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Retail shutters stay but rethink on tax

New Delhi, April 7: The Big boys of retailing — Walmart and Tesco — won’t like to hear this one: a Narendra Modi-led government will allow foreign direct investment in almost every sector barring multi-brand retail.

The BJP’s manifesto was long on rhetoric and short on specifics but it sent out a signal that the global retailing giants were not welcome — at least not for the time being.

That is bad news for Tesco, the 72-billion British giant and the world’s second largest retailer by profits, which won approvals from the Foreign Investment Promotion Board (FIPB) last December to pick up a 50 per cent stake in the Tata-owned Trent Hypermarket Ltd (THL).

The joint venture, which was planning to open stores in Maharashtra and Karnataka, the only two states that were ready to welcome them, will feel severely hemmed in if the BJP storms to power.

Unlike the Congress which had promised to revive a faltering economy and ratchet up economic growth to 8 per cent in three years, the BJP didn’t commit to a target. “We will not just spur the process of economic growth but also ensure that it is stable and balanced,” the BJP’s manifesto said.

The party also appeared to drop its opposition to the star-crossed goods and service tax (GST) that industry has been clamouring for sometime as a way to flatten the rising pyramid of state and central taxes that raise the prices of end-products and services.

The BJP promised to “bring on board all state governments in adopting GST, by addressing all their concerns”.

As chief minister of Gujarat, Modi has led a cabal of chief ministers from BJP-run states which repeatedly stonewalled attempts by then finance minister Pranab Mukherjee and his successor P. Chidambaram, who tried to drive a nationwide consensus on a simple single-point tax and turn India into a common market.

About four years ago, Mukherjee had tried to break the deadlock during a trip to Ahmedabad by initiating a dialogue with Modi. However, the Gujarat chief minister raised procedural objections to the implementation of the new tax regime, effectively scuttling the move.

The original deadline for the nationwide tax was April 1, 2010. Several deadlines have come and gone since.

In February this year, Modi had told business leaders at a meeting in the capital that he was ready to be flexible on GST and this might suggest that as the head of a new government at the Centre he may be willing to yield.

The implementation of the new tax, which will snuff out central excise taxes, additional customs duties, surcharges and state taxes such as value added tax (VAT), entertainment and luxury taxes, and lottery and gambling levies, could well add 1 to 2 per cent to India’s growth rate, say economists.

A consensus among political parties is essential as the measure has to be passed by two-thirds majority in both Houses of Parliament.

Business chambers such as CII and Ficci have long been lobbying major parties to try and build the elusive consensus needed to pass the measure which would make business accounting more transparent and tax compliant.

“We would urge the next government to pass the GST, which can be a game changer for our economy,” said CII president Ajay Shriram.

But the big disappointment this time was over the BJP’s position on direct taxes. The manifesto said it would “rationalise and simplify the tax regime” and “provide a non-adversarial and conducive tax environment”.

That’s a far cry from the specific commitments that the party had made in its manifesto in 2009. At that time, it had promised to raise the income tax exemption limit to Rs 3 lakh, exempt all pension-earning senior citizens from paying tax, and waive tax on interest earned from bank deposits.

The demand for a Rs 3 lakh tax exemption limit was made again in the report submitted by the parliamentary standing committee on the UPA’s Direct Tax Code bill.

The Congress had rejected that proposal — preferring to stick the current limit of Rs 2 lakh. While rejecting the proposal last month, the finance ministry had said any move to raise the tax ceiling and provide other tax sops would drain the exchequer by Rs 60,000 crore.

Analysts say the decision to bar FDI in multi-brand retail was an attempt to reach out to the 25-million-strong small retailer community in the country that has traditionally voted for the BJP.

Business lobbies were clearly upset with the plan to bar the big global retailers.

Said Ficci chairman Sidharth Birla: “We feel disappointment on the stand on FDI in multi-brand retail. We hold out hopes for a possible review in the future.”

“Opposition to FDI in multi-brand retail when there are domestic players in organised retail sector defies logic as the concerns of job loss in traditional kirana stores does not hold good,” said N.R. Bhanumurthy of National Institute of Public Finance and Policy.

Both the BJP and Congress have promised to focus on rebuilding the country’s manufacturing base. The BJP has called for turning India into a “Global Manufacturing Hub” while the Congress has called for “building India as the world leader in manufacturing ... ensur(ing) 10 per cent growth”.

Both parties have said they want to create a “single-window system” at the Centre and in the states to expedite land, environmental, power and other approvals for investors. Both have also backed food subsidies even as they spoke about the need to ensure fiscal discipline.

Both parties have also promised to build a high-speed railway system — an idea that was conceived during Manmohan Singh government’s tenure with six tracks identified for the high-speed project.

Said a Railway Board member: “Both parties want to take credit for whatever the system throws up which may prove popular and disavow hard decisions like raising fares and cutting subsidies, which prudent economics demand.”