Congratulations on the massive and over powering mandate for development and progress which has created a lot of expectations in the minds of the majority of Indian citizens. I take the opportunity to write to you as a Retailer to highlight some things which require urgent intervention in the Retail industry.
Actually it would be incorrect to use the word industry as Retail is not an industry and let me start the wish list from that point onwards. A sector which spans across 12 14 million business units accounts for about 8% employment and contributes approximately 20% plus to the GDP and yet does not have industry status and therein lie many of its woes. The first step would be to define Retail as an industry and maybe even have a minister of state to focus on the development of Retail.
Giving Retail, Industry status
If Retail is given Industry status, it would also enable a clear classification of the varied businesses basis their size of operations. Quite similar to manufacturing, Retail can have a micro segment which can comprise of the street hawkers and small stores upto a particular size and level of business. A small and medium scale grouping which would typically cover those in the urban areas and a large scale sector which would encompass any Retailer who has more than a particular number of stores and generates sales above a level.
Such a move would immediately put at rest all the various debates and arguments about the small trader being killed and the question ark about their future. Simple because when such a move is tied in with urban development guidelines, the type of operator who can operate in a particular urban zone can be clearly defined and regulated. For example, the type of Retail outlet that can be opened can be defined basis the width of a road very similar to the FSI guideline being used to govern real estate.
Not only Retail but residents in cities might breathe easier if such a classification and zoning was implemented as undue pressure on local infrastructure like roads will not be there.
As an industry, Retail can have clear mandates with regard to taxation, legislation, employee protection, etc. More importantly, Retailers can access institutional credit more easily as financial entities can be given clear industry/ sectoral guidelines with regard to lending. Such a step might enable even the smallest of shop owners to dream of growth and expansion.
An industry status would help streamline the extent of licenses and permissions required to open a store and help move towards a single window system. Apart from better compliance, such a system would be more cost effective to administer and manage. This has a very strong merit in todays context when most small shops do not have all the required mandatory licenses. This is one of the first and wide spread causes of corruption when the local enforcement is overlooked because of something being paid.
As an Industry, Retail can work towards creating common platforms for more efficient and effective functioning. For example, a national registry of products which is populated by the manufacturers with details of every product they make can be a massive boon for not only Retail but also the manufacturing sector. Retailers can access this database regardless of their size and managing the same would be cost effective because of the scale and volume of usage. This would ensure that computerized billing can slowly make inroads down to the last sale and this in turn will ensure that data with regard to consumption and sales is available at everyones finger tips.
Imagine the potential for such data with regard to not only manufacturers and retailers but also the government. Budgeting, planning of fiscal policy, taxation, etc., becomes far more easier and is accurate.
While there are many more benefits that can be derived from making Retail an Industry, let me move on to specific wishes on behalf of the various components of the Retail sector in India.
Enabling the Small Stand Alone stores and retailers
One of the many studies about Retail has found that a typical stand alone small shop provides livelihood to 3 people. Usually 2 of them are family members and the third is an employee.
Many people have claimed that the livelihood of these people is under threat from chain stores and that they will die if FDI is allowed in multi brand Retail. The reality is that the livelihood of 2 out of these 3 people is already under threat with allowing FDI.
Whereas in reality many small shops are closing down or are being sold because the next generation if not interested in working in a shop. There are many reasons why this is so and this needs to be addressed if the thriving 12 to 14 million shops of India are to continue to exist and grow. The reality is that there exists a perception that shop keeping is not an aspirational occupation. This is something that will change only with time and if the other constraints that plague these small shops are removed.
-Licensing and Taxation: As already mentioned a streamlined single window system would go a long way in increasing the compliance levels. Coupled with a classification system where small shops need to get the bare minimum of licenses and therefore expend minimal effort, this would lead to increased credibility of the system.
-Enabling IT adoption: Many of these small shops are open to adopting computerized billing. The two things which stop them from doing so is a fear of the complexity and that the data on a computer might be used against them by government officials. If a single window system removes the concern of harassment, a centralized national registry of products would make usage of a computerized billing system easier.
-Social security: The small trader is a very lonely person. He does not have any kind of social security and that is a major drawback in the eyes of the next generation as compared to any full time employment. A national insurance scheme that provides small traders with medical and life cover at a nominal cost would have a far reaching impact on these people and their livelihood. This can even be dovetailed into the existing ESI mechanism instead of trying to reinvent the wheel.
-Education and training: Last but not the least is to provide suitable vocational training and educational inputs to these shop owners with regard to managing their stores more efficiently and productively.
Enabling Corporate Chains
The two big challenges for the chain stores apart from funding are in terms of real estate and trained manpower. While the industry classification and related zoning laws might marginally help Retailers access affordable real estate, this is not enough.
Retail parks with suitable infrastructure are required and if 100 new mega cities are being planned, this should be a part of the blue print of such cities.
A national vocational initiative focused on Retail is the need of the hour. Although there are programs under the national skill development initiatives, there is no clearly focused Retail specific vocational training and development program in place.
A national level Retail employment initiative would deliver benefits all around in terms of increasing employment, stabilizing wages, improving skill levels, etc.
Although there are a lot more wishes like removing the service tax on rentals, introduction of GST at the earliest, etc., let me come to that after a while as a medium term request.
Enabling Online Retailers and franchise businesses
Online Retail is a reality of India and is driven by consumers. As of now, this falls in between the tables in many ways and it is both good and bad. A comprehensive approach to online Retail including the regulation of the same is required for this to grow to its full potential.
Related to that is Franchising which is a huge business opportunity internationally. Although there are business reasons why franchising has not yet taken off in a big way in India, legislation governing franchising is also a bottleneck. Currently, franchising is not recognized and governed by any single set of laws and rules. This requires a single set of comprehensive legal framework for it to work and succeed, apart from all the other Retail specific enablers mentioned.
Last but not the least
Lastly the wish list would be incomplete without talking about FDI. My view is that if all or even some of the above are implemented, especially the industry status for Retail, then the debate about FDI would be a non starter. Just like how no one objects to FDI in large scale manufacturing, the opposition to Retail FDI will cease to exist if it is clear that the operating space of such businesses will not infringe on the small stores. All in all, it will be a Win-Win approach.
This article was originally published on ETREtail.com (an initiative of The Economic Times)