Retail Trade Policy

Retail Trade Policy

Trade, also called goods exchange economy, is the transfer the ownership of goods from one person or entity to another by getting something in exchange from the buyer. Retail trade consists of the sale of goods or merchandise from a very fixed location, such as a Brick & Mortar Shops, Departmental Store, Boutique or Kiosk, or by mail, in small or individual lots for direct consumption by the purchaser. Wholesale trade is defined as the sale of goods that are sold merchandise to retailers, to industrial, commercial, institutional, or other professional business users, or to other wholesalers and related subordinated services. Trading is a value added function of the economic process of a product finding its market, where specific risks are to be borne by the trader, affecting the assets being traded which will be mitigated by performing specific functions.

 The Domestic trade contributes around 15 % of India’s GDP and currently having more than 6 crore business enterprises across the Country. Within this, self-organized trade accounts for 95% of the total trade. Traditional forms of low-cost retail trade, from the owner operated local shops and general stores form the bulk of this sector. Handcart and pavement vendors are yet another section of domestic trade. In the absence of any significant growth in organized sector employment in India in the manufacturing or services sector, millions are forced to seek their livelihood in the informal sector. Domestic trade, which has been a relatively easy business to enter with low capital and infrastructure needs, has acted as a refuge source of income for the unemployed. It is estimated that domestic trade provides livelihood to about 25 crore people in the Country and is registering an annual growth rate of about 15%. The truth is that the people engaged in trade are mostly those sections that are relatively less skilled, having lower capital for investment and struggling for their livelihood.

Corporate funded organized domestic trade has witnessed considerable growth in India in the last few years and is currently growing at a very fast pace. The share of organized sector in overall domestic sales is projected to jump from around 5% currently to around 10% to 15% in the next three years. A number of large domestic business groups have entered the internal trade sector and are expanding their operations aggressively. Several formats of organized retailing like hypermarkets, supermarkets and discount stores are being set up by big business groups besides the ongoing proliferation of shopping malls in the metros and other large cities. This has serious implications for the livelihood of millions of small and unorganized retailers across the country. India has the highest shop density in the world with 11 shops per 1000 persons, much higher than the European or Asian countries. The potential social costs of the growth and consolidation of organized retail, in terms of displacement of unorganized retailers and loss of livelihoods is enormous.

Another form of retail which is gaining immense popularity is e-retail. This is posing a serious challenge to self organized retail which is struggling for self survival.

Need of the Hour 

Self organized traders and small retailers need protection and policy support in order to compete with organized retail. The Ministry of Housing and Urban Poverty Alleviation has formulated a National Policy for Urban Street Vendors. The policy proposes several positive steps to provide security to street vendors considering it as an initiative towards urban poverty alleviation. However, what is required is a more comprehensive policy, which addresses the needs of small retailers, especially in terms of access to institutional credit and knowhow to upgrade their businesses. So far, the rulers and policy makers have turned a blind eye on self-organized traders as they do not have powerful resources and clout to lobby for their cause like organized corporate business house.

On the other hand handful of corporate house who are very much successful in manufacturing and services have started eyeing the retail business. Since they have deep pockets and with the changing economy and consumer behavior, they are trying to take control of every aspect of economy, right from control on agriculture, manufacturing, retail trade and policy making. This can be clearly seen as an attempt by few corporate India to control and capture Indian economy as per their business interest.

With the vast potential in retail trade, some of the corporate retail houses invested heavily in retail sector. These companies due to their deep pocket and management vision factored some 5-10 years to make a break even and profit. It is during this period these companies are hopeful to wipe out the self-organised retail sector. Once the self organised retail sector is out from market, these companies can have their monopoly on market, producers, manufacturers and consumers.  This is evident from examples around the developed world where the retail giants have wiped out local markets and are eventually in a position where the farmers, manufacturers, logistic providers are left at the mercy of retail giants. Government is influenced by the powerful lobby of retail giants. Consumer is forced to consume the commodities promoted by corporate retailers. Entire business is strategically planned and financed by the deep pockets that have the capacity to play with the markets on their own term.

On the other hand the self-organised retailer and traders of India who do not have financial backing and without any institutional support are struggling to fight these corporate retail giants. It needs to be mentioned that the self organised traders not just contribute about 15% to GDP but are the one of the main source of tax collection by the government. Traders collect and deposit various trade related tax to Central, State and Local government. The irony is that despite being a partner in collection of tax, the traders are always looked with suspicion, is never trusted for his sincerity and never acknowledged the contribution of self organised traders. During policy formation on retail or mater related to trade, self organised traders are totally left out and government only gets views of white collared corporate as a result the fate of self organised retailers are left on god.

The CAIT firmly believes there is need to incorporate the views of self-organised retailers while formulating the policies on retail trade mainly because of:-

1.         Self organised retail traders are the engine of economy as they are the channels which accounts for more than 95% of retail trade as of date.

2.         This means all the manufactured products and agricultural produce reaches its final destination (consumer) through the retailers.

3.         Approximately 25 crores of population is directly dependent on traders for their survival.

4.         Equal numbers are also indirectly related to traders, such as labour force, transporters, etc.

5.         The traders’ collects tax on behalf of the government at all levels and deposits them to treasury on their own expenses.

6.         MSMEs and millions of lesser known brands manufactured by self help groups and local cooperatives are supported by the traders. It is the existing trading system where the self organised trader offers a choice to consumers to choose from wide range of products.

The role of government is to regulate the market and provide the level playing to all players. However with the current approach and policy regime, the environment is only conducive for foreign retail giants and their Indian partners or counterparts. The existing policy on retail will ensure that in near future the self organised traders are thrown out of their business and livelihood, farmers and primary producers are left at the mercy of corporate managers and consumers left with lesser choice in the name of convince.

The CAIT firmly believes that: 

1.         The existing self organised traders need to compete with the deep pocketed retail giants and continue the services towards nation building.

2.         We also acknowledge that there is a need to improve and radically change the business style of self organised retail so that our consumers get the best of the products at competitive price, farmers gets the best price for their produce, inflation is kept at control.

All these will require institutional support from Government and therefore a change in the mindset of the rulers and policy makers is all the more necessary.

The need of the hour is creation of a Trade Policy with a separate Ministry of Internal Trade both at Centre and State Government level which is able to device policy for self organized traders. This Ministry should work as a mentor and partner so that the retail sector can grow and modernize. It should also control the proliferation of organized retail supported and funded by big corporate houses and venture capitalists. Once Ministry is formed then lot of lacuna on existing self organized retail will be addressed and India will experience a new form of modern markets which have the essence of India and its vast section of society.

However, till the time, the Ministry of Internal Trade is formed; the Ministry of Commerce and Industry may be assigned the task of formulating a Trade Policy for Domestic Trade.

Each sector of the economy like Industry, MSME, Labour, Transport, Farmers etc. have an independent policy and then why the self organized sector i.e. the traders are deprived of such policy . If such step is taken by the Government, it will help in structured growth of the sector and will also result into increase in revenue of the Government. It will also help in up gradation and modernization of retail trade, which is need of the hour, to meet the global challenges in trade.

Fundamentals of Trade Policy: 

There should be a trade policy to address the issues of traders and domestic trade policy. The policy must address the central and state level trader related aspects. This policy should address the following:

Promote Fair and Honest Trade 

Traders are often maligned for making excessive profit on trading related activities thus resulting to lower revenue for producers and high cost for consumers. This is myth and can be easily checked by the state machinery by implementing trade policies. There is no denying that there are few rotten apples in the system that squeeze the producers and also create scarcity of commodities in the market, leading to wide variance between the compensation earned by the producer and the purchase cost of commodity by the consumer. If in reality one tries to look at this issue, one can easily find out the nexus between the chains of corrupt system. Majority of traders are neither part of such corrupt system nor they even want to be the part of such system as even traders are also the victims of such wrong and corrupt trade practices. Majority of average traders suffers huge loss due to artificial price fluctuations created by few unethical traders.

Honest trading can be promoted through the sensitization and encouragement to honest traders. In order to encourage traders, we need to build institutional infrastructure such as:

1.         Priority sector Banks for traders

a.          The current banking system, despite RBI’s instructions to treat trade / small enterprises and business as priority sector fails to deliver. The recent report of Dr. Nachiket Mor Committee constituted by RBI is an ample testimony of the same. The failure of mainstream Banking sector to cater the needs of traders is due to the fact that these Banks do not understand the business cycle of traders and cyclic spikes in business. The mainstream banks and their decision makers are bound by the established banking rules and regulations. They do not want to take risk by lending to a majority of traders as the traders are not able to produce much required collaterals and guarantees.

b.         State government should device specialized financial institutions which are just for traders and understand the business cycle. If such kind of banks and financial institutions are introduced into our trading system, it will help traders to flow investment into their businesses and enterprises. With the avenues of investment traders will be able to not just scale up their business but also help in implementing technology and diversify their business operation.

c.          In this context, the Non-Banking Finance Companies and Cooperative Banks may be associated with State Government and should be asked to provide a viable scheme for advancing loans to small traders at a reasonable interest rate and without having much bureaucratic hurdles and paper work.

2.         Low rate of Interest and Short to midterm lending

a.           Often traders needs short term finance with quicker disbursal. The existing banking system is unable to cater the both the needs. As a result traders are forced to look for unconventional methods which not just prove very costly loans but also help in accumulation of black money by black marketers and money lenders.

3.         Up-gradation of markets

a.           Trade policy must address the issue of physical infrastructure in traditional and local neighborhood market. With the emergence of shopping malls and modern bazars by corporate India, there is urgent need to revamp the traditional markets and local neighborhood markets so that they too can attract the customers just like new shopping malls or modern bazars by corporate India. This means this policy should have say in urban development and town planning process.

4.         Reward and Recognition of Traders as Tax collectors

a.          Traders are the source of revenue collection by state and central government. Despite playing a major role in revenue collection, instead of rewarding the tax collector for his contribution, the taxation authorities and other law enforcing agencies see traders with suspicion. Trade policy must define the roles and responsibility of traders and rewards for diligence of services rendered by the traders. This policy must envisage and differentiate between a good tax collector and tax evader.

b.         Under the policy, the Traders should be given the status of “ Tax Collector” and some incentive should be given to traders for collection of taxes in order to compensate them for their expenses made towards the collection of tax. Such a step will encourage more and more traders to collect more revenue for the Government.

c.          A scheme should also be evolved under the policy to encourage widening of tax base. In this context, the traders registering an annual growth of 15% in their business should be absolved from any kind of search, survey, raid or seizure unless the concerned Department is vested with specific evidence against such trader. Such a step will restore the confidence of the traders in taxation system and will result into widening of tax base.

5.         Rationalization of Taxation

a.          Traders are overburdened with multiple taxes. Traders being the sole tax collector from consumers, needs to keep record of various kinds of taxes collected by central government, state government and local bodies. These leads to too much of paperwork. Trade policy should device mechanism to address the various tax related aspects and must make the tax collection as well as reporting simple.

6.         Promotion of E-system

a.          This should be an important part of Trade policy. This should cater the regulatory need of traders. Trade policy should encourage the development of trade centric applications which helps not just streamlining the regulatory compliance but also help keeping business records in vernacular language with option to generate reports to meet audit and other government agencies. The policy should also device mechanism to create awareness about E-Governance among the trading community and assist them in adopting digital literacy in their respective business.

7.      Establishment of Trader Tribunal and Lok Adalats

a.          Often traders are due to complex paper work and harassment by inspectors face the wrath of law. The trade policy must address this critical aspect so that local Tribunal / Lok Adalats can be established at all major markets.

8.         Special Task Force/ Expert Committees

a.           Formation of Task Force, Trade Body and Expert committee to look at the issue of traders along with the government agencies so that policy level interventions can be recommended by the task forces and expert committee.

b.         The task force should constitute with Secretary level officer as Chairman and has members from various concerned ministries, representation from trade chambers etc.

9.     Trade Commissioner System which looks into all aspects of trade and ensures that there is no duplicity or overlapping jurisdiction.

10.   Central and State level consolidation of trade act must be envisaged by the trade policy so that multiple acts and legislation can be unified and provisions to address violations and grievances  can be made.

11.   All trade related Acts to be part of trade policy.

12.   The policy should have a mechanism to review Laws, Acts, Rules and Regulations governing Trade and the outdated laws must be scrapped and time needed amendments may be made in rest of the Acts, Laws, Rules and Regulations.

13.   The Trade Policy should also draw a mechanism to ensure sufficient security to commercial markets and in this venture; such mechanism may be based on PPP model with respective Trade Associations of the concerned markets.

14.   Under the Policy, a Trade Commissioner may be appointed at District level who will act as Nodal Officer to monitor the effective implementation of the fundamentals of Trade Policy. A District Trade Advisory Committee under the Chairmanship of Trade Commissioner and having Trade representatives may also be formed to ensure better coordination between Government and the Traders.

15.   The policy should also envisage an effort to make India as a Free Trade Zone and all kinds of Road Permits, Entry Forms etc. should be abolished. The issue needs to be taken up with Central Government and other State Governments.

16.   In trade policy, special focus should be given to encourage and promote Women Entrepreneurs to develop their business with the help of the Government. Some sort of special schemes and concessions may be allowed to women entrepreneurs.

17.   Special schemes may be drawn for Artisans, Handicrafts and other specialized items of the State to promote their products for other markets of the Country and upcountry.

18.   Fairs, Exhibitions may be held on regular basis to depict the progress of the State whereas regular Seminars, Conferences and Conventions must be organized on different subjects concerning trade and Commerce and renowned Experts may be invited to hold interaction with traders on all such topics.