In a major announcement that promises to revolutionise India’s retail industry and improve ‘ease of doing business’, the Modi government has cleared the Model Shops and Establishments (Regulation of Employment and Conditions of Services) Act 2015. This will allow all public amusement establishments with at least 10 employees – such as restaurants, local markets, shopping malls and movie theatres – to operate 24×7.
This Act will have to be implemented by states. Once they have implemented it, offline retailers operating in those states will stand to benefit hugely as the Act brings them on a level-playing field with online retailers (who operate round the clock). This would also intensify competition between physical and virtual players but benefit consumers and the labour work force.
In the mature economies, students and unskilled/ semi-skilled labour benefit from employment in retail. The same trend is being observed in India and it is only bound to increase as women have now been allowed to work 24×7. Companies will be mandated to facilitate women with safe transportation services and other related facilities such as crèches during night schedules.
Already, Maharashtra and Andhra Pradesh unveiled their new retail trade policies, modelled along the lines of this Act, in early-2016. Late last year, media reports highlighted industry expectations of more states following Maharashtra’s footsteps in thrashing out state-level retail policies. States such as Telangana, Rajasthan and a dozen others are expected to announce their respective policies this year.
The retail sector accounts for about 15% of the country’s GDP and this is expected to increase further with round the clock operations. Already, the government had announced reforms to loosen restrictions on inbound investments in retail a few days ago. Single-brand retailers like Swedish furniture giant IKEA and smartphone manufacturer Apple stand to benefit. JLL had first announced late last year that 2016 could see single-brand retail stores opening up.
Recently, the Cabinet also approved norms for simplification and liberalisation of the Foreign Direct Investment Policy, 2016 in various sectors. Among them, single-brand retail trading was included. Local sourcing norms have been relaxed up to three years, with prior government approval, for entities undertaking Single Brand Retail Trading of products having ‘state-¬of-¬art’ and ‘cutting edge’ technology. For such entities, sourcing norms will not be applicable up to three years from commencement of the business i.e. opening of the first store for entities undertaking single brand retail trading of products having ‘state-of-art’ and ‘cutting-edge’ technology and where local sourcing is not possible. Thereafter, sourcing norms would be applicable.
In the last six months, we have seen a lot of effort by the government to revive consumption and consumption-related investments in India. Since the time 100% FDI was allowed in single-brand retail, the government has been constantly delivering relaxation of FDI norms in order to encourage more international retailers to participle in the India’s growing consumption story. With its latest announcement regarding relaxations, the government is now aiming to encourage foreign retailers to not just invest in India but simultaneously transfer new technology into the country. This is a big plus for retailers who can now bypass a lot of operational costs through efficient supply chain management via these new technologies. It also very positive for the Indian consumers at large who will benefit from increased competition, and the entry of new global brands to cater to their aspirations.
These announcements – coupled with high private equity inflows into the retail real estate – look very promising. ‘Acche Din’ now seem close at hand for Indian retail and the retail real estate industry.