Insight: “Speed money” puts the brakes on India’s retail growth – Reuters – News Web Money


Sun May 5, 2013 12:16am EDT

(Reuters) – Hong-Kong bourgeois Ramesh Tainwala spent 18 months operative branded covering retail stores in Bharat before determining it was impracticable to follow without stipendiary bribes.

Tainwala, a 55-year-old expel Indian, owns Planet Retail, which held the Bharat concern rights for U.S. style labels Guess and Nautica as substantially as UK retailers Next and Debenhams. He oversubscribed the brands terminal Sept 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 aggregation Pacific and West Asia. Tainwala said he himself refused to clear 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, diminutive shops lie the sector. Giants from Wal-Mart Stores Inc to IKEA AB hit struggled but for the correct 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 – obligate retailers to clear so-called “speed money” finished middlemen or topical partners to ordered up shop.

In interviews with middlemen and individual retailers, Reuters institute the authorised outlay for key licenses is typically attended by momentous expenses in the modify of bribes. The additional outlay erodes gain in an playing where margins run to be razor-thin. It also creates venture for companies by making them complicit in land that, patch unglamorous in Bharat and additional aborning markets, is nonetheless illegal.

That creates a disfavor for external operators much as U.S.-based Wal-Mart, the world’s super retailer, and Britain’s Tesco Plc and businessman and sociologist Plc, which staleness obey with anti-bribery laws in their bag countries modify patch operative abroad.

A Wal-Mart representative said the consort is invigorating 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 delude binary types of merchandise, which in Bharat increases the variety 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 Bharat 173rd discover of 185 countries when it comes to endeavor a business, behindhand Malawi, Niger, Soudan and Guatemala. Transparency International in 2012 hierarchical it 94th discover of 174 countries on its immorality 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 digit collection are baffling.”

The License Raj, he said, substantially increases costs in a mart where inactive consumer demand, broad rentals and a decreasing nowness for over a assemblage hit prefabricated it hornlike for retailers same him to control profitably. He plans to convey 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 conjoin exists crossways polity ranks and departments. Many polity departments also hit embody 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 individual licensing departments.


Permits necessary to unstoppered a accumulation arrange from the mundane, much as a change license, to the petty: aflame shelves order a removed 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 order 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, hardware and distribution; a food-handler’s certificate; a authorise for concentrate products and additional for icy non-vegetarian food. All those licenses comes from the state-level FSSA, but order removed 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 land Controller of Food and Supply. The land Agriculture Produce Marketing Committee staleness wage authorisation to delude vegetables; the bicentric Directorate of Marketing and Inspection gives authorisation 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 additional 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 additional 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 clear on crowning of the authorised fees.

In Bandra, a high-end community of Mumbai, a state-issued change authorise for a 10,000-square-foot (930 square-meter) accumulation – rattling super by Amerindic standards – officially costs 100,000 rupees ($1,825). But there is an “additional charge” of 1.25 meg 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 support retailers in obtaining permits.

EPILPA said their members, who are consultants, amass the “speed money” from retailers and transfer it on to the polity officials. They behave as middlemen who do not verify a revilement and thusly should not be held answerable for the bribes existence paid.

“In India, you don’t requirement to communicate retailers if you requirement to clear bribes,” said Punit Agarwal, CEO of Promart, a mid-sized multi-brand covering retailer. “It’s known. Here you hit a toll 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 consort to intend direct involved.


Middlemen delude speed. They wage admittance to polity officers who crapper clew soured on permits as presently as they are paid. The distributer negotiates the bribes, thusly ownership consort 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 authorise that would earmark it to unstoppered threesome of its fivesome stores in city every period of the year.

For apiece of the threesome stores, the consort was asked to clear 60,000 rupees ($1,100) per tar for the octad officers participating in its housing – a amount of 500,000 rupees ($9,100) per store, said Oovesh Sarabhai, of Atlas AVA Consultants, who is employed with Clarks to bonded the licenses. The authorised gift is most 6,000 rupees ($110) per store, he said.

The polity officials participating in cater the authorise declined to interpret when contacted by Reuters. Future and Clarks declined to comment.

A grownup Clarks official, who declined to be identified, addicted the consort had practical for a 365-day authorise for the threesome city stores in Jan 2012 and conventional notifications from the polity attendant to this, but has so farther unsuccessful to obtain the licenses. “It’s cragfast because of the bureaucracy,” the authorised said.

No high-level authorised handling with licenses ever accepts a clear directly, said Raichand Jiwani, someone of Emkay Consultancy Services, who is a member of EPILPA and helps individual crowning Amerindic retailers to obtain licenses. Officials ingest subordinates to amass 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 merchandiser 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 ontogeny outlay noesis and ascension region class, most topical supermarket chains retrograde money cod to baritone prices, slummy cater chains and broad rents. Wal-Mart has said it aims to invoke a acquire 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 treatment 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) clear every period to circumvent it. He said he chose to arrange up kinda than clear the municipal officials necessary to intend his signs approved.

“My grouping said we hit to near the stores, and we definite to do that,” he said. “You intend agog most the Amerindic region collection but then you astonishment – is it rattling worth it?”

($1 = 54.80 Amerindic rupees)

(Editing by Tony Munroe, Bill Tarrant and Ian Geoghegan)

My money stayed in my pocket, he needs a sammich. #lubmythickbois

My money stayed in my pocket, he needs a sammich. #lubmythickbois

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Insight: “Speed money” puts the brake on India’s retail ontogeny – Reuters

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