As rising rents threaten to derail retail, players want the Centre & states to take a friendlier view. Hospitality sector sees room for creating tourism infrastructure while the country’s second-largest job creator wants a reality check on taxes.
THE hype around retail is reaching a crescendo with the organised play projected to touch $30 billion by 2010 from $14 billion now. But retail, the world’s second oldest institution after family, is grappling with an array of serious issues threatening the big picture.
With consumption at the heart of India’s growth story, retailers expect the Centre to impress upon the states to take a broader view of the sector. With the states having a major say in the affairs of this sector, the Centre’s role is largely to facilitate ‘the institutionalising of retail’, they said.
However, there are issues such as removal of the 12.36% service tax on commercial rentals where the FM can play a role in the Budget. With soaring real estate rentals threatening to derail the growth engine, many retailers believe the imposition of service tax in last year’s Budget needs to be reviewed.
As real estate component accounts for nearly 40% of the operating costs for fashion retailers, many international brands are delaying their India foray in favour of markets like Russia.
International retailer Zara, which is unveiling aggressive Russian plans, is a case in point. Mall rentals across the country have jumped 30-45%. The picture is not different for a large format grocer, who works on thin margins. “With lease rentals at current levels it is impossible to sustain a large chain of stores. A softer tax regime is needed, considering we are the largest tax contributor to the government in many states,” said Big Bazaar CEO Rajan Malhotra.
Retailers argue that states need to de-couple the sector from commercial real estate play in tax and regulatory treatment, like the case of differential energy bills for retailers in Mumbai. A different FSI or plot coverage rule for retail would not only soften the rising rental blow immediately, but also go some way in institutionalising the sector. Not surprisingly, it finds expression in retailers seeking ‘industry status’.