Retailing In India: WHY, WHEN & HOW TO DO IT ?
“Retail”, a short word with a lot of effects on an individual, society and the country. It is said that this word retail plays a very vital role in the livelihood of many people. What does this word “Retail” signify is very important to describe. What comes into one’s mind when he or she thinks of the word “Retail”? They may see themselves standing in a grocery shop or a mall buying whatever they feel would make them happy. So Simple or IS IT?
So easy to define “Retail” from a normal man’s perspective but standing on a legal side, it’s a hard nut to crack. However, the High Court of Delhi has helped us clearly understand it in a case stating that “Retail’’ is a “sale for final consumption in contrast to a sale for further sale or processing (i.e. wholesale)” and thus clearly signifying it as sale to the ultimate consumer.
When the then, finance minister Dr. Manmohan Singh opened the doors of India for foreign direct investment in 1997, India paved a way for its development by inviting foreign investors to invest in it. Ever since then foreign investors have been regularly involved in putting their money into India by the way of FDI(Foreign Direct Investment). Although there has been variations in the same but they have never stopped. The main reason behind this is the nature of Indian economy which being a developed economy is always thriving for ways to improve itself and present itself to the world as a land of opportunities. India has, however, to a certain extent has been successful in doing so and has opened many of its sectors for foreign investment from the outside world.
These sectors include agriculture & animal husbandry, tea plantation, mining & petroleum and natural gas, Manufacture of items reserved for production in Micro and Small Enterprises (MSEs), Defence, Broadcasting, Print Media, Civil Aviation, Courier services, Construction Development: Townships, Housing, Built-up Infrastructure, Industrial Parks, Satellites- establishment and operation, Private Security Agencies, Telecom Services, Trading, E-commerce activities, Railway Infrastructure, Financial Services, Others (Pharmaceuticals & Power Exchanges)
FDI in Retail
The norms related to FDI in retail falls under the category of FDI in Trade. These norms state that there are two routes through which a foreign company may invest in Indian retail sector.
These are the Automatic Route and the Government Route.
Under the Automatic Route, the non-resident investor or the Indian company does not require any approval from Government of India for the investment. Under the Government Route, prior approval of the Government of India is required. Proposals for foreign investment under Government route, are considered by FIPB.
WHY TO DO RETAILING IN INDIA?
The history of retail in India extends long back to the medieval period and has continued and maintained its place in the Indian economy. However there has been sufficient modernization to help the Indian retail sector to thrive itself in comparison of the developed countries of the world. The growth of Indian retail industry has been fueled by investments from foreign retail giants like Walmart of US, French retail major Carrefour, Single brand retailers like Nike. These giants have not only helped in the creation of jobs but also have played a major role in the development of GDP of the country.
The retail industry in India is the 5th largest in the world and is ranked as 4th in the 30 countries surveyed for global retail development. The retail industry in India accounts to over 10% of the GDP of the country and about 8% of the country’s employment. With such a position in the global scenario several corporates like Reliance Industries have planned to exploit the opportunities present in this sector through capital expenditure lined at INR 1.8 trillion (US$ 28.94 billion)
Furthermore, the growth in the retail sector has also lead to the growth of real estate sector, thus importance of retail sector can be very well understood through it. The overall growth rate in the retail market is 12% per annum resulting in doubling its value from US$ 600 billion in 2015 to US$ 1 trillion by 2020. The reason behind this is the urbanization, income growth, and attitudinal shift.
Therefore it is clear that with such a vast opportunities of growth in a sector which is very important from a national as well as a global point of view seeing that it plays an important role in the GDP of a country, it can easily be analyzed that this sector is a very juicy and is liable to reap vast benefits if properly invested.
WHEN TO GO FOR INDIAN RETAIL SECTOR?
For investing in the Indian retail sector or any other sector in India or in any other country outside the world, it is very important for the investor to make a deep study of the trends in the desired sector along with the possibilities and other opportunities in the sector. But, the most important element that is required to be studied is the role of the government in the sector.
The FDI policies of a government plays an important role in attracting the foreign investment from the sector. India’s FDI policies in reference to these have been very smooth and attractive from a global point of view.
The FDI policies of India regarding investment in the Indian retail sector are as follows
- For Single Brand product retail trading :
The Government of India has allowed for foreign investment in the Indian retail sector with the aim to attract investments in production and marketing, improving the availability of such goods for the consumer, encouraging increased sourcing of goods from India, and enhancing competitiveness of Indian enterprises through access to global designs, technologies and management practices.
For this the government has allowed FDI Cap at 100% and the entry route decided for this is:-
Automatic route up to 49% & Government route beyond 49%.
- For Multi Brand product retail trading :
For multi brand product retail trading, the government has stated that minimum amount to be brought in, as FDI, by the foreign investor, would be US $ 100 million.
Apart from it the FDI Cap is 51% but the entry route decided for this kind of investment is Government route only.
PREREQUISITES FOR STARTING THE RETAIL SECTOR IN INDIA
For starting a retail activity in India the startup has to proceed under the legal structure designed by the government. In order to enter the Indian retail market, the startup must have certain licenses and approvals in hand. The number of licenses that a company is required to have depends on the facilities it is willing to provide to its customers. However, there are certain general licenses and other statutory requirements which a company is necessarily required to have/fulfill.
- Agreement for taking place for opening of store. The nature of agreement depends on Lease Agreement, Leave & License Agreement etc
- Trade License from the respective state.
- Music License, if you want to play music in the store. [from IPRS(Indian Performing Rights Society)] and PPL (Public Performance Background License) both.
- Register the stores under Shops & Establishment Act of the respective state.
- Contractors License, if contract labours are hired.
- PFA (Directorate of Prevention of Food Adulteration) license.
- VAT registration.
- Service tax registration.
- Agreement with every vendor who will supply products.
- Health & Sanitary License.
- Forecourt License (for sale outside the shop if required).
- Sign Board License (within & outside stores).
- Food License as may be applicable.
- APMC License (Food & Vegetable and Staple-Procurement & Sale).
- Eating House License.
- Cold Storage License.
- Essential Commodities Act – Storage Control Order.
- License under Drugs & Cosmetics Act.
- Registration of manufacturers, packers & importers under Rule 35 of the Standards of Weights & Measures (Package Commodities Rules).
- Fire department NOC.
- Digiset approval as required from the local electricity board.
- License for ground water storage & usage.
- License if the façade of the store faces the road.
- Labour act registrations :- PF, ESIC, Bonus, Gratuity, Minimum Wages, Trade Unions, Delay Payment Act, Employment of Women, Consumer Protection, Factory Act & other applicable labour registration and compliances.
In the present Indian economic scenario it is worth mentioning that the retail sector has emerged as one of the fastest growing sectors of the Indian economy and the current phase is just the beginning of the long story.