Liberalising retail

After years of dilly-dallying, the recent unveiling of the discussion paper on FDI in multi-brand retail by the Department of Industrial Policy and Promotion, (that oversees foreign investments in retail sector) is a welcome step, especially as it reflects progressive thinking of the government.

The current law permits 100 per cent FDI in wholesale cash & carry and only FDI upto 51 per cent is allowed in single brand retail while there is complete ban on FDI in multi-brand retailing.

Notwithstanding the expected political opposition to the government's move of making a case for FDI in retail, simplification and liberalization of FDI regulation for retail sector is overdue.

Instead of putting a blanket ban on FDI in multi-brand retailing to protect the interests of small retailers, proper regulation with incentive to small retailers is the way forward for modern retail.

The huge benefits of FDI in the form of infusion of capital, knowhow and competitiveness can no longer be overlooked. Especially, the much-needed foreign capital will help in building up the retail infrastructure in the form of modern and streamlined back end operations. The modern supply chains will replace the old antiquated and inefficient distribution system, helping small producers to link up with national and global markets.

The move to liberalise retail funding assumes significance in the backdrop of massive growth potential of modern retail. According to industry statistics, retail sales are set to grow at 10 percent this year and organized retail's share is expected to reach 30 per cent by 2013, growing to US$ 40 billion by 2015.

The retail sector needs to be reformed and streamlined on the policy and regulations front. Archaic law like the Shops & Establishment Act need to be amended and multi-point taxation structure needs to be nationalized. The crucial issue of lack of quality and trained manpower needs to be addressed.

Also the public-private partnership in developing retail infrastructure should be promoted. All these issues can be effectively addressed by a National Retail Policy, aimed at facilitating and promoting organized retailing. There is an urgent need to frame such a policy, defining the clear cut guidelines for governing the retail sector.

Along with this national policy, there's a need to govern operations through a single apex body. Currently organized retail sector is governed/regulated by both Commerce & Consumers Affairs Ministries. While Commerce Ministry takes care of the retail policy, Consumer Affairs Ministry regulates retailing in terms of taxes, licences, legislations etc.

A single agency instead can take care of retail operations more effectively specially with retard to addressing the grievances of retailers. Moreover, according industry status to retailing is an equally pressing need as the sops that come with it, will help promote both big and small retailers.

Since franchising is a growth driver for organized retail, a regulatory framework for franchising will really come handy especially as currently there is no regulator to promote franchising. There is a need to create entry barriers to restrict fly-by-night franchisors and also to institutionalize franchising to bring in more scalability and transparency.

The liberalization and regulation of retail/franchise operations is the way forward for the speedy and sustainable growth of organized retail.