1Two Years of Modi Government for Retail
On May 26, two years ago, the Narendra Modi-led NDA Government came to power with an absolute majority. The lavish swearing-in ceremony promised to bring in winds of change. Team Modi was ready with a bold plan for the country.
It has been an eventful two years of policy change, new initiatives, and political exchanges amid global economic turmoil.
With a view to examining what counted as hits and misses in the retail sector in the past two years, Indiaretailing takes stock of the Government’s performance in improving the business environment in India.
2India, A Bright Spot in the Gloomy World Economy
The hits on the economic front under the Modi Government:
At a time when major global economies are shrinking against the backdrop of a strong US dollar and falling commodity prices, India remains one of the few bright spots, as per the World Economic outlook released by the International Monetary Fund (IMF) in April 2016. India is the only economy standing strong among the much-touted BRICS, with IMF suggesting that the country has overtaken China as the world’s fastest growing economy. This shows our economy is on the right track.
India’s economic growth is expected to reach 7.6 per cent this year, higher than the 7.2 per cent of 2014 when Modi took over the leadership mantle.
3Foreign Investment Liberalised
India replaced China as the top destination for foreign investment (FDI) last year, largely on account of the push from the Modi Government to increase manufacturing in the country and liberalizing various sectors.
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The country attracted $63 billion in foreign investment in 2015, according to fDi Intelligence, a division of The Financial Times Ltd.
On the retail front, single-brand retailers got a Diwali bonanza when they were allowed to open fully-owned stores (30 per cent local sourcing mandate remains) and sell their products online, through their own websites, while operating stores in India.
FDI rules for marketplace format of e-commerce retailing were also liberated, though the news didn’t really raise many eyebrows; these companies were already getting foreign funding. However, the announcement of a clear regulatory framework and definition of e-commerce, inventory-based and marketplace models, has now pushed e-tailers to revise their operations and cut down on the predatory pricing, which until now has been the regular norm for e-commerce operation in India.
Paying heed to the request of Food processing Minister Harsimrat Kaur Badal and with an view to benefit farmers and reduce wastage of fruits and vegetables, the FY’17 Budget proposal of Government allowed 100 per cent FDI in marketing and processing of foods products produced and manufactured in India. FDI in multi-brand retail, however, remains tightly under guard.
Two years of Modi Government saw various initiatives aimed at fostering entrepreneurship, making India a manufacturing hub and promoting innovation by creating an ecosystem that is conducive for the growth of start-ups.
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Modi’s ambitious Start-up India initiative, which got voice and shape on January 16, 2016, was a mega boon for aspiring entrepreneurs, willing to startup and stand up in India. While a fine print on the policies is still awaited, a closer look at the campaign revealed the genuineness of the government in ensuring that they are willing to go beyond the foundation level and to facilitate until a concept can be operationalised.
READ MORE: Start Up India: What the industry thinks
A slew of policy initiatives and schemes such as a three-year tax holiday, a magnanimous Rs 10,000 crore start-up fund, easy patent procurement, mobile app-based incorporation, easy entry and exit policies, setting of incubator centres, among other sops were announced that together would bring in needed flexibility and ease of operation for the promising ideas.
Another pet project of Modi’s was to make India a manufacturing hub. The Government is making an effort by easing foreign investment norms, revamping labor laws and cutting down the red tape. India has conducted road shows abroad and Modi has traveled to several countries to gather support. Many multi-nationals have already pledged their support.
5The Misses: GST
One of the biggest stalled projects to the debit of our ruling Government is the Goods and Service Tax bill (GST) with a much-embraced intention of subsuming all indirect taxes under one tax and thereby to effect a harmonized system of taxation in the country.
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The tax is payable at the final point of consumption. At each stage of sale or purchase in the supply chain, this tax is collected on value-added goods and services, through a tax credit mechanism. Thereby it seeks to address challenges with the current indirect tax regime by broadening the tax base, eliminating cascading of taxes, increasing compliance, and reducing economic distortions caused by inter-state variations in taxes.
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However all said and done, the GST Bill – which was conceived way back in the year 2000 – has not yet seen the light of the day.
READ MORE: Benefits of GST for the world of retail
The NDA Government’s new model APMC Act – that seeks to ensure a fair price to farmers by providing them a online platform, National Agriculture Market NAM(NAM) to sell their produce without being exploited by the intermediaries – has also seen opposition from various quarters. While the act envisages greater flexibility to the farmers by directly selling their produce to whosoever they want, the major cons of the Act lie in the fact that trader cartels have been formed in mandis, restricting free competition in the market.
Further going by the statistics,only 17 states have amended their APMC Act to allow direct marketing, contract farming, and markets in private and cooperative sectors. Key grain producing states, such as Haryana, Punjab and Madhya Pradesh, have initiated only partial reforms. Also, seven states and UTs don’t have any APMC Act to govern agricultural trade.
It is clear that the Government still has to undergo several rounds of negotiations with the stakeholders so as to bring them all on the same page.