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Budget 2011: Retail
Organised retail is being considered as one of the biggest beneficiaries of the Indian consumption story. This is mainly due to rising aspirations and increasing income levels coupled with low penetration levels. The economic slowdown was a necessary evil for the industry and the retailers have been taking corrective actions for the mistakes made in the past. Adoption of cost control measures and sensible expansion of retail space has helped them in posting profits over last few months. Though near to medium term outlook is not so heartening, the long term growth prospects of the retail sector are intact. The same is on account of expectations of revival in economic growth. There is immense opportunity, as consumption levels in India are extremely low and aspiration levels are high. The Union Budget 2011 is expected to boost the sales of the sector by increasing the spending power of the masses.
Budget expectations
Opening up of retail sector by allowing FDI in multi brand retail will help the Indian retailers in procuring funds for expansion and improving their supply chain infrastructure. The industry players support FDI in retail but suggest a gradual step by step approach to gauge the impact and take corrective measures if required.
There is vast disparity in penetration levels of organized retail in rural and urban India (Metros: 20%-25%; Pan India- only 5%). The government could consider introducing some tax holidays/ fiscal incentives for retailers willing to expand into rural areas similar to those available to manufacturers and exporters operating in such areas.
Retail industry leads to multiple job creations and contributes to the country's economic progress. Recognizing retail as a separate industry will help the retailers in getting their issues addressed specifically and also bring clarity on the duties charged.
Budget Measures
Income tax exemption limit increased to Rs 2,50,000 (up by Rs 10,000) for senior citizens and Rs 1,80,000 (up by Rs 20,000) for others. Tax rates for women remain unchanged at Rs 1,90,000.
The optional levy of excise duty on garment manufacturers made mandatory at a unified rate of 10% for branded garments.
Tax exemption withdrawn on branded gold/ silver jewellery and articles by charging nominal 1% excise duty.
Surcharge on domestic companies reduced to 5% from 7.5%
.
No announcement on the much awaited FDI in multi brand retail in this year’s budget.
Budget Impact
Marginally higher income tax exemption limit is a positive for the sector but the extension in exemption limits for senior citizens will not affect the retailers in a substantial manner.
Branded garments might get costlier in future if the manufacturers decide to pass on the cost to retailers and ultimately to the end consumers.
Along with the high prices of precious metals like gold and silver, the 1% excise duty will hurt branded jewellery retailers.
Company Impact
Retailers like Pantaloon Retail, Shoppers' Stop and Trent may face margin pressures if the rising costs of garment manufacturers are passed on to them.
Titan Industries will be adversely affected as a result of excise duty charged on jewellery. The nominal rate of 1% is just a step to include these products in the tax net and the government may keep raising the tax rates in the future.
