Budget 2012: No concrete direction for retail

The organized retail helps in reducing cost of intermediation due to economies of scale, benefiting both consumers and producers. At present, FDI in single brand and in cash and carry wholesale trade is permitted to the extent of 100%.

The decision in respect of allowing FDI in multi-brand retail trade up to 51% subject to compliance with specified conditions. Also, The finance minister mentioned in budget speech that the efforts are on to arrive at broad based consensus in consultation with state Governments.

Budget Provisions:

• Increase in service tax from 10% to 12%.

• The individual income tax Nil (marginally increased) with the income of up to Rs 2 lakh, above Rs 2 lakh up to 5 lakh will pay 10%, from Rs 5 lakh to Rs 10 lakh will pay 20% and above Rs 10 lakh, the rate will be 30%.

• The excise duty is being enhanced to 12% on readymade garments bearing a brand name or sold under a brand name. However, the rate of abatement on such readymade garments is being increased from 55% to 70%. Hence, the tariff value for purposes of charging duty would be at the rate of 30% of retail sale price.

• The rate of abatement on made ups bearing a brand name or sold under a brand name is being increased from 55% to 70%. Hence, the tariff value for the purpose of charging duty would be at the rate of 30% of retail sale price.

• The structure of GST Network (Goods and Services Tax) approved by Empowered Committee of State

Finance Ministers. Further, GSTN will be set up as National Information Utility and will become operational by August 2012.

• Also, the excise duty exemption limit on non leather footwear is being enhanced from Rs 250 per pair to Rs 500 per pair. The non leather footwear above Rs 500 per pair would attract excise duty of 12% from 10% earlier.

Industry Expectations: not fulfilled

• Grant Industry Status for retail industry: Not fulfilled

• FDI in Multi-brand retail: Not fulfilled

• Permission to operate 24*7 and revision of labor laws: Not fulfilled

• Create a single window clearance: Not fulfilled

Budget Impact:

The marginal increase in individual tax slab rate expected to slightly improve the consumer confidence and consumption. However, this expected to offset the increase in service tax and as well increase in excise duty to 12% (from earlier 10%) on readymade garments.

But, the some relief has provided by increasing the rate of abatement from 55% to 70% on readymade garments. While the excise duty has increased, the government has increased abatement there by cutting the effective excise duty on branded ready made garments based on retail sale price from 4.5% earlier to 3.6%.

Also, The expected roll out of GST from August 2012 will have the positive impact on the sector. As, The implementation of GST will bring greater impact in supply chain by reducing the discrepancies. However, we feel that the implementation in near term is not possible. Overall the impact is neutral.