Single Brand Retail

Tomu Francis's picture

FDI and ‘Single Brand Retail’ 

 
There are no philanthropist companies nor philanthropist investors they are all of the same kind, with the objective of making money be it for themselves, or their owners and their shareholders, even though corporate social responsibility has taken off in a big way. Thus it should be clear from the beginning that if the FDI is to come to India there will be an opportunity for them to make profits on their investment and not for charity.

 

 

FDI is defined as the investment of foreign assets into the domestic structures, equipment and the organization. The organized sector in the case of retail would mean one in which there are more than 10 persons are employed, unfortunately  this accounts for only 2% of the entire retail industry. The retail industry is divided into organised and unorganised sectors. Organised retailing refers to trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc basically involving the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses. Unorganised retailing, on the other hand, refers to the traditional formats of the retail industry involving example, the local kirana shops the corner stores, owner manned general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc. The latter involves a large majority of the indian populace that is involved in the retail industry 

 

The Indian companies are planning to hit the road as companies like reliance have started investing money to the tune of around 30000 crores in setting up shops, tying with other brand names and other ancillary features. It is clear that they want a bite of the lucrative Indian retail pie and obviously making huge profits in the bargain. In this context it may also be correct to mention that there is buoyancy in the attitude of the Indian players if not anything else in relation  to taking on the foreign players in the retail arena and are thus willing to take on the foreign competition by its horns. Though there are a few people who advocate caution and are satisfied with the present system of ‘single brand retail' and the present investment cap of 51% for the FDI. 

 

India has not made formal WTO commitments nor have received reciprocal market access by the other countries. Autonomous liberalization against our obligations will only help in weakening our bargaining power in future meetings of the trade body.It also highlights that the following measures should also be taken.

  • Reducing taxes in relation to trade and a revision in the internal trade policy.
  • Need to amend the Agricultural marketing committee
  • A relook at all the related regulations.
 
Introduction to the Retail  Sector 

There are two aspects which are always brought into consideration when the talk is of affecting the present retail market in the country namely the Foreign Players with the FDI and the Large Indian companies. A major highlight of manufacturing is that it 

 

does not provide jobs for semi qualified people. The aligned sectors to retailing like physical  storage etc. have the capability to. Change in consumer patterns and trends have to be kept in mind with the consumers willing to spend and being desirous of a good

 

‘shopping experience'. Also there is a need to keep in mind the lower strata that will not be able to participate and thus be affected by the reforms or investment in this sector unless proper steps are taken. It may be put forward that there is no law that stops Indian majors from entering the retail arena though  there are restrictions relating to minimum capital requirement and sourcing conditions. 

SINGLE BRAND RETAIL 

Single brand retail has  been for a few months been the buzz word in the retail arena ever since the DIPP put forth the press note 3, in February. Though it comes across as a weak move and a half hearted measure on the part of the government to open up the FDI to foreign players and also to keep the left pacified. The left hhave always been interested in this aspect of the economy . The recent electoral successes of the left in Kerala and west Bengal have certainly put a spanner in the works of the government which seemingly was poised to remove the cap on FDI in the retail sector completely which will let loose many retail majors like tesco on the Indian market. The only aspect or weapon in the hands of the government in the furtherance of this cause is to ‘interpret' the terminology ‘single brand' properly and in the interests of the society. It may mean that 

 

They also claim that the bigger shopping malls and the super markets have a dedicated client base due to which there will not be an effective threat to the kiryana stores as perceived by the left. 

 

Conditions laid down under the press note 3,2006 by DIPP for coming under the purview of single brand retail:

  • Should be a single brand
  • Should be sold under the same brand internationally
  • It would only cover products branded during manufacture
 

Procedure for obtaining license under the SINGLE BRAND regime:

1. Application to be put forth to the secretariat for industrial assistance.

 
 

2. Indication of the product categories to be made, in which the product are proposed to be sold under the single brand

3. Additions in the above application would require a fresh approval by the government.

 

4. There is consideration by the FIPB.

5. The government approval is required for the same.

 

Single Brand by its meaning would mean ‘own label brands' are those which are created and owned by businesses that operate in the distribution channel. Actuallly the position of the meaning of this term is variable and thus is ambiguous. The inclusion of the meaning of store brands, private labels and branded during manufacture do not make the matter any easier.  The latter meaning that any foreign investment may not benefit suppliers of locally produced labeled goods. 

It may be proposed that there should be a standard set of rules that would govern the administrative procedures which need not be referred to the FIPB. The multistage approval system generally involves a lot of delays thus upsetting the local consumer.

Conclusion 

Though the government has good intentions there is criticism at all quarters pertaining to  the ambiguity regarding the express meanings of terms like ‘single brand'. Thus the government should take steps to remove these aberrations and thus leave no scope of manipulation by unscrupulous money mongers. There is need for the unorganized sector to be modernized and for that either the organized sector should either gradually absorb the mainstream retailing by the big players or the government. However if the matter of interpretation comes forward to the courts the courts will have to follow the rules of interpretation which generally state that the courts will have to interpret the statute/law in such a manner that it will be in consonance with what the legislature had intended while formulating the law in question. In the end it is to be noted that the ambiguous meaning of the word ‘Single Brand' and the lengthy procedures are here too stay unless the legislature amends it or it comes for interpretation before the courts.