Retailers pin hopes on Budget for decisions on tax sops, FDI

Written by Mona Mehta | Mumbai | Updated: Jun 22 2009, 21:06pm hrs
Retail majors are expecting conducive policies in the Union Budget that will lay more emphasis on easy credit, more tax benefits and some important decisions on allowing foreign direct investment (FDI).

According to the industry experts, retail industry would give a major push to the economy in the next five years if retailers get exposed to better industry know-how and ensure flow of funds for domestic players.

Some of their expectations include value added tax (VAT) be consistent between zero and 4% for the food retail industry, and industry recognition and decision on foreign direct investment-led liberalisation to retail.

Spencer's Retail vice-president (sales and marketing) Samar Sheikhawat says, "It's imperative that the new government comes up with growth conductive policies, ensure availability of easy credit, grant corporate tax holidays and ensure real estate benefits to retailers. Formulation of a national policy for the industry enabling uniform rules and regulations in all the states is needed."

The government should take a decision on FDI. In fact, liberalisation will foster competition, expose Indian retailers to better industry know-how and ensure flow of funds for the domestic players as well. Also, the government should focus on improving infrastructure in terms of better road, rail, air and port linkages, which are the current handicaps of the industry, he added.

Inorbit Malls CEO Kishore Bhatija said, "Looking at the current global economic situation, it is expected that the forthcoming Budget will go for tax reforms in a big way. The government will have to strike a balance between the tax reforms and the impeding effects. This would be achieved by assuring that the benefits of growth in retail sector directly go to the retailers. Abolition of service tax on lease rentals and implementation of good and service tax (GST) would bring in more benefits to the retail industry."

The organised food retail sector is largely dominated by restaurants, fast food outlets, coffee joints and the like. The Indian food market is estimated at over $182 billion and accounts for about two thirds of the total Indian retail market. According to consultancy firm McKinsey & Co, the retail food sector in India is likely to grow from around $70 billion in 2008 to $150 billion by 2025, accounting for a large chunk of the world food industry, which would grow to $400 billion from $175 billion by 2025.

Milind Pant, chief marketing officer, Yum! Restaurants International - Indian subcontinent said, "The government should consider setting up of an inter-ministerial working group (IMWG) with a relevant industry body as a knowledge partner to look at comprehensively addressing the challenges that are holding this sector back. From a taxation perspective, we would like VAT (value added tax) to be consistent between 0 and 4% for the food retail industry."

Currently, the retail sector is facing certain key challenges, which include lack of budgetary support to the people in the sector for vocational institutes for the hospitality industry apart from generating retail specific courses and training at university. As for supply chain, there should be incentives to develop the cold chain and cheaper refrigeration components which are critical infrastructure for the industry, apart from ease of finance for vendors, Pant added.

Budget is one of the most important and massive exercises that determine the future growth of the country. The retail sector is growing at a hasty pace, by a strong economy, favourable demographics, rising disposable income level and rapidly changing lifestyles and consumer aspirations. Retailers are taking benefit of this growth and aim to expand accoedingly.

As industrial growth is a long-term proposition, it is rather difficult to predict as to what measures the Union Budget (2009-2010) will take to reverse the slowdown in this sector. The finance ministry should execute policies effectively that will give recognition to retail as an industry, Bhatija added.

Plaza Centers--India marketing director Shashank Pathak said, "Retail is the backbone of every economy. Granting industry status to the retail sector will help regularise employment, boost warehousing and distribution network and benefit local vendors. Increasing the FDI to 100% will have multiple positive effects on the sector, including increase in employment, demand for more retail space in the country and more variety to the consumer to choose from. Besides, easy access to bank loans for retail projects will ensure timely completion of projects, hence ensuring early break evens'.