Draft Report of the High Level Group on Services Sector

Chapter 7: Retail Trading Services

Retailing in India is largely unorganized, dominated by the kirana shops or groceries in every locality, supplemented by paan & beedi shops, handcart or head load hawkers and pavement vendors. However, recent years have witnessed considerable activity by the organized sector and several corporate-backed retail chains have come to the fore and are opening large number of stores all over the country. What has helped this trend is the rapid growth of the upper middle class, with increasing disposable incomes, and working couples, who have less time for daily shopping of groceries. Even so, organized retail is in its infancy in India and its share in 2006 is estimated to be only 4 per cent of the retail sales in the country.

Retail trade is heavily dependent on logistics and increases in logistical cost impair the efficiency of retail trade. It is estimated that in 2005-06 the total logistic cost on India was close to 15 per cent of the GDP. The Group would make the following specific recommendations to cut down the logistic cost incurred by retail trade and also by the manufacturing sector:

1. 
   For the smooth flow of goods moving particularly by road transport, integrated logistics hubs should be identified in consultation with industry associations and developed on PPP basis across the country; and
   
2. 
   The Administrations of one million plus cities should develop Transport Nagars outside the municipal areas for smooth flow of vehicles containing both incoming and outgoing supplies.
   

The Group considered that the method of valuation of the service of the service provider unfairly increased the burden of taxation on the retail industry. The Group recommend that the service tax in these cases should be limited to the fee element and should not be levied on the gross amount including the salary.

Ministry of Food Processing Industries plans to implement the Mega Food Park Scheme, which aims to provide a mechanism to bring together farmers, processors and retailers and link agricultural production to the market so as to maximize value addition, minimize wastage, increase farmers’ income and create employment opportunities in the rural sector. The Group supports the speedy implementation of the Mega Food Parks Programme.
The Group recommends that the States should move forward to frame rules and regulations under the Agricultural Produce Marketing Committee (APMC) Act to provide for quick remedy against contract violations and speedy settlement of disputes as this will stimulate resort to contract farming. Widespread use of contract farming will be a boon to the farmers and will also improve the efficiency of retail chain operations.
The retail trade industry has to secure a total of 45 licenses, clearances, registration certificates or notification requirements for each outlet. The Group did not consider single window licensing retail outlets practicable. However, the Group is of the view that authorities should grant clearance/license/certificate to all the outlets of a retail chain that lie within their jurisdiction in one transaction, instead of requiring separate processing for each outlet.
One of the most important State level Acts governing retail trade is the Shops & Establishment Act. In many States, the Acts in force today were enacted over 50 years ago and is outdated and the Group recommends that the Government of India should set up a Committee consisting of representatives of Government, Trade Associations and the Unions to review the provisions and propose changes that take into account today’s realities in terms of workplace practices, use of technology etc.
The practice at present is that the inspecting authorities hold the retailers also liable for any violations in compliance with the standards of Weights and Measures Act. The Act needs to be amended to make only the manufacturers and packers responsible for non-compliance and not the retailers.
The Group suggests that the Government should set up a Committee to evaluate the performance of the ESI scheme and make suggestions for its performance. Since now a number of health insurance companies have come up in the private sector, employers/employees should be given the option of subscribing to alternative health insurance programmes.
The Essential Commodities Act, 1955, provides for the control of production, supply and distribution of essential commodities. Powers to issue control orders under this Act have been delegated by the Central Government to the State Governments vide orders dated 25^th October, 1972, 13^th March, 1973 and 9^th June, 1978. The Ministry of Consumer Affairs, Food and Public Distribution issued an order dated 15.02.2002 removing the said restrictions with reference to the specified essential commodities. In August 2006 the Central Government issued an order whereby controls were reintroduced temporarily for a period of six months in respect of wheat and pulses. This order has been extended periodically and is at present valid until 30^th August 2008. The High Level Group is of the view that the reimposition of controls on these products has not had any favourable effect on the price or availability of these commodities and has only added to costs of dealing with them at the retail level. The Group therefore recommends that the especial dispensation in respect of wheat and pulses should be allowed to lapse with effect from 31^st August 2008.
It has been noted above that nagging doubts remain with respect to the effect of organized retail on the self-employed small retailers. One way of taking care of this concern is for the large retailers to share the benefit of supply chains in these products by selling goods in bulk packages for the benefit of small retailers.