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Impact of Union Budget on the Indian Retail sector
Submitted by bhanu on Fri, 03/01/2013 - 01:15.
After the big bang reform of allowing up to 51% FDI in multi-brand retail, a lot of action was expected in the retail sector. Surprisingly, we have seen just interest & no concrete action on part of major global retailers; Wal-Mart & TESCOs of the world are in no hurry to enter in to the bylanes of Indian marketplace.
The economy is sluggish with projections of GDP growth slowing down to ~5% levels. In such scenario, sentiment in the retail sector is bound to be low and a lot of expectations were built around the budget.
In this backdrop let us analyze the union budget 2013-14 and what does it mean for the Indian retail sector:
The Positives first:
- Basic excise & service tax rates were not increased. It is a status quo & a kind of relief for the retail sector as there were rumors that the rates could be increased from 12% to 14%.
- Excise duty exemptions were provided to branded readymade garments, countervailing duties were reduced on hulled Oats (from 30% to 15%).
- Rural economy is bound to get a fillip, as the outlay for rural economy has increased significantly in terms of NAREGA, Food Security bill(~10000 Cr) & agri credits. This infusion of money in rural economy will give rise to rural consumerism. This is a positive not only for rural retail but also for the adjoining tier 2/3 cities.
Now, let’s see the negatives:
- No Roadmap was given for GST implementation. The current CST regime is a major roadblock for the sector; it increases the business complexities, inventories & in-efficiencies in the supply chain. GST alone can unleash a fresh lease of life for the whole sector. It will also make India a much attractive market for FDI investment.
- No announcement on giving Industry status to the retail sector. Getting the same will ensure a much higher focus on sector’s issues, better financing & insurance options etc.
- Royalty & franchise fee will be taxed at 25% (vs the earlier rate of 10%), this will not only have an impact on current setup but will also create hindrance for the entry of more global brands to India.
- Mobile phones that sells at more than 2000 Rs (by number of pieces sold, this is just ~30% of the market, while in value this will be more than 80%) will attract an excise of 6% now, similarly excise duty has been increased on Cigarettes and SUVs. From the retail sector point of view, mobile retailing has emerged as a big business. Several Indian brands like Micromax, LAVA etc have made impressive progress by marketing imported mobiles. Instead of any support, this budget poses a great threat to them. This duty might give a push to the illegal trade of imported Chinese mobile phones, which will impact the organized mobile retailing market badly.
Overall, a very average budget for the industry. Nothing big bang about this!