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Budget 2016: What it did for the Retail Sector
Posted On: 01-03-2016 00:00:00 16

1. 100% FDI in multi-brand processed food retailing

The government has allowed up to 100% foreign direct investment (FDI) in marketing of processed food products produced and manufactured in India. This will allow retailers such as IKEA and Marks & Spencers to sell multi-brand food products as long as they are sourced and manufactured within India. Such ventures, however, must seek approval from the Foreign Investment Promotion Board (FIPB).

In 2012, while approving IKEA's Rs 10,500-crore investment proposal, the FIPB had struck down the Swedish retailer's plans to set up its famous cafes in the stores citing laws that don't allow FDI in food. Later, the government gave approval to IKEA to set up restaurants as part of its large outlets only to be consumed in the stores.

2. Small stores can operate Seven days a week

Small shops have been given the option of remaining open on all days of the week (on voluntary basis and subject to protection of interest of workers). The move is aimed at boosting retail trade and employment. The finance minister proposes to circulate a model shops and establishments bill, which can be adopted by state governments on a voluntary basis. The bill will look into the interests of workers in terms of a mandatory weekly holiday, number of working hours per day, and related matters.

A lot of small and medium stores are already operational seven days a week. The model retail policy will bring about standardization of state-level reforms and enhance ease of doing business. The announcement is on the lines of what states like Maharashtra and Andhra Pradesh have done in the past year by putting in place their own retail policies.

3. 3000 Jan Aushadi stores to open across the country

Aiming to provide generic drugs at affordable prices, the government will open 3,000 Jan Aushadhi stores across the country. The scheme started in 2008 with the aim to make quality medicines available at affordable prices for all, particularly the poor and disadvantaged through specialised outlets called Jan Aushadhi stores. The scheme seeks to popularise the use of unbranded generic medicines to bring down actual expenses on medicines for the common man and make health care affordable and safe.

4. Pan card mandatory for purchases above Rs 1 lakh

The budget has made production of PAN mandatory for any purchases above one lakh rupees. This is expected to have a significant impact on retailing especially of Consumer Durable products like televisions, gadgets, furniture and other home products.

5. Unified Agricultural Marketing e-platform to be launched

A Unified Agricultural Marketing e-platform will be dedicated to the nation on April 14. This will allow farmers to sell their produce across the country. It has two important pre-requisites —an amendment of the state Agricultural Produce Marketing Committee Act (APMC) and physical logistic support which is crucial to enable the farmer to move his crop. The present APMC act gives only the state governments the power to designate markets and market areas and notify the commodities where the regulated wholesale trade takes place.

The common e-market platform for farmers will remove inter-state barriers in moving farm produce and will benefit food-based FMCG companies, as this is expected to make procurement processes easier and more transparent, when compared to the APMC route.

6. Taxes hiked as below:

• Increase in excise duty from nil earlier to 1% without input tax credit or 12.5% with input tax credit has been imposed on articles of jewellery (excluding silver jewellery, other than those studded with diamonds and some other precious stones). This is not the first time the government is trying to impose excise duty on jewellery. Excise duty was introduced in the March 2012 budget but withdrawn soon. Also, jewellery retailers had gone on a 21-day strike then.

• For branded garments costing Rs.1,000 and above, excise duty has been raised from nil to 2% for manufacturers with input tax credit and from 6% to 12.5% for manufacturers without input tax credit. Tariff value (on which duty is calculated) of ready-made garments increased from 30% to 60%.

• A 1% tax Collection at Source has been proposed in case of sale of motor vehicle exceeding 10 lacs in value and sale in cash of any goods (other than bullion and jewellery) or provision of any services (other than those on which there is TDS) exceeding Rs 2 lakhs.

• Infrastructure cess of 1% on small petrol, CNG (compressed natural gas) and LPG (liquefied petroleum gas) cars, 2.5% on some diesel cars, and 4% on higher engine capacity cars and sport utility vehicles (SUVs). Diesel cars and SUVs will be the worst hit.

• Excise duty incidence on cigarettes up by about 10%, increase for other tobacco products, except bidis, by up to 15%.

Early Market Impact

1. Titan Co. Ltd lost 4.31%, as the company derives a major share of revenues from jewellery.

2. Among retail firms, Shoppers Stop Ltd. lost 1.28% and Aditya Birla Fashion and Retail Ltd. 5.45% in reaction to the excise duty hike on branded apparel.


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