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Retailing In India - A Government Policy Perspective

Extracts from this essay...

Introduction

Retailing In India A Government Policy Perspective TABLE OF CONTENTS 1. EXECUTIVE SUMMARY 5 2. INTRODUCTION 6 1.1 EVOLUTION OF INDIAN RETAIL 7 1.2 RETAIL FORMATS IN INDIA 8 1.3 THE CHANGING INDIAN CONSUMER 10 1.4 ANTICIPATED GROWTH IN THE RETAIL INDUSTRY 11 3. ISSUES IN INDIAN RETAILING 12 2.1 THE PROBLEM OF PRODUCTIVITY 12 2.2 OPERATIONAL PROBLEMS IN INDIAN RETAILING 12 2.3 POOR PRODUCTIVITY IN MODERN FORMATS 13 2.4 INDUSTRY DYNAMICS 16 2.5 EXTERNAL FACTORS AFFECTING PRODUCTIVITY 18 4. INDUSTRY STATUS TO RETAIL 24 3.1 PROBLEMS OF NOT BEING AN INDUSTRY 24 3.2 THE NEED FOR INDUSTRY STATUS 25 3.3 STAKEHOLDER BENEFIT ANALYSIS 26 5. FDI IN INDIA: AN ANALYSIS 30 4.1 GLOBAL TRENDS 30 4.2 INDIA'S SHARE 31 4.3 DIRECTION OF FDI INFLOW INTO INDIA 33 4.4 CAUSES AND REASONS FOR LOW FDI INFLOW INTO INDIA 35 4.5 FDI POLICY RECOMMENDATIONS 41 6. IMPACT OF FDI: THE GLOBAL EXPERIENCE 44 5.1 GLOBAL TRENDS 44 7. FDI IN RETAILING 51 6.1 INTERNATIONALIZATION: THE NEW RETAIL TREND 51 6.2 THE INDIAN RETAILING REGULATIONS 52 6.3 THE INDIAN ADVANTAGE 55 6.4 ENTRY ROUTES OF CURRENT FOREIGN RETAILERS 55 8. FDI IN RETAILING: THE DEBATE 57 7.1 FDI IN INDIAN RETAILING: WHY NOT? 57 7.2 FDI IN INDIAN RETAILING: WHY? 59 7.3 INCENTIVES FOR FDI IN RETAIL 62 7.4 REGULATING FDI IN RETAIL 63 7.5 WHAT SHOULD THE GOVERNMENT DO? 64 7.6 FDI IN RETAIL: AN IMPLEMENTATION FRAMEWORK 65 9. THE CHINESE EXAMPLE 66 8.1 CHINESE POLICY IN RETAILING 66 8.2 RETAIL FDI IMPACT IN CHINA 67 10. RECOMMENDATIONS 71 11. REFERENCES 74 1. Executive Summary This project is a critical analysis of the government policy in the Indian Retailing Sector. The report focuses on two primary issues: The granting of industry status to retail and the permission of FDI in Retailing. Apart from these the report also covers other areas of government policy that affect the growth and development of this industry.

Middle

The Central government has recently taken steps to reduce the ambit of this act and eliminate controls on movement and storage of food grain. Initial steps have also been taken in the direction of putting this act into suspended state to be invoked only by a Central government notification to be applied only to well-specified emergency conditions like drought, floods and other natural disasters for a specific area and duration. Other simplification measures announced in the last budget were the amendment of the Milk and Milk products Control Order to remove restrictions on milk processing capacity, decanalisation of the export of agricultural commodities and phasing out of remaining export controls, expansion of futures and forward trading to cover all agricultural commodities and amendment to the Agriculture Produce Marketing Acts to enable farmers to sell directly to potential processors. Similarly labour laws discourage the entry of green field FDI because of the fear that it would not be possible to downsize if and when there is a downturn in business. Labour laws, rules and procedures have led to a deterioration in the work culture and the comparative advantage that is even beginning to be recognised by responsible Trade Unions. Pursuant to the announcement in the 2001-02 budget that labour laws would be reformed, a Group of Ministers was set up to work out the modalities. The Labour Commission has in the meanwhile also submitted its report. The Group of Ministers will suggest specific changes in the laws for the approval of the Cabinet. SSI reservations further limit the possibility of entering labour intensive sectors for export. De-reservation of readymade garments during the year 2000 and de-reservation of fourteen other items related to leather goods, shoes and toys during 2001 is a welcome development. About 10 per cent of the items on the list of items reserved for the small-scale sector have been freed over the past few years.

Conclusion

To improve their finances, these local governments need to enforce property tax collection to raise funds for infrastructure development. Increase land supply: City administrators need to bring government owned land into the market more regularly. This will encourage and aid large-scale developments both in the suburbs and within the cities. Simplify the tax structure The government should ensure the adoption of a uniform sales tax rate across states, and with time, introduce Value Added Taxation (VAT). It should also eliminate octroi wherever it is levied. These policies are already being considered, and most states have agreed to uniform taxation, at least in principle. Ensure flexibility of labor laws Permitting flexibility in the use of labor, without doing away with the benefits accruing to them will permit retailers to better organize operations and improve capacity utilization. This will include permitting retail businesses to stay open all days of the week, encouraging use of part time labor, etc. Some southern states have already agreed to these on the face of requests from some well-established retailers. Better enforcement of tax collection from small retailers Small retailers in India derive several benefits from non-enforcement of labor and taxation laws. While it will be difficult for the enforcement mechanism to regularly monitor labor usage and electricity consumption by the millions of small retailers, it should definitely improve the tax collection mechanism. Ensure single window clearance for retail chains: State governments should make all licenses and permits available through a single agency at least at the city level. Providing one-time licenses for multiple stores in a chain will ease the bureaucratic hurdle experienced by modern retailers. Eliminating bureaucratic hurdles The state/local government is a critical stakeholder in retail. Several important changes in retail environment imply a loss of power for government officials. These comprise better enforcement of laws among small counter stores, simplification of legislation and loss of tax revenue from sales and octroi levies. While the legislative change may be easier to initiate, the behavioral change process will definitely take more time. 11.

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