastage is reduced. This consequently leads to reduction of prices for the end consumers.
In the report, "Foreign and Domestic Investment in Retail Sector," the panel has also suggested that the government should "stop issuing further licences for cash & carry, either to transnational retailers or to a combination of transnational retailers and the Indian partner, as it is a camouflage for doing retail trade through the backdoor. On this Kumar opined, "Cash & Carry is nothing but organised method of wholesaling. Hence it should be supported rather than being negated."
Echoing Rajgopalan's view is an official spokesperson for the Spencer's Retail. He said, "We have witnessed the sector over the last 15 years and never has it been the case that the traditional retail has been wiped out the organised retail segment. In fact last few years has seen organised retail struggling due to some unavoidable circumstances like recession. The consumers, frequency and every aspect of traditional retail is different from the organised segment. If the traditional retail constitutes 95% and organised 5% of the total retail business, next 10 years the statistics would only change to 85% and 15%, which is not huge."
The spokesperson further recalled the ICRIER (Indian Council for Research on International Economic Relations) undertook in February 2007 and assigned to the premier economic think tank of the country following the ruling UPA chairperson Sonia Gandhi's missive to the Prime Minister Manmohan Singh for evaluating the impact of FDI and entry of big retail in the sector before initiating any big ticket reforms.
The report had then concluded that although the market share of traditional retail would concede its market share to the organised retail, the negative impact of modern retail would wear off with time. The report had predicted a strong 84%
share of the traditional retail in 2013. Also it encouraged modernised retail to deal with bottlenecks in retail and suggested the government to rationalise licensing norms for the growth of organised retail.
Another aspect that organised retailers are now betting upon is the taxes ensured to the exchequer through organised retailing. Said Rajogopalan, "Organised retail follows law of the land. However, unorganised retailers do not have cash memo leading to easier ways of evading taxes." According to Brian Verghese, director, Training and Development, Target Training Service in retail and service, "The small retailers do not pay the rents or the taxes in a legal way. Many a time they were found bribing the police officer or the authority which was ignored."
Brian gave a mixed reaction to the recommendation. Said Brian, "The recommendation makes a lot of sense though there are pros and cons. Cartelisation will be a challenge for the traditional retailers, which could lead to mass unemployment. At the same time we cannot stop big cities from attracting global retailing and some price surely has to be reconciled for this."
Brian felt this recommendation if approved would put a dampener on the entrepreneurship in the country. Also it would take away customer's right for a decent and hygienic shopping. He said, "If you visit small markets the unhygienic way of business is quite disturbing."
Is the blanket ban also likely to give the upcoming retail schools which are fast becoming popular in the country a setback?
Brian was composed on this. He said, "There will be no dearth of work for the professionally trained employees in the service sectors which are always in search of trained manpower. Besides retail and hospitality are closely linked with 50-60% of the syllabus in common, so the students can be accommodated there. However, my experience says that 95% students want to study retailing than hospitality as it pays more, has better prospects and allows flexibility of time."
Rajagopalan placed his final case for argument over the recommended ban. He said, "Investments in retailing ensure that the funds are utilised properly. Besides, telecom, banking and insurance also come under the retail segment, so is the government thinking of banning those as well?"
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