Foreign direct investment in retail will spur tax revenues to grow manifold, ultimately adding to State government coffers.
According to a white paper by consultancy firm Technopak Advisors, tax revenue (in the form of value-added tax and octroi in some States) will grow nearly five-fold, from the current annual $3.4 billion to $16.2 billion by 2021.
“Retail transactions conducted across the 15 million shops in the country are in cash. This provides for leakage through under invoicing or non-reportage of sales. With increased share of corporatised retail, including international players, the probability of tax leakage decreases and certainty of tax receipts increases,” says Ankur Bisen, Associate Vice-President, Technopak.
By 2021, the share of modern organised retail in the overall retail industry is poised to grow from 7 per cent now to 20 per cent. In revenue terms, organised retail would have grown to $162 billion in 10 years (from $34 billion). At a weighted average tax rate of 10 per cent, this works out to tax revenues of $16.2 billion.
And foreign investors are likely to contribute to half of this, estimates Technopak. This was arrived at after taking China’s scenario – in 2011, hypermarkets in China clocked $80 billion in revenue, after a 15-year journey.
“Optimistically, if it is assumed that retail sector reforms in India (since 2007 with the opening up of cash-and-carry) will lead to the creation of a similar scale, then in 2021, international retailers can at best aspire for $80 billion,” the study says.
The e-tailing industry will grow from $0.7 billion to $74 billion in 2021, adding 1 million direct jobs. Currently, the industry has created about 10,000 jobs in the last mile delivery.
A recent Government notification does not allow foreign players to invest at the “customer-facing front-end.” But Bisen makes a strong case for foreign investments in e-commerce as it is set to assume enormous importance in organised retail.
The white paper also urges establishing a retail policy that will encompass “unaddressed” issues of supply chain logistics, real estate and labour laws around working conditions and wages.