Retail Industry Seeks More FDI, Service Tax Exemption On Rentals.

The organised retail industry in India, which forms 5-6% of the $500 billion retail trade, has two primary expectations from the Union Budget 2011-12. The industry wants a relaxation of foreign direct investment (FDI) norms allowing entry of foreign players in multi-brand retail and exemption from service tax on rentals, which amount to nearly 1.5% of annual sales. Besides, some retailers expect the government to consider the implementation of goods and service tax (GST).

FDI in multi-brand retail has been long-awaited. At present, the government allows 100% foreign investment in the wholesale cash-and-carry business and 51% FDI in single-brand retail.

However, large format retailers like Walmart, Carrefour and Tesco, which have been waiting to set up independent stores across the country, cannot do so as per the current policy. Nitin Mathur, manager — institutional equities — research, Edelweiss Securities, said, “FDI norm may get liberalised for different formats. This could happen as many government departments are supporting this and this could be used to fight food inflation by getting higher investments in cold storage, technology and logistics for the retail sector.” Major domestic retailers want FDI to improve back-end infrastructure and reduce wastage at the farm level which is about 15% of total produce, and at the transportation level which is 25%. Rajan Divekar, senior director, Deloitte said, “FDI in multi-brand retail should be utilised to develop back-end operations. Improved transportation fleets, refrigerated vans and pre-cooling chambers can bring down wastage by about 40%. Foreign retailers, if allowed to come in, should invest in technology for gathering real-time information on inventories. Better grading and packaging systems should also be developed.” The other major concern for retailers is the tax they pay for rentals. Rentals fall under the purview of services and hence attract 10.3% tax, which puts pressure on the retailer's margin. Govind Shrikhande, managing director, Shoppers Stop, said, “Service tax on rentals adds severe burden on us, costing 1-1.5% of our annual turnover. It should be abolished to help us reduce operational costs.” He also expects the government to grant industry status to the retail sector.

“We expect the finance minister to recognise retail as a separate industry and appoint a retail minister to look after it,” he added.

Source : financialexpress.com