The government may have finally hit upon an idea to resolve the politically sensitive issue of large retail chains and small shops coexisting in harmony. The department of industrial policy & promotion (DIPP) may support the levy of a cess on large, organised retailers like Reliance Retail, AV Birla Retail, Bharti Retail and the Future group. The funds thus collected would be used to provide cheaper credit to small, unorganised retailers.
Official sources said that the cess could be either on the turnover of the companies or on the basis of the area of the outlets. Details of the proposed cess are yet to be decided.
However, large retail operators are not enthused by the idea. An official with one such retail company told FE that any cess levied on them would be unfair and against the tenets of fair competition. What is worrying retailers is the further squeezing of wafer-thin 4% margins.
The proposal comes at a time when economic think-tank Indian Council for Research in International Economic Relations (Icrier), which is conducting a study on the impact of organised retail on the unorganised sector, has identified finance as the main issue of conflict between the two. It feels that if a level playing field with regard to finances is created vis-a-vis large and small players the conflict?witnessed in the form of vandalism at retail outlets recently?could be avoided in future.
The Icrier study, which is expected by the end of the month, is expected to suggest ways and means to offer cheaper credit to unorganised retailers. Even bankers feel there are many among them who understand the importance of micro-finance and are ready to play the role of financial counsellor to small shopkeepers.
The Centre?s urgency in finding a lasting solution to the retail problem comes in the backdrop of state governments like Uttar Pradesh and Kerala recently taking the extreme step of closing outlets owned by large chains when incidents of vandalism occurred.
Though the central government has asked the respective state government to explain the closures, it is concerned that an increase of such incidences could create Centre-state conflict.
Legal experts maintain that no government has powers to close a legitimate business. Further, in the absence of effective competition, cartels could be formed at either level, which would hurt consumers.