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: Businessmen who saw in Thomas Isaac, the economist finance minister of Marxist-ruled Kerala, a counterweight to the state’s “ideological” chief minister, VS Achuthanandan, have come to the conclusion that nothing’s going to change in a hurry. The CPM entered office after an assembly election in 2006 with guns trained on big business. Coca-Cola was chosen as a prime target to ensure that signals went out far and wide. The revolution continues. Look at the state budget presented last Thursday by Isaac. The state government has made it abundantly clear what it thinks of big retail by imposing a 10% surcharge on retail chains with annual turnover in excess of Rs 5 crore, which source 50% or more of their goods from outside Kerala and sell 75% or more of the same directly to consumers. This is of a piece with incidents where the party used civic bodies to deny local permits to large retail chains. This permit-denial “policy” was put in place in response to a street agitation against big stores by small retailers; they form a significant part of the CPM’s support base. However, agitpropism didn’t prove terribly effective—large-format stores continued to expand their presence in high-income urban areas. Hence the use of the state budget as a blunt instrument. Now there’s an official policy to alter the balance of competitiveness in favour of small shops, and doubtless there will be many satisfied shopkeepers and cadres.
Everyone else should see Kerala’s retail surcharge as what it is: a regressive measure in the extreme. It is illogical and discriminatory even within its own “logic”. Taking Rs 5 crore as an arbitrary cutoff figure means it can’t even properly define “big retail”. Many medium sized players will be victims of this grossly unfair levy. The policy is fiscally near-irrelevant, too, since it is expected to raise only Rs 2 crore in extra revenue. No government should undergo extra administrative expenditure for a mere Rs 2 crore. And worst of all, it is terrible economics. Big retail achieves size and can therefore extract economies of scale and technology-driven operational efficiencies. Both help lower retail prices. This is universally true. What is also true is that big and small retail can coexist. Most important, big retail generates lots of new jobs. What could be more important in job-starved Kerala?
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