INSIGHT-”Speed money” puts the brakes on India’s retail growth – Reuters – News Web Money

Sun May 5, 2013 12:04am EDT

* India’s $500 bln retail mart ontogeny at 20 pct a year

* “License Raj” requires mountain of permits per store

* Licenses ofttimes visit bribes, along with authorised fees

* Many retailers lease middlemen to appendage backhanders

By Nandita Bose

MUMBAI, May 5 (Reuters) – Hong-Kong bourgeois Ramesh

Tainwala spent 18 months operative branded covering retail

stores in Bharat before determining it was impracticable to succeed

without stipendiary bribes.

Tainwala, a 55-year-old expel Indian, owns Planet

Retail, which held the Bharat concern rights for U.S. fashion

labels Guess and Nautica as substantially as UK retailers

Next and Debenhams. He oversubscribed the brands last

September to assorted Amerindic businesses.

“Right today it’s not doable to do playing in Bharat without

greasing palms, without stipendiary bribes,” said Tainwala, who is

also housing concern Samsonite’s chair for Asia

Pacific and West Asia. Tainwala said he himself refused to pay

bribes to licensing officials, though that could not be

independently confirmed.

India is the incoming enthusiastic frontier for orbicular retailers, a

$500 1000000000 mart ontogeny at 20 proportionality a year. For now, small

shops lie the sector. Giants from Wal-Mart Stores Inc

to IKEA AB hit struggled but for the right

to enter, which they eventually won terminal year.

But a discouraging covering of permits – more than 40 are required

for a exemplary supermarket commerce a arrange of products – force

retailers to clear so-called “speed money” finished middlemen or

local partners to ordered up shop.

In interviews with middlemen and individual retailers, Reuters

found the authorised outlay for key licenses is typically

accompanied by momentous expenses in the modify of bribes.

The additional outlay erodes gain in an playing where margins

tend to be razor-thin. It also creates venture for companies by

making them complicit in land that, patch unglamorous in

India and added aborning markets, is nonetheless illegal.

That creates a disfavor for external operators much as

U.S.-based Wal-Mart, the world’s large retailer, and Britain’s

Tesco Plc and businessman and sociologist Plc, which

must obey with anti-bribery laws in their bag countries even

while operative abroad.

A Wal-Mart representative said the consort is strengthening

its deference programs, conception of a orbicular deference analyse that

has outlay more than $35 meg over the terminal 18 months. IKEA,

which is awaiting test support to start India, has started

assessing the market, a spokeswoman said, adding the assemble has

“zero tolerance” for immorality in some form.


Retail is especially unerect to felony because stores sell

multiple types of merchandise, which in Bharat increases the

number of licenses and permits necessary – a heritage of the

so-called “Licence Raj” that was mostly destroyed during the

country’s primeval 1990s scheme reforms.

The World Bank’s Ease of Doing Business analyse ranks India

173rd discover of 185 countries when it comes to endeavor a business,

behind Malawi, Niger, Soudan and Guatemala. Transparency

International in 2012 hierarchical it 94th discover of 174 countries on its

corruption plateau – a start from 72nd fivesome eld earlier.

“Even for a ultimate abstract same swing up signage in face of

your accumulation you are vexed for money,” said Tainwala. “There

are some bodies control that and the permits necessary to ordered up

one collection are baffling.”

The License Raj, he said, substantially increases costs in a

market where inactive consumer demand, broad rentals and a

depreciating nowness for over a assemblage hit prefabricated it hard

for retailers same him to control profitably. He plans to return

when there is more visit in the artefact playing is done.

Ais Kumar, nous of the Hesperian location for the Food Safety &

Standards Authority of Bharat (FSSA), recognized that graft

exists crossways polity ranks and departments. Many government

departments also hit body shortages that drive delays.

“These licenses are required for deference and country and

not because the polity wants to retard or modify things

for anyone. It’s the accumulation of the realty and it staleness be followed,”

he said, adding the polity is pains to place licensing

systems online to streamline the impact and attain it more

transparent. Checks with threesome retailers, however, showed the

online forms ease requirement to be physically delivered to the

respective licensing departments.


Permits necessary to unstoppered a accumulation arrange from the mundane, such

as a change license, to the petty: aflame shelves visit a

separate permit, and modify a collection pane needs a license.

Want to endeavor penalization in the store? That requires a license. So

does commerce toiletries or providing man parking.

A lavatory accumulation that sells principle much as milk,

vegetables, cereal, bread, eggs, meat and child matter module require

a peak of 29 licenses from nearly 20 assorted authorities,

according to a itemize of licenses compiled by the Retailers

Association of Bharat and obtained by Reuters.

Those earmark a matter license; a authorise for sale, storage

and distribution; a food-handler’s certificate; a authorise for

milk products and added for icy non-vegetarian food. All

those licenses comes from the state-level FSSA, but require

separate applications.

But the FSSA does not wage authorisation for operative freezers

and chillers. That requires a removed authorise from a municipal

body. Selling child matter requires a accept from a state

Controller of Food and Supply. The land Agriculture Produce

Marketing Committee staleness wage authorisation to delude vegetables; the

central Directorate of Marketing and Inspection gives permission

to evaluate and variety those vegetables; the Controller of Rationing

grants licenses for commerce primary commodities same rice.

All those licenses requirement to be renewed, sometimes annually.

The Directorate of Marketing and Inspection declined

comment, patch the added departments were not available.

Most of the licenses required crapper either be finished absent with

completely or compounded into one, said Lalit Agarwal, chair of

V-Mart Retail. “Every day, you hit newborn licenses added

to the list, but null ever gets deleted.”

It’s not meet the flushed enter of effort those licenses, it’s

also the under-the-table money that retailers typically hit to

pay on crowning of the authorised fees.

In Bandra, a high-end community of Mumbai, a state-issued trade

license for a 10,000-square-foot (930 square-meter) accumulation – very

large by Amerindic standards – officially costs 100,000 rupees

($1,825). But there is an “additional charge” of 1.25 million

rupees ($22,800), according to documents obtained by Reuters

from the Employee State Insurance, Provident Fund and Industrial

Law Practitioners Association of Bharat (EPILPA), which assist

retailers in obtaining permits.

EPILPA said their members, who are consultants, amass the

“speed money” from retailers and transfer it on to the government

officials. They behave as middlemen who do not verify a revilement and hence

should not be held answerable for the bribes existence paid.

“In India, you don’t requirement to communicate retailers if you requirement to pay

bribes,” said Punit Agarwal, CEO of Promart, a mid-sized

multi-brand covering retailer. “It’s known. Here you hit a

price attach for everything.”

He said his consort hires middlemen and pays their fees

because he knows bribes hit to be paid, but does not poverty his

company to intend direct involved.


Middlemen delude speed. They wage admittance to government

officers who crapper clew soured on permits as presently as they are paid.

The distributer negotiates the bribes, thusly ownership company

officials from existence direct involved.

Take the housing of nation covering merchandiser Clarks. It

entered Bharat finished a partnership with Future Group, which

runs the country’s maximal traded retail entity, Future Retail

. Clarks has hired consultants and, according to digit of

them, is negotiating with municipal officials for a 365-day

license that would earmark it to unstoppered threesome of its fivesome stores in

Mumbai every period of the year.

For apiece of the threesome stores, the consort was asked to pay

60,000 rupees ($1,100) per tar for the octad officers

involved in its housing – a amount of 500,000 rupees ($9,100) per

store, said Oovesh Sarabhai, of Atlas AVA Consultants, who is

working with Clarks to bonded the licenses. The authorised gift is

about 6,000 rupees ($110) per store, he said.

The polity officials participating in supply the license

declined to interpret when contacted by Reuters. Future and Clarks

declined to comment.

A grownup Clarks official, who declined to be identified,

confirmed the consort had practical for a 365-day authorise for the

three city stores in Jan 2012 and conventional notifications

from the polity attendant to this, but has so farther unsuccessful to

receive the licenses. “It’s cragfast because of the bureaucracy,”

the authorised said.

No high-level authorised handling with licenses ever accepts a

bribe directly, said Raichand Jiwani, someone of Emkay Consultancy

Services, who is a member of EPILPA and helps individual crowning Indian

retailers to obtain licenses. Officials ingest subordinates to

collect the money and exclusive from trusty people. The commercialism is

then mutual by lowly and grownup officers and up the

bureaucratic chain.

“The linkage runs farther deeper than meet a some debased officials

at the topical level,” said Jiwani, noting that if a retailer

approaches an authorised direct he module not be told most the

bribe, but his writing module verify months to be approved.


While Bharat holds vast prospect for retailers, with its

growing outlay noesis and ascension region class, most local

supermarket chains retrograde money cod to baritone prices, slummy supply

chains and broad rents. Wal-Mart has said it aims to invoke a

profit in 10 years, something it hasn’t managed in China after

12 years.

Tainwala thinks Bharat offers small retail returns for

the large assets of instance and forcefulness that is needed. Fast

expansion requires stipendiary pace money, he said.

Tainwala recalls he was asked to clear either a 22,000 rupee

($400) monthly gift to hit signage right his accumulation in Mumbai’s

plush Atria mall, or a 2,000 rupee ($36) pay every period to

circumvent it. He said he chose to arrange up kinda than pay the

municipal officials necessary to intend his signs approved.

“My grouping said we hit to near the stores, and we decided

to do that,” he said. “You intend agog most the Amerindic middle

class but then you astonishment – is it rattling worth it?”

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INSIGHT-”Speed money” puts the brake on India’s retail ontogeny – Reuters

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