Retail FDI notified, red sign fore-commerce companies
>BS REPORTERS
New Delhi, 20 September
The government late this evening notified its decision to allow 51 per
cent foreign direct investment (FDI) in brick-and-mortar multi-brand
retail. However, it also prohibited such investments in e-commerce in
both multi-brand and single-brand sectors —a move that would hit
Walmart and Amazon.
The norms for single-brand retail have been watered down further,
giving foreign companies five years to comply with the rule to source
30 per cent of goods from India. The Cabinet had already said sourcing
from micro, small and medium enterprises (MSMEs) should be preferred,
instead of making it mandatory as had been the case earlier.
Multibrand chains will also get five years to adhere to the 30 per
cent sourcing norm, but this sourcing must compulsorily be from MSMEs.
The notification came on a day when most opposition parties and some
ruling coalition allies had hit the streets as part of a"Bharat bandh"
to protest against the move to allow FDI in multi-brand retail. The
Trinamool Congress, hitherto part of the coalition, is set to withdraw
support to the government tomorrow over this issue.
The notification would be a blow to e-commerce companies, as the
government has prohibited any FDI in ecommerce across the entire
multibrand and single-brand universe. The foreign investment norms for
e-commerce have been the same as brickand-mortar retailers so far.
In brick-and-mortar multi-brand chains, up to 51 per cent FDI was
permitted by the Cabinet last Friday, while single-brand retail FDI
was hiked to 100 per cent from 51 per cent last November.
FDI in multi-brand e-commerce has been restricted to suit the
government decision of letting states take a call on if foreign chains
should operate there, said Mohit Bahl, Partner, Transaction Services,
KPMG. As geographical boundaries cannot be set in e-commerce, the
state-wise rollout of chains cannot be executed for online companies,
said Bahl, explaining the rationale behind the move.
For the brick-and-mortar chains, the government has notified that 30
per cent sourcing from Indian companies, in case of single-brand
retail, and from MSMEs, for multi-brand retail, will have to be over
the first five years and on an annual basis thereon.
"This procurement requirement would have to be met, in the first
instance, as an average of five years' total value of the manufactured
processed products purchased, beginning April 1 of the year during
which the first tranche of FDI is received. Thereafter, it would have
to be met on an annual basis," the notification said.
This would meet mid-way a demand by Swedish furniture brand IKEA,
which had asked for the 30 per cent sourcing requirement over a
cumulative period of 10 years.
With this move, American online major Amazon's plans to set up
business in India has gone for a toss, though it entered the country
through Junglee.com, a product comparison site, earlier this year.
Online players such as Flipkart and Snapdeal will have to continue to
make do with backend and B2B foreign investment, keeping the frontend
clear of any FDI.
REFORM RUSH
HCupholds Puducherry's contractlabourorders
GIREESH BABU
Chennai, 20 September
Adivision bench of the Madras High Court has upheld the decision of
asingle bench, dismissing a petition filed by an industrial forum from
Karaikal, Puducherry, against the Puducherry government's decision to
do away with contract labour in certain segments of a few industries.
The Karaikal Industry Forum, which had appealed in the court against
the government order, now plans to approach the Supreme Court for a
stay on the order, according to sources close to the development.
The dispute started after the Puducherry government had, through an
order issued in 2011, abolished contract labour in some processes in
chemical, pharmaceutical bottle-making, granite-cutting and polishing
industries. The state advisory committee of Puducherry had also
recommended the prohibition of contract labour in certain segments of
the metal industry.
Through separate orders, the government had prohibited contract labour
in three processes — mixing, formulation and tableting — in
pharmaceutical industries, nonmetallic product industries,
bottle-making industries and granite-cutting and polishing industries.
It had also prohibited contract labour in six other processes,
including raw material sieving, raw material handling and ball mill
mixing.
The Karaikal Industry Forum argued the orders had been passed in a
casual manner, without considering the relevant factors and details.
It claimed there was no discussion and deliberation on the issue, just
an omnibus notification.
The forum's counsel stated occupational diseases were not arelevant
consideration for issuing the notification. The counsel added there
were enactments like the Employees State Insurance Act and the
Factories Act which were earmarked to take care of these issues.
However, dismissing the appeal, the court stated, "The government did
not issue an omnibus notification banning contract labour in all
industries under a particular category or process. Rather, the
government took into consideration the process and operation carried
out in the particular type of industry. It also considered the fact
that the types of processes identified were perennial in nature, with
regard to the nature of the industry." There are about 50 companies in
the industrial area of Karaikal, with the majority of these involved
in iron castings— and metal-related production and the chemical
industry.
Indian team in Canada to study GST, butconsensus still a farcry
INDIRAKANNAN
Toronto, 20 September
The ongoing 10-day visit of a large delegation of Indian officials,
including state finance ministers, to Canada, underscored the fact
that the rollout of the Goods and Services Tax (GST) in India still
has a long way to go.
Central and state governments are nowhere close to a consensus, going
by responses from finance ministers of various states. A delegation
comprising members of the empowered committee of state finance
ministers, along with state and central finance ministry officials,
was here for discussions with Canadian officials and business groups.
Speaking to Business Standard at an event organised by the Indo-Canada
Chamber of Commerce, Madhya Pradesh Finance Minister Raghavji said:
"We are still stuck where we were. In fact, differences are growing."
He singled out state autonomy as the biggest issue, describing states
as wary of ceding revenue and authority to the Centre." Raghavji said
other contentious issues included the administrative mechanism for
GST. "The Centre will collect tax and state governments will also
collect tax. Who decides if taxes will rise or fall?" He said there
was also conflict regarding the proposed Disputes Settlement Authority
and about exemptions.
He dismissed the prospects for curbing tax evasion under the GST
system, noting the problem had not abated in European countries that
had adopted GST. "More complicated the system, more the chances of
evasion and this GST system is more complicated," Raghavji said.
However, the minister, who is from the Bharatiya Janata Party (BJP),
said the disagreements over GST were not along political lines.
Kiran Choudhry, minister for excise and taxation of Congress-ruled
Haryana, agreed there were no political divisions within the empowered
committee. But in contrast to Raghavji, she felt there were few
remaining hurdles and "roll-out should happen any time now".
For her state, Choudhry said the main concern was Central Sales Tax
(CST) compensation, as Haryana was one of the states with the largest
CST compensation due from the Centre, at ~3,000 crore. "We are
demanding that CST compensation should be given to us till the time
GST is not rolled out, as was promised when this entire exercise
began. Unfortunately, that has not happened," Choudhry said.
While she believed GST would make the economy and taxation "more
vibrant", she said the gains might not be spread equally among all
states. "For example," she said, "Haryana is a producers' state. In
the long run, states which are not doing anything will tend to benefit
much more than we will." BJP leader Sushil Kumar Modi, chairman of the
empowered committee and the finance minister of Bihar, said there were
a number of issues on which state governments, cutting across party
lines, were united against the Centre.
"Regarding compensation, regarding rates with a narrow band, and if
there is any calamity or floods, states should have flexibility. So,
there are certain issues on which states are unanimous but the central
government has not incorporated these in the Constitutional Amendment
Bill," Modi said.
He reiterated this was a stateCentre issue, rather than a political
divide. "The BJP is also in favour of GST. But in favour of GST is one
thing; the devil lies in the detail. So, when you go into the details,
there is more concern from state governments," he said.
But Modi sounded optimistic about the central government's readiness
to compromise, as the passage of the Constitutional Amendment Bill
would require a two-thirds majority in Parliament and approval from 50
per cent of state legislatures. "I think Chidambaram is very flexible,
but how much time he will get, I can't say," Modi said, referring to
Union Finance Minister PChidambaram.
Parliament is currently awaiting a report on the Constitutional
Amendment Bill for the GST from its Standing Committee on Finance The
Indian delegation is visiting Toronto, Ottawa and Vancouver to study
GST implementation, compliance and fraud tracking mechanisms in a
fellow federal system.
Rana Sarkar, president and chief executive officer of the Canada-India
Business Council, said Canada could offer a good model for India,
which needed to overhaul its tax regime. "The current system of
revenue collection in India, a legacy of the post-Independence period,
is not working, and there are enormous gaps between where India needs
to be and where it is right now." This is the second visit by the
empowered committee to study Canada's GST system. A delegation had
visited the country for the same purpose in 2006.
The delegation members were unanimous that the current trip did not
fly in the face of austerity measures back home, even if they took
away different lessons from this tour. "We are going away much more
knowledgeable," said Choudhry. Added Raghavji: "The delegation's study
strengthens views that this proposed GST cannot work in India."
According to Modi: "This has nothing to do with austerity. The
delegation has come to study the system; it has not come for
sightseeing." He might not have checked the delegation's schedule in
Toronto carefully. Included in the official programme was a day trip
to nearby Niagara Falls.
"BJP is also in favourof GST. Being in favourof GST is one thing; but
devil lies in details. There is more concern from state governments"
SUSHILKUMAR MODI
Finance minister, Bihar
"The Centre will collect taxand state government will also collect
tax. But who decides whethertaxes are going to rise orfall?"
RAGHAVJI
Finance minister, Madhya Pradesh
Central and state governments not yet on same page, suggest state FMs' responses
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CS A RENGARAJAN,, B.Com ,FCS, LLB, PGDBM
Company Secretary, Chennai
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