~aknarain

From: Alishan Naqvee [anaqvee@lexcounsel.in]

Sent: Friday, July 30, 20106:02 PM
To: narain.d; V Bhaskar
Cc: Dimpy Mohanty; dmanchanda@lexcounsel.in
Subject: Views - Discussion Paper - Multi Brand Retail Trading
Attachments: Views-Retail-30071 O.pdf

Dear Sirs,

Attached for your kind consideration are our views and suggestions on the discussion paper on foreign direct
investment in multi brand retail trading.

We also wish to convey our compliments to DIPP for putting together a well thought out and research based
discussion paper on the subject.

Warm regards,

Alishan Naqvee
Partner
anagvee@lexcounsel.in LIEXCOUNSEL
Mobile: +91.98.1097.9088

C-10, Gulmohar Park New Delhi 110 049

Tel. +91.11.4166.2861 Fax. +91.11.4166.2862

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C-10, Gulmohar Park
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iii
LEXCOUNSEL
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July 30, 2010

To

1. Mr. V. Bhaskar 2. Mr. Deepak Narain

E-mail: v.bhaskar@nic.in E-mail: narain.d@nic.in

Subject: Discussion Paper - FDI in Multi Brand Retail Trading.

Dear Sirs,

First of all, please accept our compliments for putting together a well thought out and research
based discussion paper on the subject.

We feel that "the fear of unknown" has fueled the opposition to liberalization of the retail
sector. The statistics and analysis presented by the discussion paper will surely go a long way
in clearing any 'genuine' doubts.

We understand that policy making or revision would always be a complicated task, and more
so in India where the considerations may be entirely different from anywhere else in the world.
In the words of an Indian minister (now ex) "The shoes we wear are sold from air conditioned
showrooms. The vegetables we eat lie on roads. It can only happen in Hindustan".

The discussion paper, inter alia, puts the following facts on record:

• 25-30% of fruits and vegetables and 5-7% of food grains in India are wasted in absence of
"farm to fork" retail supply system and integrated cold chain infrastructure;

• Losses of perishable farm produce are estimated to be over Rs. 1 trillion per annum, 57%
of which is due to avoidable wastage and the rest due to avoidable costs of storage and
commissions;

• Though FDI is permitted in the cold chain to the extent of 100% through the automatic
route, in the absence of FDI in retailing, FDI flow to the sector has not been significant;

• Intermediaries dominate the supply chain, and the average price that the farmer receives
for a typical horticulture product is only 12-15% of the price the consumer pays at a
retail outlet;

• Indian farmers realize only 1/3rd of the total price paid by the final consumer, as against
2/3rd by farmers in nations with a higher share of organized retail; and
 LEXCOUNSEL

• Share of MSME sector in overall manufacturing has declined from 34.5% in 1999-2000to
30.3% in 2007-08,largely due to the inability of this sector to access latest technology and
improve its marketing interface.

At the same time, factually and reportedly (as per news items and other articles in reputed
publications):

• Grain - enough to feed 140 million poor for a month - rots, and inadequate storage
facilities have a major role to play;

• India tops world hunger chart - last year we were ranked 94th in the Global Hunger
Index of 119 countries;

• Indian is struggling to bring down food inflation as well as general inflation, which has
alarmingly been much above the global average;

• Indian agriculture suffers from disguised employment, while most job opportunities are
being created in cities, prompting migration from villages to the cities; and

• Naxalites gain ideological and moral support from the sordid state of impoverished
inhabitants in the affected areas.

The objective of citing the above reports is to suggest widening of the perspective for policy
revision. On one hand, we can blame the Government for all mismanagement, but on the other
we can encourage private participation in certain functions that can lead to improvement in
general quality of life in India (and the discussion paper presents one such opportunity for us as
an individual and as a nation).

While the Government can theoretically perform most functions, the contribution of
privatization to the economy, or for that matter, public private participation, is significant. Delhi
and Mumbai Airports are prime examples. Theoretically, the Government could also have
constructed them, but practically, it could not.

The policy in the sector of multi brand retail trading is likely to have an indirect impact on
overall availability of food products and consumables, and would therefore also have an overall
impact on quality of life in India.

In our view, the policy revisions need to be considered from the perspective of the following:

A. The Producers;

B. The Intermediaries;

C. The Retailers;

D. All of us as the Consumers; and

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E. All of us as constituents of a democratic nation.

In a single policy, the best interest of all the groups may not be met (since the interests may be
competing inter se). However, the policy shall be oriented towards general good of all its
constituents taken together.

Your discussion paper puts together the data from most of the above perspectives, that we wish
to highlight and reply on. It is pertinent to mention that the area of practice of the individuals,
who have contributed to the foregoing suggestions, is law. The observations herein below are
consequently "logic driven" rather than "statistic driven", and are oriented to aid the discussion
rather than to impress a conclusion.

A. The Producers and Manufacturers:

This category includes the farmers and the manufacturers.

• As per the discussion paper, the farmers are likely to receive more value for their
produce.

• The same may also, to some extent, apply to the manufacturers. Given the population
and individual preferences, it is unlikely that the small and un-branded manufacturers
would be wiped out. Most of the retail chains may not even wish to manufacture. If they
were interested in overall manufacturing, they would have already been here, as even
today, there is no restriction on selling what one manufactures in India.

• There is a concern that once the large retailers wipe out the competition, they would on
one hand lower the purchase prices, and on the other, higher the sale prices. This
appears to be an unsubstantiated hypothesis at most. For example, the privatization of
airlines, per se, has not led to increase in airfares. In fact, keeping inflation in mind, the
result would be contrary to the hypothesis. Telecom is another example. The power to
control the prices comes from "monopoly" rather than "privatization", and both can, to
a great extent, be contrary to one another as long as the number of payers is not
restricted.

Even if the hypothesis is correct, chances are that the alternative options would emerge
due to the market forces. The Government can be enabled to prescribe minimum
purchase prices through regulatory mechanism.

• Admittedly, majority of Indian farmers are "monsoon" dependant, and suffer at the
hands of the disorganized market level negotiations ironically in both cases, whether it
be a poor harvest or a bumper crop. Contract framing programs and infusion of new
technologies would upgrade their quality of life, and consequently the quality of life of
the majority of Indian workers (as agriculture remains the largest employer). This may
not happen without private participation in the areas.
 LEXCOUNSEL

B. The Intermediaries:

• They are also the supply chains of today, minus quality storage facilities. The
consequences of inadequate storage facilities, enumerated above are not being repeated
here for the sake of brevity.

• The largest employment in India is admittedly, in agriculture. Would it be justified to

force the farmers (larger in numbers) to sell at lesser rates just because organizing the
market may be disadvantageous to the intermediaries (lesser in numbers)? The larger
population group should logically be given a preference in protection of interests.

• The organized sector has its own advantages in terms of employment benefits, social
security, insurance and compensation by/through the employer. Not all intermediaries
are self employed, and organizing the sector would arguably, be for the betterment of
their employees. The organized retailers would in any case need employees to perform
the tasks, and the intermediaries and their employees would come handy with
experience.

• Certain other benefits of organized retail are their policies towards social
responsibilities. Organized retailers are known to discourage child labour (and sourcing
from manufacturers who employ them), use of toxic ingredients, poor working
conditions, securing work below minimum wages, etc. A general improvement on these
fronts can be expected if organized retailers are permitted.

C. The Shopkeepers:

This category includes the retailers from kirana/ mom and pop stores to pulling carts.

• The "mall culture" is already here for many years. We also have Indian organized
retailers, dealing in "needle to ships" literally. The organized retailers of Indian origin
deal in fruits, vegetables and other food articles even today. The multinational retailers
would not be significantly different.

• Except for the stone pelting at some of the retail stores out of fear and apprehension, the
real impact of these organized retail outlets over the shopkeepers has gone unnoticed,
perhaps for being more of less insignificant.

• The mom and pop stores facilitate day to day supplies, and run on relationships,
comfort and proximity. The situation is unlikely to change significantly just because of a
mall in the neighborhood.

• The discussion paper rightly notices that the private final consumption expenditure is
constantly increasing. It means there is bigger pie to share, and policy changes may be
accommodated.

• Still, it may be presumed that the shopkeepers may be affected to some extent. The
policy therefore needs to balance, to the extent possible, between the competing interests
 II
LEXCOUNSEL

of the farmers (who tend to gain) and shopkeepers (who may - or may not -lose) due to
liberalization of this sector. Again, the farmers remain larger in number, and in a much
more. fragile financial state.

O. The Consumers:

• Even the farmers, the intermediaries and the shopkeepers are consumers, at least of the
products they do not produce or deal in.

• The interests of the consumers, most studies unambiguously show, are well served with
liberalization of the sector. If by policy reform, farmers (largest number of employees in
India) can earn more, and the consumers (effectively the entire population) can pay less
for the same product, the scale should tilt accordingly. Else, it may amount to keeping
.majority of the population hostage for the interest of minority of the population.

E. All of us as part of a democratic nation:

• Most of the transactions at kirana shops are in cash, and it is difficult for the
Government to threadbare supervise deposit and payment of taxes by these retailers. A
larger collection of direct and indirect taxes is therefore probable on similar volume of
sales by organized retailers.

Organizing the sector would therefore most likely provide the Government an increased
opportunity to tap on the revenue, which at present goes untaxed or unnoticed. This
revenue can accordingly be used in further development and welfare measures.

• The employees in organized sectors are also likely to have better facilities and protection
against contingencies as against their counterparts in unorganized sectors. To a certain
extent, the same pool of individuals is likely to be used by organized retailers, albeit
while providing them better conditions.

• The Indian entrepreneurs and business enterprises willing to tap on the potential of
organized multi brand retail trading are also a part of our nation. The sector would also
generate employment, and improve infrastructure, and promote economic activity.

• Under the present regulatory regime and owing to the oral clarifications issued by the
officials:

a No FOI can be induced in a multi brand retail business in India even if the
ownership and control of the Indian entity is stipulated to remain with resident
Indians, post FOI.
a No FOI is also permissible in Indian business dealing in Indian brands (which
are not internationally sold).

The current policy therefore poses constraints not only for the foreign investors, but also
for the Indian businesses that may be in dire need of capital or have growth potential. A
change therefore is imperative.
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LEXCOUNSEL

In view of the above discussion, we have attempted to put forth our thoughts on the questions
presented by the discussion paper:

7.1 Should FDI in multi brand retail be permitted? If so, should a cap on investment be
imposed? If so, what should this cap be?

Suggestion: Yes, it should be permitted. To start with:

• FDI may be restricted to 49%, with the control remaining with resident
Indian citizens. The retail sector does not involve security concerns as
they exist for some other sectors, like telecom and defense, justifying
Indian ownership. However, the multi brand retail trading sector can be
gradually liberalized taking care of the market and political sensitivities.

• Downstream investments by Indian companies in multi brand retail

trading should be permitted, if the investing Indian company is majority
owned and controlled by Indians.

• The oversight body, as proposed by the Government, should be

constituted, and should check that investments do not slip in multi brand
retail trading in cases where the control is in the hands of person other
than resident Indians.

• At the same time, the 25% and internal use restriction on wholesale
trading should be removed.

• B2Bcommerce should be treated distinctly from wholesale trading.

Alternatively, the Government may even consider legitimizing wholesale - retail

ventures, wherein the wholesale entity may be permitted to have FDI under
automatic route (as is currently permitted), and the retail entity shall be owned
and controlled by resident Indian citizens, by a combination of direct and! or
indirect investments. Subject to satisfactory compliance with other conditions
that may be prescribed by the revised policy (including those illustrated by the
discussion papers, such as special wholesale window, employment
requirements, etc.), the foreign investor may, over a period of few years, be
permitted to increase ownership and control in the down line retail entity.

7.2 To develop the retail trade in food grains, other essential commodities and multi brand
retail in general; should FDI be leveraged for creating back-end infrastructure? To
ensure that foreign investment makes a genuine contribution to the development of
infrastructure and logistics, should it be stipulated that a percentage of the FDI coming
in (say 50%) should be spent towards building up of back end infrastructure, logistics or
agro processing?
 D
LEXCOUNSa

Suggestion: It may be so prescribed, if the policy makers believe that the investment will not
automatically flow in creating back-end infrastructure. The limits however shall
be met in a period of time, say five years, as year to year compliance of such
requirements may discourage the businesses, failing the very objective of the
policy relaxation. The policy may create an atmosphere for such investments so
that the funds naturally flow in these activities as a business need for multi brand
retail trading, rather than forcing specified investments in a regimented manner.

7.3 It is necessary to encourage only genuine players in this sector and avoid a situation
where retail outlets are run through working capital support from financial institutions.
Should a minimum threslwld limit for investment in backend infrastructure logistics be
fixed? If so, what should thisfinancial threshold be?

Suggestion: The idea of policy relaxation would be to get investment in back end
infrastructure and benefits to the society, rather than promoting selected
business, retail chains, or brands. So there may not be any adverse implications
of capital support from financial institutions.

If investment limits are to be relaxed gradually, the investor, whether a financial

institution, or a large retail chain, would have to partner with and rely on
capabilities of the local partner. Putting a financial threshold may also oust
many players out of the race. Again, it is suggested to let the business decide and
flow in its natural course.

More players would also mean more and better options for all the constituents,
and would also avoid monopolistic practices, if that is a concern.

7.4 To develop our rural sector, should conditionalities be put on the FDI funded chains
relating to employment? For example, slwuld we stipulate that at least 50% of the jobs in
the retail outlets should be reservedfor the rural youth?

Suggestion: Market forces are likely to employ the available rural youth, which may not be
educationally qualified, but experienced in the sector in their local area. India is a
country of many cultures, languages and even more dialects, and therefore by
natural selection, the locals would be more suitable for specific back end jobs.
Over regulating the sector may therefore be avoided, in the interest of its overall
success.

7.5 Similarly, to develop our SME sector through local sourcing, should we stipulate that a
minimum percentage of manufactured products be sourced from the SME sector in
India?

Suggestion: Yes. However, the limit should be kept within easily achievable limits, and
should be reconciled over a period of time, rather than on year to year basis.

7.6 How best can small retailers be integrated into the upgraded value chain? Can they be
provided access to the logistics/ supply chain set up by the FD I funded retailers? Should
 iii
LEXCOUNSEL

it be stipulated that a minimum percentage of the latter's sales should be made to retailers
through special wholesale windows?

Suggestion: "Special wholesale windows" is a welcome suggestion. The outlets would thus
be a combination of cash and carry wholesale for registered dealers (as described
in Circular No.1 of 2010) as well as retail outlets for end consumers.

No limit on wholesale versus retail by the organized retailers should however be

prescribed. It would be impractical for the retail operations to be suspended if
the wholesale does not achieve the prescribed levels. Further, the shopkeepers
cannot be forced to purchase from the wholesale window of the organized
retailers, or anyone of them. Monitoring of compliance would also be difficult.

It may however be prescribed that the wholesale prices (at wholesale window)
shall be a fixed minimum percentage lower than the retail prices of the same
organized retailers. One can purchase from the wholesale window if he has the
trade registrations, etc. to qualify as a reseller.

7.7 As a part of a calibrated reform process, should foreign investment for such stores be
initially allowed only in cities with population of more than 10 lakhs (2001 census)? As
there may be difficulties faced with regard to availability of real-estate in such cities for
setting up such ventures, should an area of 10 kms around the municipal/urban
agglomeration limits of such cities be included within the definition of the city?

Suggestion: If fixed margin is offered at the wholesale window, as discussed above, there is
no need to limit the activities to selected cities. Further, the approach of bringing
developments to big cities leads to centralization of development initiatives,
whereas India to a great extent may need decentralization. Centralized
developments also give rise to dissatisfaction in persons from smaller towns and
cities. Arguably, the worst outcome of centralized developments is civil unrest in
some of the underdeveloped regions in India.

There is another school of thought which opposes growing our cities

horizontally. A vertical expansion has its own advantages. It reduces land use
and exploitation of resources such as ground water, it requires lesser investment
in spreading infrastructure, and it makes public transport more effective, and
reduces consumption of fossil fuels. In addition, education and healthcare
facilities can be made available in close proximity. Public order and sanitation
can be focused in the smaller areas, and therefore their levels can be improved.

The organized retailers are in any case going to open shops either in existing
malls or will build facilities of similar or better standards, with adequate parking,
resources, etc. Even today one would witness more chaos in and around local
markets rather than in and around malls.

7.8 Will any of the conditionalities mentioned above be inconsistent with our commitments
under the agreement on TRIM at VVTO? If not, to ensure national treatment, can such
 gg
LEXCOUNSEL

conditionalities be extended to all retail chains in India above a certain size? Will such
extended conditionalities be consistent with Article 301 of the Constitution?

Suggestion: The conditionalities, in the first place, may be restricted to the bare minimum.
The conditionalities may also not be imposed based on size of the operation or
on purchase, but on percentage basis related to sales.

Once such broad conditionalities are conceptualized, their compliance with

TRIM at WTO can be carefully considered. An individual opinion on the legal
matters such as compliance with WTO, or Article 301 of the Constitution may not
be of consequence. The opinion of the law officers appointed by the Government
of India may therefore be obtained on the legal position.

However, the courts would ordinarily not interfere with reasoned policy
decisions of the Government.

7.9 What additional steps should be taken to protect small retailers? Should an exclusive
legal and regulatonJframework be established to protect their interests? Is a Shopping
Mall Regulation Act required? Does this require intervention at national level or should
this be left to the States?

Suggestion: In addition to "wholesale window", the small retailers should be extended

financial assistance by the banks more easily. Other than this, any other
protections may not be required. The Government has anyway adopted an
approach, by way of Press Note 1 of 2005, to let the businesses mature and
safeguard their interests. Any over protection would amount to a regressive step
towards Press Note 18 era.

Since the policy is at the national level, the protections, if any, shall however flow
from the same level, in consultation with the states. This is also to improve
business environment in the nation as a whole. Else, the multinational organized
multi brand retailers, inspite of being permitted to carry on their business in
India, may face complications in some states due to local regulations emanating
out of different political ideology and mindsets.

7.10 The present public distribution system provides a valuable safety net to vulnerable
sections of society. To ensure that the integrity of the PDS system is not weakened and
buffer stock is maintained at the desired level, should Government reserve the right of
first procurement for a part of the season or put in place a mechanism to collect a certain
amount of levy from private traders in case the level of buffer stock falls below a certain
level?

Suggestion: Though there are many doubts raised as to the workability and effectiveness of
the public distribution system for the vulnerable sections of the society, it
nevertheless needs to be protected even if it has to improve in future.
 lil
LEXCOUNSEL.

Having said that, the suggested measures may be adopted, if the policy
relaxation is expected to result in a paradigm shift in the landscape. A possible
view could be that the disorganized retailers are merely being replaced by the
organized retailers, and the existing framework of laws and regulations
protecting PDS should continue to apply and work.

7.11 How should compliance be ensured with the above stipulations? Should a centralised
agency, to be nominated by the State Governments concerned, be empowered to grant
permissions to even) outlet to be opened? The onus of proving compliance with these
conditions could rest with the concerned retail chain. The chains could submit an annual
statement to such State Government agenCl) providing proof of compliance. Should this
agency be empowered to monitor compliance of the present cash and cam) outlets too?

Suggestion: The oversight body, which intends to be formed to look into FDI compliances,
can also look into compliance with its conditions. In the event they anticipate
breach; they could conduct inquiries, investigations and recommend prosecution
in terms of the Foreign Exchange Management Act.

7.12 The penalty for non compliance could include cancellation of approvals as well as denial
of future permissions for such activities. What additional penalties could be levied?
Should civil penalties be imposed? Or criminal? Or both?

Suggestion: Consequences for violation of the Foreign Exchange Management Act would be
sufficient, as are deemed sufficient at present for any other sector.

Overall, we feel that India shall start with its "tryst with destiny" as far as multi brand retail
trading is concerned.

We look forward to a consensual and positive outcome of your efforts, and wish you all the
best.

Yours sincerely,

Alishan Naqvee
Partner
LexCounsel, Law offices
E-mail: anaqvee@lexcounsel.in
 Page 1 of2

Subject Discussion Paper on FDI in Multi·brand Retail Trading.

Merchants Chamber <merchantchamber@yahoo.com>
From

Date Friday, July 30,20105:17 pm

To R P Singh <rp-singh@nic.in>

30 July 2010

Shri R.P.Singh

Secretary

Department of Industrial Policy & Promotion

Ministry of Commerce & Industry

Government of India

Udyog Bhawan,

New Delhi-11 0 011

Fax:- (011) 2306-1598

Email:- rp_singh@nic.in

Dear Sir,

I enclose the views of the Chamber on the 'Discussion Paper on FDI in Multi-brand Retail Trading', as desired, for kind

consideration of your Ministry.

Thanking you,

Yours faithfully,

Encl:- ala.

(R.K.Sen)

https://mail.nic.iniuwc/webmail/print.html 7/30/2010

•••••
 Page 2 of2
Director General

ac

7/30/2010
https://mail.nic.in/uwc/webmail/print.html
 Discussion Paper
on FDI in Multi-brand Retail Trading

[Response to section 7.0 of DP:- ]

Issues for Resolution:

7.1 & 7.2 India allowed entry of FDI in single brand retail trade
sometime in 2005 for the first time up to 51p.c. in general stores and
100p.c. in Cash & Carry outlets. Till now the impact on the retail
market has been small - 7 to 8p.c. or less. But the trend of
consumers in marketing in a new environment is catching up and
organised retail is expected to grow at 12-15p.c. by 2011-12,
according to a study by ICRIER in 2008.

The Study has also focused on certain significant trends as

follows:-

a. With 9-9.5p.c. GDP growth, the retail market in India is fast

expanding, creating adequate space for both traditional and
organised trade.

b. With the percentage of young population in the age group of

20-35 years rising fast, at present 45p.c. or so, the tendency
of consumers to buy in an organised retail environment which
is modern and comfortable is growing rapidly, providing a push
to organised retail in India.

c. The network revolution is having a direct impact on Indian

consumers, bringing them closer to the influence of high-end
domestic and foreign marketing experience.
d. Prices of consumer items like food, grocery, clothing and
consumer durables are reportedly lower for many items in the
organised retail outlets. This is being welcomed by the lower
income consumers, as they save more on their purchases, and
enjoy the comfort of marketing in a congenial environment.

e. Farmers are also reportedly gaining, as they receive 20-25p.c.

higher prices for Direct Sales of their produce to the
organised retailers, compared to sales to the Commission
Agents, and Mandis.

f. Till now, there is no certain evidence of overall decline In

employment in the traditional retail trade.

Looking at these trends and considering the urgent need to

create adequate retail space for the fast growing tech-savvy, TV &
Satellite Channeladdicted young population, with a high propensity to
consume, who can contribute immenselyto the growth momentumof
the retail sector in India, entry of FDI in multi brand Retail
trading should be welcomed.

But pari passu, traditional retail trade also should be

upgraded and offered the needed facilities. It should not be
adversely affected in any way, rather be strengthened so that it can
enjoy the benefits of level-playing field and co-exit with the modern
and FDI assisted segment of Retail Trade. At present, it does not
have any access to institutional finance, no facilities for economic
transport and storage of goods, no funds for improvement of
shopping-floor in terms of large space, air conditioning, customer
comforts etc. Even flexibility of business hours, enjoyed by the
organised retailers, is denied to them. All these need to be
provided and improved effectively, simultaneously with allowing
the entry of FDI into the Retail Sector.

2
 The organised retail segment also needs to be built up with
better plans, management sense and efficiency so as to accelerate
its growth and avoid the cases of failure. There are at present
around 200 Shopping Malls in India. But only 25-30p.c. of them are
said to be viable in terms of 'Customers Value Satisfaction' and
'Financial Prudence', particularly in case of medium-scale developers'.
To be considered a grand success, atleast 70p.c. of the Shopping
Malls that have come up should be able to meet these two criteria.
Further, their pricing Policy should be clear for the consumers.
Generally, shopping Malls announce 'upto 50p.c.' discounts on the
listed prices at certain periods of the year. But in fact, most of the
items are sold at 10-15p.c. discount. To save the consumers from
misconception and harassment, the 'Discount' should be displayed at a
'Flat Rate'. Also the Safety Measures in construction and
Escalators should strictly be followed as per stipulated norms.

A recent Report on retail trade by Cushman & Wakefield

says that the main issue for retailers and brands is the sustainability
of business. This is evident from the fact that during the last two
quarters of 2009 organised retailers across India restricted their
stores, re-negotiated rentals and exited unviable locations. In
2009-10, 44 million Sq. ft. of retail space is projected to come up at
a huge investment. But because of the slow down process, not even
30p.c. of it is likely to be completed. In this context we feel that
a Regulatory Authority should be set up to oversee the construction
of Shopping Malls and ensure their appropriate planning, effective
management and maintenance on a long-term basis.

We think that it would be prudent for the Government to

take proper care in allowing unlimited FDI in multi brand Retail
and encourage its entry compulsorily into back-end
infrastructure, logistics and agri-processing. The front-end
activities also need to be opened up; otherwise FDI growth may not
be significant, as desired. Further, a cap on FDI's entry into retail
trade seems to be necessary. The cap on investment may be 51p.c.
3
in the first year which may be relaxed in the subsequent years,
depending upon the growth-needs of the economy and gains for the
society. Where loop.c. FDI is permitted, it would be desirable to
stipulate a minimum 50p.c., of total investment for the
development of back-end infrastructure, logistics etc.

7.3 We think that only foreign players with reputation and

standing in their own countries should be allowed entry into the
Indian Retail Sector. They should produce the same standard of
goods, especially in Food items, cold drinks and Mineral water as
produced in their own countries. They should not be allowed to
raise working capital support from India in any case. To this end,
a minimum investment may be fixed, as in Thailand. The threshold
limit maybe fixed at Rs. 100 million for each retail outlet and Rs. 200
million for each wholesale outlet.

7.4 When an FDI-funded retail outlet will come up in the rural

sector, the young people living around would naturally be given jobs.
No conditionalities are required in respect of employment.

7.5 The SME units have to supply the needed products of the
required specifications, quality standards and at agreed prices that
are contracted for delivery. In short, the local SME units should be
fully competitive with other SME and large units, in all respects so
that FDI funded retail outlets are encouraged to access resources
from them. We do not think that any stipulation of a minimum
percentage of out-sourcing from the local SME's would be a practical
or desirable proposition in a competitive environment.

7.6 A way should no doubt be found out to integrate small

retailers with the up-graded value chain. The small traditional
retailers should get the benefit of FDI-funded retail operation.
But first of all, they have to improve their stores and get better
products in terms of quality, shelf life, colour, size & weight as well
as price-level in order to match the requirements of the upgraded
4

;
value chains. To make it possible, they may be permitted if necessary
to access the infrastructure and logistics created by the FDI funded
retailers. In such a case, we suggest stipulating a min. percentage
of sale, say 25 p.c., through special wholesale windows to the
small retailers. This will scale-up the reputation of the traditional
retailers, and lead to integration of the two layers of retailers over a
period.

7.7 Since the reform process has to be calibrated, we suggest

that it be initially started in all Tier I, II & III cities, apart from
the Metropolitan Areas. Otherwise the process of reform may be
diluted and slowed down. Infrastructure facilities, safety of
movement and market-potential are the important factors governing
the growth of modern retail outlets.

7.9 Small retailers who provide essential items of food,

medicine and items of daily needs to the consumers virtually at
their door steps or on call and provide employment to millions of
people should be protected by all means. Mere protection is not
enough; their present working condition, means of carrying on
business, laws and taxes, and earnings level call for immediate
improvement. Provision of the required institutional finance,
simplification of statutory obligation and reduction of unnecessary
regulatory burden are positive ways of promoting their growth
and increasing their basic strength to survive. These are more
important than legal and regulatory framework. For Shopping Malls,
however, a Regulation Act may be considered, to keep a check on
their healthy growth and ensure that they do not overstep their
defined field of operation and act against national interests. For the
sake of uniformity, such a legislature if introduced, should be at the
Union level.

7.10 The PDS provides a valuable safety net to the poor people,
the BPLcategory. Until agriculture grows at 4-5 p.c. the uncertainty
5
about food security will remain. In such a situation, adequate buffer
stock has to be maintained. We think that the present mechanismto
collect certain amount of levy from the private trade, in case of need
in any year, may be continued.

7.11 A Central Authority, comprised of the representatives of

all States and the Union Government may be set up to formulate
the Guidelines on the basis of D.P. and comments received from
various quarters. Approval for entry of FDA is to be given by this
Central Authority. The onus of proving complianceshall rest with the
FDI outlets, accountable to the State Government. The Cash &
Carry outlets also should be accountable to the State Government
and their Sale, operation should be limited to the State in which
C&C outlets are located.

The Shopping Malls should be quality-conscious and

consumer-friendly. They should clearly indicate in each floor of the
Malls where and with whom, the complaints, if any, against them are
to be lodged by the customers.

7.12 For non-complianceof the stipulated provisions, the country's

laws should apply. Cancellation of approvals and denial of future
permissions are obvious and essential steps. India needs FDI,
inter alia to upgrade the Retail Trade to international level. To
achieve it, we need foreign funds, new technology and latest
managementskill into the trade sector in India. Hence, India should
focus on monitoring the reform process so that it turns out to be
a great success, and there is no non-compliant player.
The Monitoring Agency should have a great role to play.
Any deliberate attempts to undermine the process and defraud
the people and the economy should attract stern penalties, both
civil and criminal.

~'

(S.S.Beriwala)
President
6
deepak narain rt

From: Dipayan Baishya [Dipayan.Baishya@futuregroup.in]

Sent: Friday, July 30,20106:04 PM
To: V Bhaskar
Cc: narain.d; S.Natarajan
Subject: Submission of Views on the Discussion Paper on Foreign Direct Investment (FDI) in Multi-
brand Retailing
Attachments: Submission of Views on the Discussion Paper on Foreign Direct Investment.pdf

Importance: High

Dear Shri Bhaskar

With respect to the Discussion Paper on Foreign Direct Investment in Multi-brand Retailing, I on behalf of Pantaloon
Retail (India) Limited would like to submit our suggestions. Please find attached our suggestions on the same.

Should you require any clarifications or information, please feel free to get in touch with me on my cell number +91
98920 55291.

Warm regards

Dipayan Baishya
Associate VP - Corporate Affairs
Managing Directors' Office
Pantaloon Retail (India) Limited

FutureGroupOffice
S080 Central,5th Floor
NearHajiAII
Tardeo,Mumbai400034

m: +919892055291
p: +9122 66201400
f: +912266201401
e: dipayan.baishya@futurearoup.in

Disclaimer: This message may contain privileged and confidential information and is solely for the use of intended recipient. The views
expressed in this email are those of the sender and not Future Group's. The recipient should check this email and attachments for the
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1
 Submission of Views on the Discussion Paper on Foreign Direct Investment
(FDI) in Multi-brand Retailing

By Pantaloon Retail (India) Limited

We believe that the Discussion Paper shared by DIPP has done an unprecedented and marvelous job of
putting together the varied opinions, just concerns, diverse views and the appropriate facts and figures
related to the retail trade in India. We also believe that the calibrated approach towards allowing
Foreign Direct Investments (FDI) in modern trade, adopted by the Government so far has been
extremely appropriate to the retail trade and the various stakeholders, including consumers, farmers,
producers and manufacturers and modern retailers. The Discussion Paper comes at the right inflection
point for modern trade in India and we would like to highlight certain points mentioned in the
Discussion Paper before stating our suggestions on the 'Issues for Resolution' mentioned in Section 7 of
the Discussion Paper.

The Discussion Paper mentions, "Private consumption expenditure adjusted for items which could be
considered a close approximation to trade, increased from Rs 11,92,405 crore in 2004-05 to Rs 19,93,380
crore in 2008-09, at an average rate of 13. 7 per cent. Rate of growth of GDP at current market prices
during this period at 14.5 per cent, was higher than this growth." This indicates that growth of private
consumption expenditure has been playing a relatively lesser role in the growth of GDP, which we
believe is a matter of concern.

The ICRIER study titled, 'IMPACT OF ORGANIZED RETAILING ON THE UNORGANIZED SECTOR'-2008' is
arguably the most scientific study conducted on the impact of modern retail in India. The Discussion
Paper quotes the ICRIER study in stating that modern retail has had a positive impact on consumers and
farmers and hardly any negative impact on intermediaries and unorganised retailers. The ICRIER study
further points out that, "The 2008 study has observed that organized retail, which now constitutes a
small four per cent of the total retail sector, is likely to grow at a much faster pace of 45-50 per cent per
annum and quadruple its share in total retail trade to 16 per cent by 2011-12."

However, looking at the current numbers, the Discussion Paper also cites that "National Accounts Data,
sourced from the Central Statistical Organisation, reveals that the rates of growth of the private
organized sector and private unorganized retail trade have virtually converged over the four years
ending 2008-09. The rate of growth of the private organized sector decelerated from 27% in 2005-06 to
15% in 2008-09, while the rate of growth of the private unorganized retail sector remained more or less
stable, from 15.6 % in 2005-06 to 14.9% in 2008-09." Most current estimates put the share of modern
trade to just over 4%, compared to the 16% share expected by 2011-12 by ICRIER.

Clearly, Modern Retail in India, even though having a positive impact on consumers and farmers, hasn't
been able to grow at the pace that was expected. Modern retail deals primarily in value-added products,
compared to mostly commodities that are available through unorganised trade. While a typical

-------_( 1 )f---------
organised retail store offers only around 300 - 400 Stock Keeping Units (SKUs),Modern Retail stocks
around 10,000 SKUs.Thus Modern Retail gives not only a larger choice to consumers but also allows a
larger number of small and medium manufacturers and producers to reach out to consumers.
Consumption of value-added products distributed by modern trade creates ample opportunities to
create employment, value creation and income generation.

Therefore, there clearly lies a case for creating an enabling environment that supports and catalyses the
growth of modern retail in India and bring it back to the trajectory that was envisaged earlier. In the
context of the decreasing share of private consumption expenditure in the country's GDP, modern retail,
by virtue of its higher focus and investments on branding, communication and value-added products,
can provide a fillip to domestic consumption.

Therefore, while it is important to consider the implications of allowing or disallowing FDI in modern
retail, we believe that it is equally, if not more important, to consider the right roadmap and develop
appropriate policies that will catalyze the growth of domestic consumption and facilitate the growth
of modern retail in India.

Issues For Resolution

7.1 Should FDI in multi brand retail be permitted? If so, should a cap on investment be imposed? If so,
what should this cap be?

We believe that it is time to consider FDIin multi brand retail in categories like fashion and apparel,
general merchandise, consumer durables, furniture, home-in;'pro-V'ement;'6fffcecs'"t"ati~,~c;~:'m~b'iie_
and
communicati~~"products etc. Allowing foreign investments in these cC!teKQ~ies will help create. more
choice for consumers, better platform for manufactu";;:-s and producers and generat;;-;;:'pioymeiit:"'-
_..,.....----:---.-:--~._--_.,_ •••• ~----_._ •• ~ •• '"-. H ••• " ••••••••••• _, •• __ •• _ ••••••••• __ ._

through expansion of retail chains.

The government has so far adopted a calibrated approach towards allowing foreign investment in retail.
Allowing foreign investments doesn't however mean stepping away from this approach. There are some
justifiable concerns related to the impact of foreign investments on key stakeholders, especially in the
food and agricultural sector. We believe that retailing of food, including fruits, vegetables and fresh
produce, needs to be opened for more competition and foreign investments only with abundant
caution. The stakeholders involved in the food category are particularly susceptible. Moreover, being a
basic consumption category, there are important issues like food security and public distribution that
needs to be considered before allowing foreign investments in the sector. The government may consider
opening up this sector in a far more calibrated manner.

We would like to state that we are comfortable with the current regulations related to the APMC Act
as applicable in different states. Currently, Modern trade sources food products, including fresh fruits
and vegetables and agri-produce through the Agricultural Produce Market Committee (APMC)
wherever the state regulations requires it to do so. Simultaneously, Modern trade also explores direct

-------_( 2 )1---------
sourcing from farmers in states which allow direct sourcing from farmers and producers. We believe
that the current situation is appropriate and doesn't require any changes in the near term.

7.2 To develop the retail trade in food grains, other essential commodities and multi-brand retail in
general; should FDI be leveraged for creating back-end infrastructure? To ensure that foreign
investment makes a genuine contribution to the development of infrastructure and logistics, should it
be stipulated that a percentage of the FDI coming in (say 50%) should be spent towards building up
of back end infrastructure, logistics or agro processing?

We believe that retail is a seamless business and there is little scope to create a thin line between what
can be construed as back-end infrastructure and as front-end infrastructure. Such regulations may be
difficult to monitor and will be open to interpretation and potential abuse. Moreover, in order to
achieve economies of scale and decrease costs for consumers, retailers across the globe often
collaborate and consolidate the investments to be made by different retail chains or outsource it to
specialized companies involved in sourcing, logistics and warehousing.

7.3 It is necessary to encourage only genuine players in this sector and avoid a situation where retail
outlets are run through working capital support from financial institutions. Should a minimum
threshold limit for investment in backend infrastructure logistics be fixed? If so, what should this
financial threshold be?

It is evident from retail operations across the world that to become a successful retailer, the company
has to place as much, if not more, importance and investments in ensuring that the best products are
most efficiently sourced, collected and distributed across its stores in order to earn the consumers'
loyalty and trust. Hence there is seldom any need to track such investments separately. It will be in the
interests of the companies to do it and the markets are the best judge to determine the required
investments and consequent successrates of retailers.

7.4 To develop our rural sector, should conditionalities be put on the FDI funded chains relating to
employment? For example, should we stipulate that at least 50% of the jobs in the retail outlets
should be reserved for the rural youth?

Modern retail employs people at the shop floor who come with very limited educational qualifications
and low skill sets. It invests in specialized training in customer management and trains its workforce
according to its own requirements. In this manner, it is probably the only sunrise industry in the services
sector that doesn't require graduates or engineers to run its business. In other words, it provides
employment to youths who may have found it difficult to secure a job in any other sunrise secter. Unlike
unorganized retail, modern retail guarantees its employees atleast the minimum wage, hygienic work
culture, social security and medical benefits that come along with any employment in the organized
sector.

--------( 3 )1---------
More often than not, employees in modern retail stores come from socially and economically
marginalized sections among the urban poor. We would presume that from a social and developmental
standpoint, the employability of youth from the urban poor is just as important as employment of rural
youth.

7.5 Similarly, to develop our SME sector through local sourcing, should we stipulate that a minimum
percentage of manufactured products be sourced from the SME sector in India?

Modern retail creates a platform for connecting small and large producers and manufacturers with a
large segment of customers. Currently retailers are sourcing from this sector already. Large parts of the
FMCGsector actually outsource manufacturing to smaller units. Many retailers source their private label
from small Indian players. However, putting in a stipulation may be difficult to implement and monitor
since, some of these SMEfirms may operate in multiple names to hit the right limits and tracking and
monitoring can create an unnecessary cost and burden.

7.6 How best can small retailers be integrated into the upgraded value chain? Can they be provided
accessto the logistics/supply chain set up by the FDIfunded retailers? Should it be stipulated that a
minimum percentage of the latter's sales should be made to retailers through special wholesale
windows?

Modern retailers, by virtue of economies of scale in sourcing and efficiencies in operation offers better
prices to consumers. Modern retailers do not distinguish between its customers on whether they are
consumers or small retailers. Small retailers often do take advantage of better prices at modern
retailers' outlet, specially at cash and carry formats. We would suggest that market forces be allowed to
determine this, rather than government regulations.

7.7 As a part of a calibrated reform process, should foreign investment for such stores be initially
allowed only in. cities with population of more than 10 lakhs (2001 census)? As there may be
difficulties faced with regard to availability of real-estate in such cities for setting up such ventures,
should an area of 10 kms around the municipal/urban agglomeration limits of such cities be included
within the definition of the city?

It is only hypermarket formats that have a perceptible impact in some towns and hence the opening up
of hypermarkets can be restricted to the fifty largest cities in the country. For supermarkets, specialty
retail and other formats, this requirement is not required as they seldom have a large perceptible
impact on consumption patterns even in smaller towns.

7.8 Will any of the conditionalities mentioned above be inconsistent with our commitments under
the agreement on TRIM at WTO? If not, to ensure national treatment, can such conditionalities be

--------( 4 )f---------
extended to all retail chains in India above a certain size? Will such extended conditionalities be
consistent with Article 301 of the Constitution?

The government will be the best authority on this.

7.9 What additional steps should be taken to protect small retailers? Should an exclusive legal and
regulatory framework be established to protect their interests? Is a Shopping Mall Regulation Act
required? Does this require intervention at national level or should this be left to the States?

To protect the interests of small retailers, the government may take steps to prevent predatory pricing
by retailers or selling of goods below their cost price. This can be brought under the purview of the
Competition Commission and related regulations, rather than promulgating a separate Act.

7.10 The present public distribution system provides a valuable safety net to vulnerable sections of
society. To ensure that the integrity of the PDSsystem is not weakened and buffer stock is maintained
at the desired level, should Government reserve the right of first procurement for a part of the season
or put in place a mechanism to collect a certain amount of levy from private traders in case the level
of buffer stock falls below a certain level?

We believe that the public distribution system is extremely critical for the well being of the vulnerable
sections of our population and to the nation as a while. Any steps to liberalize the food retail sector
needs to take into account these factors.

7.11 How should compliance be ensured with the above stipulations? Should a centralised agency, to
be nominated by the State Governments concerned, be empowered to grant permissions to every
outlet to be opened? The onus of proving compliance with these conditions could rest with the
concerned retail chain. The chains could submit an annual statement to such State Government
agency providing proof of compliance. Should this agency be empowered to monitor compliance of
the present cash and. carry outlets too?

Indian retailers have to deal with an unusually high number of regulations, laws, licenses from different
government bodies including federal, state and civic bodies that has remained unchanged through the
years of economic liberalization. It will be beneficial to the sector if the government takes steps to
facilitate the growth of modern retail through setting up a central authority or promulgating a model act
for state governments that streamlines the regulatory requirements of the sector.

7.12 The penalty for non compliance could include cancellation of approvals as well as denial of future
permissions for such activities. What additional penalties could be levied? Should civil penalties be
imposed? Or criminal? Or both?

We believe that our legal system is robust to take care of any non-compliance issues that may arise.

------------1[ 5 )f---------
 iii
C-10, Gulmohar Park
New Delhi 110 049
India
Telephone: +91-11-4166-2861 LEXCOUNSEL
Facsimile: +91,11·4166-2862 LAW OFFICES

July 30, 2010

To

1. Mr. V. Bhaskar 2. Mr. Deepak Narain

E-mail: v.bhaskar@nic.in E-mail: narain.d@nic.in

Subject: Discussion Paper - FDI in Multi Brand Retail Trading.

Dear Sirs,

First of all, please accept our compliments for putting together a well thought out and research
based discussion paper on the subject.

We feel that "the fear of unknown" has fueled the opposition to liberalization of the retail
sector. The statistics and analysis presented by the discussion paper will surely go a long way
in clearing any 'genuine' doubts.

We understand that policy making or revision would always be a complicated task, and more
so in India where the considerations may be entirely different from anywhere else in the world.
In the words of an Indian minister (now ex) "The shoes we wear are sold from air conditioned
showrooms. The vegetables we eat lie on roads. It can only happen in Hindustan".

The discussion paper, inter alia, puts the following facts on record:

• 25-30% of fruits and vegetables and 5-7% of food grains in India are wasted in absence of
"farm to fork" retail supply system and integrated cold chain infrastructure;

• Losses of perishable farm produce are estimated to be over Rs. 1 trillion per annum, 57%
of which is due to avoidable wastage and the rest due to avoidable costs of storage and
commissions;

• Though FDI is permitted in the cold chain to the extent of 100% through the automatic
route, in the absence of FDI in retailing, FDI flow to the sector has not been significant;

• Intermediaries dominate the supply chain, and the average price that the farmer receives
for a typical horticulture product is only 12-15% of the price the consumer pays at a
retail outlet;

• Indian farmers realize only 1/3rd of the total price paid by the final consumer, as against
2/3rd by farmers in nations with a higher share of organized retail; and
 o
LEXCOUNSEL

• Share of MSME sector in overall manufacturing has declined from 34.5% in 1999-2000to
30.3% in 2007-08,largely due to the inability of this sector to access latest technology and
improve its marketing interface.

At the same time, factually and reportedly (as per news items and other articles in reputed
publications):

• Grain - enough to feed 140 million poor for a month - rots, and inadequate storage
facilities have a major role to play;

• India tops world hunger chart - last year we were ranked 94th in the Global Hunger
Index of 119 countries;

• Indian is struggling to bring down food inflation as well as general inflation, which has
alarmingly been much above the global average;

• Indian agriculture suffers from disguised employment, while most job opportunities are
being created in cities, prompting migration from villages to the cities; and

• Naxalites gain ideological and moral support from the sordid state of impoverished
inhabitants in the affected areas.

The objective of citing the above reports is to suggest widening of the perspective for policy
revision. On one hand, we can blame the Government for all mismanagement, but on the other
we can encourage private participation in certain functions that can lead to improvement in
general quality of life in India (and the discussion paper presents one such opportunity for us as
an individual and as a nation).

While the Government can theoretically perform most functions, the contribution of
privatization to the economy, or for that matter, public private participation, is significant. Delhi
and Mumbai Airports are prime examples. Theoretically, the Government could also have
constructed them, but practically, it could not.

The policy in the sector of multi brand retail trading is likely to have an indirect impact on
overall availability of food products and consumables, and would therefore also have an overall
impact on quality of life in India.

In our view, the policy revisions need to be considered from the perspective of the following:

A. The Producers;

B. The Intermediaries;

C. The Retailers;

D. All of us as the Consumers; and

 iii
LEXCOUNSEL

E. All of us as constituents of a democratic nation.

In a single policy, the best interest of all the groups may not be met (since the interests may be
competing inter se). However, the policy shall be oriented towards general good of all its
constituents taken together.

Your discussion paper puts together the data from most of the above perspectives, that we wish
to highlight and reply on. It is pertinent to mention that the area of practice of the individuals,
who have contributed to the foregoing suggestions, is law. The observations herein below are
consequently "logic driven" rather than "statistic driven", and are oriented to aid the discussion
rather than to impress a conclusion.

A. The Producers and Manufacturers:

This category includes the farmers and the manufacturers.

• As per the discussion paper, the farmers are likely to receive more value for their
produce.

• The same may also, to some extent, apply to the manufacturers. Given the population
and individual preferences, it is unlikely that the small and un-branded manufacturers
would be wiped out. Most of the retail chains may not even wish to manufacture. If they
were interested in overall manufacturing, they would have already been here, as even
today, there is no restriction on selling what one manufactures in India.

• There is a concern that once the large retailers wipe out the competition, they would on
one hand lower the purchase prices, and on the other, higher the sale prices. This
appears to be an unsubstantiated hypothesis at most. For example, the privatization of
airlines, per se, has not led to increase in airfares. In fact, keeping inflation in mind, the
result would be contrary to the hypothesis. Telecom is another example. The power to
control the prices comes from "monopoly" rather than "privatization", and both can, to
a great extent, be contrary to one another as long as the number of payers is not
restricted.

Even if the hypothesis is correct, chances are that the alternative options would emerge
due to the market forces. The Government can be enabled to prescribe minimum
purchase prices through regulatory mechanism.

• Admittedly, majority of Indian farmers are "monsoon" dependant, and suffer at the
hands of the disorganized market level negotiations ironically in both cases, whether it
be a poor harvest or a bumper crop. Contract framing programs and infusion of new
technologies would upgrade their quality of life, and consequently the quality of life of
the majority of Indian workers (as agriculture remains the largest employer). This may
not happen without private participation in the areas.
 D
LEXCOUNSEL

B. The Intermediaries:

• They are also the supply chains of today, minus quality storage facilities. The
consequences of inadequate storage facilities, enumerated above are not being repeated
here for the sake of brevity.

• The largest employment in India is admittedly, in agriculture. Would it be justified to

force the farmers (larger in numbers) to sell at lesser rates just because organizing the
market may be disadvantageous to the intermediaries (lesser in numbers)? The larger
population group should logically be given a preference in protection of interests.

• The organized sector has its own advantages in terms of employment benefits, social
security, insurance and compensation by/through the employer. Not all intermediaries
are self employed, and organizing the sector would arguably, be for the betterment of
their employees. The organized retailers would in any case need employees to perform
the tasks, and the intermediaries and their employees would come handy with
experience.

• Certain other benefits of organized retail are their policies towards social
responsibilities. Organized retailers are known to discourage child labour (and sourcing
from manufacturers who employ them), use of toxic ingredients, poor working
conditions, securing work below minimum wages, etc. A general improvement on these
fronts can be expected if organized retailers are permitted.

C. The Shopkeepers:

This category includes the retailers from kirana/rnom and pop stores to pulling carts.

• The "mall culture" is already here for many years. We also have Indian organized
retailers, dealing in "needle to ships" literally. The organized retailers of Indian origin
deal in fruits, vegetables and other food articles even today. The multinational retailers
would not be significantly different.

• Except for the stone pelting at some of the retail stores out of fear and apprehension, the
real impact of these organized retail outlets over the shopkeepers has gone unnoticed,
perhaps for being more of less insignificant.

• The mom and pop stores facilitate day to day supplies, and run on relationships,
comfort and proximity. The situation is unlikely to change significantly just because of a
mall in the neighborhood.

• The discussion paper rightly notices that the private final consumption expenditure is
constantly increasing. It means there is bigger pie to share, and policy changes may be
accommodated.

• Still, it may be presumed that the shopkeepers may be affected to some extent. The
policy therefore needs to balance, to the extent possible, between the competing interests
 o
LEXCOUNSEL.

of the farmers (who tend to gain) and shopkeepers (who may - or may not -lose) due to
liberalization of this sector. Again, the farmers remain larger in number, and in a much
more fragile financial state.

D. The Consumers:

• Even the farmers, the intermediaries and the shopkeepers are consumers, at least of the
products they do not produce or deal in.

• The interests of the consumers, most studies unambiguously show, are well served with
liberalization of the sector. If by policy reform, farmers (largest number of employees in
India) can earn more, and the consumers (effectively the entire population) can pay less
for the same product, the scale should tilt accordingly. Else, it may amount to keeping
majority of the population hostage for the interest of minority of the population.

E. All of us as part of a democratic nation:

• Most of the transactions at kirana shops are in cash, and it is difficult for the
Government to threadbare supervise deposit and payment of taxes by these retailers. A
larger collection of direct and indirect taxes is therefore probable on similar volume of
sales by organized retailers.

Organizing the sector would therefore most likely provide the Government an increased
opportunity to tap on the revenue, which at present goes untaxed or unnoticed. This
revenue can accordingly be used in further development and welfare measures.

• The employees in organized sectors are also likely to have better facilities and protection
against contingencies as against their counterparts in unorganized sectors. To a certain
extent, the same pool of individuals is likely to be used by organized retailers, albeit
while providing them better conditions.

• The Indian entrepreneurs and business enterprises willing to tap on the potential of
organized multi brand retail trading are also a part of our nation. The sector would also
generate employment, and improve infrastructure, and promote economic activity.

• Under the present regulatory regime and owing to the oral clarifications issued by the
officials:

o No FDI can be induced in a multi brand retail business in India even if the
ownership and control of the Indian entity is stipulated to remain with resident
Indians, post FDI.
o No FDI is also permissible in Indian business dealing in Indian brands (which
are not internationally sold).

The current policy therefore poses constraints not only for the foreign investors, but also
for the Indian businesses that may be in dire need of capital or have growth potential. A
change therefore is imperative.
 o
LEXCOUNSEL

In view of the above discussion, we have attempted to put forth our thoughts on the questions
presented by the discussion paper:

7.1 Should FOI in multi brand retail be permitted? If so, should a cap on investment be
imposed? If so, what should this cap be?

Suggestion: Yes, it should be permitted. To start with:

• FDI may be restricted to 49%, with the control remaining with resident
Indian citizens. The retail sector does not involve security concerns as
they exist for some other sectors, like telecom and defense, justifying
Indian ownership. However, the multi brand retail trading sector can be
gradually liberalized taking care of the market and political sensitivities.

• Downstream investments by Indian companies in multi brand retail

trading should be permitted, if the investing Indian company is majority
owned and controlled by Indians.

• The oversight body, as proposed by the Government, should be

constituted, and should check that investments do not slip in multi brand
retail trading in cases where the control is in the hands of person other
than resident Indians.

• At the same time, the 25% and internal use restriction on wholesale
trading should be removed.

• B2Bcommerce should be treated distinctly from wholesale trading.

Alternatively, the Government may even consider legitimizing wholesale - retail

ventures, wherein the wholesale entity may be permitted to have FDI under
automatic route (as is currently permitted), and the retail entity shall be owned
and controlled by resident Indian citizens, by a combination of direct and/ or
indirect investments. Subject to satisfactory compliance with other conditions
that may be prescribed by the revised policy (including those illustrated by the
discussion papers, such as special wholesale window, employment
requirements, etc.), the foreign investor may, over a period of few years, be
permitted to increase ownership and control in the down line retail entity.

7.2 To develop the retail trade in food grains, other essential commodities and multi brand
retail in general; should FOI be leveraged for creating back-end infrastructure? To
ensure that foreign investment makes a genuine contribution to the development of
infrastructure and logistics, should it be stipulated that a percentage of the FOI coming
in (say 50%) should be spent towards building up of back end infrastructure, logistics or
agro processing?
 gil
LEXCOUNSEL

Suggestion: It may be so prescribed, if the policy makers believe that the investment will not
automatically flow in creating back-end infrastructure. The limits however shall
be met in a period of time, say five years, as year to year compliance of such
requirements may discourage the businesses, failing the very objective of the
policy relaxation. The policy may create an atmosphere for such investments so
that the funds naturally flow in these activities as a business need for multi brand
retail trading, rather than forcing specified investments in a regimented manner.

7.3 It is necessary to encourage only genuine players in this sector and avoid a situation
where retail outlets are run through working capital support from financial institutions.
Should a minimum threshold limit for investment in backend infrastructure logistics be
fixed? If so, what should this financial threshold be?

Suggestion: The idea of policy relaxation would be to get investment in back end
infrastructure and benefits to the society, rather than promoting selected
business, retail chains, or brands. So there may not be any adverse implications
of capital support from financial institutions.

If investment limits are to be relaxed gradually, the investor, whether a financial

institution, or a large retail chain, would have to partner with and rely on
capabilities of the local partner. Putting a financial threshold may also oust
many players out of the race. Again, it is suggested to let the business decide and
flow in its natural course.

More players would also mean more and better options for all the constituents,
and would also avoid monopolistic practices, if that is a concern.

7.4 To develop our rural sector, should conditionalities be put on the FDI funded chains
relating to employment? For example, should we stipulate that at least 50% of thejobs in
the retail outlets should be reseruedfor the rural youth?

Suggestion: Market forces are likely to employ the available rural youth, which may not be
educationally qualified, but experienced in the sector in their local area. India is a
country of many cultures, languages and even more dialects, and therefore by
natural selection, the locals would be more suitable for specific back end jobs.
Over regulating the sector may therefore be avoided, in the interest of its overall
success.

7.5 Similarly, to develop our SME sector through local sourcing, should we stipulate that a
minimum percentage of manufactured products be sourced from the SME sector in
India?

Suggestion: Yes. However, the limit should be kept within easily achievable limits, and
should be reconciled over a period of time, rather than on year to year basis.

7.6 How best can small retailers be integrated into the upgraded value chain? Can they be
provided access to the logistics/ supply chain set up by the FD I funded retailers? Should
 o
LEXCOUNSEL

it be stipulated that a minimum percentage of the latter's sales should be made to retailers
through special wholesalewindows?

Suggestion: "Special wholesale windows" is a welcome suggestion. The outlets would thus
be a combination of cash and carry wholesale for registered dealers (as described
in Circular No.1 of 2010) as well as retail outlets for end consumers.

No limit on wholesale versus retail by the organized retailers should however be

prescribed. It would be impractical for the retail operations to be suspended if
the wholesale does not achieve the prescribed levels. Further, the shopkeepers
cannot be forced to purchase from the wholesale window of the organized
retailers, or anyone of them. Monitoring of compliance would also be difficult.

It may however be prescribed that the wholesale prices (at wholesale window)
shall be a fixed minimum percentage lower than the retail prices of the same
organized retailers. One can purchase from the wholesale window if he has the
trade registrations, etc. to qualify as a reseller.

7.7 As a part of a calibrated reform process, should foreign investment for such stores be
initially allowed only in cities with population of more than 10 lakhs (2001 census)? As
there may be difficulties faced with regard to availability of real-estate in such cities for
setting up such ventures, should an area of 10 kms around the municipal/urban
agglomeration limits of such cities be included within the definition of the cin)?

Suggestion: If fixed margin is offered at the wholesale window, as discussed above, there is
no need to limit the activities to selected cities. Further, the approach of bringing
developments to big cities leads to centralization of development initiatives,
whereas India to a great extent may need decentralization. Centralized
developments also give rise to dissatisfaction in persons from smaller towns and
cities. Arguably, the worst outcome of centralized developments is civil unrest in
some of the underdeveloped regions in India.

There is another school of thought which opposes growing our cities

horizontally. A vertical expansion has its own advantages. It reduces land use
and exploitation of resources such as ground water, it requires lesser investment
in spreading infrastructure, and it makes public transport more effective, and
reduces consumption of fossil fuels. In addition, education and healthcare
facilities can be made available in close proximity. Public order and sanitation
can be focused in the smaller areas, and therefore their levels can be improved.

The organized retailers are in any case going to open shops either in existing
malls or will build facilities of similar or better standards, with adequate parking,
resources, etc. Even today one would witness more chaos in and around local
markets rather than in and around malls.

7.8 Will any of the conditionalities mentioned above be inconsistent with our commitments
under tire agreement on TRIM at WTO? If not, to ensure national treatment, can such
 gg
LEXCOUNSEL

conditionalities be extended to all retail chains in India above a certain size? Will such
extended conditionalities be consistent with Article 301 of the Constitution?

Suggestion: The conditionalities, in the first place, may be restricted to the bare minimum.
The conditionalities may also not be imposed based on size of the operation or
on purchase, but on percentage basis related to sales.

Once such broad conditionalities are conceptualized, their compliance with

TRIM at WTO can be carefully considered. An individual opinion on the legal
matters such as compliance with WTO, or Article 301 of the Constitution may not
be of consequence. The opinion of the law officers appointed by the Government
of India may therefore be obtained on the legal position.

However, the courts would ordinarily not interfere with reasoned policy
decisions of the Government.

7.9 What additional steps should be taken to protect small retailers? Should an exclusive
legal and regulatory framework be established to protect their interests? Is a Shopping
Mall Regulation Act required? Does this require intervention at national level or should
this be left to the States?

Suggestion: In addition to "wholesale window", the small retailers should be extended

financial assistance by the banks more easily. Other than this, any other
protections may not be required. The Government has anyway adopted an
approach, by way of Press Note 1 of 2005, to let the businesses mature and
safeguard their interests. Any over protection would amount to a regressive step
towards Press Note 18 era.

Since the policy is at the national level, the protections, if any, shall however flow
from the same level, in consultation with the states. This is also to improve
business environment in the nation as a whole. Else, the multinational organized
multi brand retailers, inspite of being permitted to carry on their business in
India, may face complications in some states due to local regulations emanating
out of different political ideology and mindsets.

7.10 The present public distribution system provides a valuable safety net to vulnerable
sections of society. To ensure that the integrity of the PDS system is not weakened and
buffer stock is maintained at the desired level, should Government reserve the right of
first procurement for a part of the season or put in place a mechanism to collect a certain
amount of levy from private traders in case the level of buffer stock falls below a certain
level?

Suggestion: Though there are many doubts raised as to the workability and effectiveness of
the public distribution system for the vulnerable sections of the society, it
nevertheless needs to be protected even if it has to improve in future.
 III
LEXCOUNSEL

Having said that, the suggested measures may be adopted, if the policy
relaxation is expected to result in a paradigm shift in the landscape. A possible
view could be that the disorganized retailers are merely being replaced by the
organized retailers, and the existing framework of laws and regulations
protecting PDS should continue to apply and work.

7.11 How should compliance be ensured with the above stipulations? Should a centralised
agency, to be nominated by the State Governments concerned, be empowered to grant
permissions to even) outlet to be opened? The onus of proving compliance with these
conditions could rest with the concerned retail chain. The chains could submit an annual
statement to such State Government agenCl)providing proof of compliance. Should this
agency be empowered to monitor compliance of the present cash and cam) outlets too?

Suggestion: The oversight body, which intends to be formed to look into FDI compliances,
can also look into compliance with its conditions. In the event they anticipate
breach; they could conduct inquiries, investigations and recommend prosecution
in terms of the Foreign Exchange Management Act.

7.12 The penalty for non compliance could include cancellation of approvals as well as denial
of future permissions for such activities. What additional penalties could be levied?
Should civil penalties be imposed? Or criminal? Or both?

Suggestion: Consequences for violation of the Foreign Exchange Management Act would be
sufficient, as are deemed sufficient at present for any other sector.

Overall, we feel that India shall start with its "tryst with destiny" as far as multi brand retail
trading is concerned.

We look forward to a consensual and positive outcome of your efforts, and wish you all the
best.

Yours sincerely,

Alishan Naqvee
Partner
LexCounsel, Law offices
E-mail: anaqvee®lexcounsel.in
 Confederation of Indian Industry
Since 1895

Response to DIPP Discussion Paper on uFDI in Multi-Brand Retail Trading"

The Department of Industrial Policy and Promotion (DIPP) released the discussion paper on
"Foreign Direct Investment (FDI) in Multi-Brand Retail Trading". DIPP had asked for views and
suggestions specifically on Section 7 of the paper entitled 'Issues for Resolution' in addition to
any other issues.

CII would, at the outset, like to congratulate DIPP for its excellent discussion paper on FDI in
multi-brand retailing since it establishes a platform for discussion and provides a way forward
on this issue. We agree with the discussion paper's finding (section 6.7 of note) that there is a
case for opening up of the retail sector to FDI as it would benefit both the farmers and the end
consumers, and could help in solving the back end infrastructure problems that currently
prevail in the system. It is also important to address the potential challenges that the small
retailer may face.

The consultative process adopted by DIPP seems to be appropriate and we are happy to
share our views on the issues raised by 01PP. This note is a structured response to each issue
as per the discussion paper.

Even within multi-brand retail, there are sometimes nuances or differences between food and
non-food retailing.

Food retail accounts for nearly 2/3 of the total retail market in India and comprises staples,
dairy, fruits and vegetables. These form the bulk of the merchandise for 'kirana' and grocery
stores and are spread throughout the length and breadth of the country. There are a large
number of store s selling food and these are typically smaller in size and scale. The supply
chain for most (f the food items is closely linked to the agricultural Irural sector and is largely
local 1 regional i h nature.

Non-food retail comprises the balance 1/3 of the market and comprises apparel, textile,
footwear, hard consumer durables (appliances and electronics) and other specialty retail (e.g.
furniture, furnist ings, and sport goods). These are typically specialized stores, normally larger
in size than the kirana'. The supply chain for these is more linked to the specific sectors. In the
recent past, the se supply chains have become more national and even international in nature.

Given that the nature and configuration of the food and non-food retail segments are so
different, we ha e differ:entiated between the two, as appropriate, in the responses.

1
7.0 ISSUES FOR RESOLUTION

7.1 Should FDI in multi brand retail be permitted? If so, should a cap on investment be
imposed? If so, what should this cap be?

Yes, Gil strongly believes that

FDI in multi-brand retail should be permitted:

• The sector is capital intensive and FDI will broaden the range of options available to
raise capital
• Entry of strategic investors will bring in global standards and best-practices in logistics,
inventory management, warehousing, merchandising and waste management and will
help improve the ability of the sector to serve consumers
• FDI entry would result in entry of more players and provide more options to the
consumer and the suppliers (farmers and manufacturers). Suppliers with the improved
competitiveness can look at export opportunities.
• FDI in multi brand retail should include both strategic & financial investors. It is
important to encourage financial investments, including Fils and private equity, in to
retail since this will bring in large inflow of funds

To begin with, Gil believes that there should be a cap on the investment which should become
higher with time. If one was to examine the experience of other industries like insurance and
telecom, it clearly shows that an increase in investment cap over time is the preferred
approach.

In order to balance the interests of various stakeholders - the initial cap on investment could
be pegged at (i) 49% under the automatic route and (ii) 74% under the approval route. In order
to ensure that only serious investors are encouraged, we may like to put some restricting
conditions around exit (say minimum lock in period as 3 years). These conditions should apply
irrespective of whether the foreign investment is being received in the food or the non-food
category. Additionally, in both the food and non-food category, conditions may be imposed
requiring that foreign investment is applied towards creation of assets, improvements in
infrastructure, technology etc.

Separately, as a general comment, opening up of foreign investment in the multi brand retail
should not be made subject to excessive conditions requiring governmental monitoring and
compliance. This will have a detrimental effect on business models and could result in reducing
the amount of investment in the sector. Further, significant costs may be incurred by the
government in setting up the infrastructure to monitor compliance. The responses to the
queries below have been made keeping this consideration in mind.

7.2 To develop the retail trade in food grains, other essential commodities and multi-
brand retail in general; should FDI be leveraged for creating back-end infrastructure? To
ensure that foreign investment makes a genuine contribution to the development of
infrastructure and logistics, should it be stipulated that a percentage of the FDI coming
2
in ( say 50% ) should be spent towards building up of back end infrastructure, logistics
or agro processing?

FDI in retail should definitely be leveraged to create the back end infrastructure. Anecdotal
evidence suggests that investment in non-store assets could range from 30 to 60% (given the
starting situation of the infrastructure). It may however be difficult to set a fixed percentage and
monitor the same in an effective manner.
• Retail is an integrated business where value is created both at the customer end as
well as the supply side. Improving the back end is a key driver to profitability. It is only
natural for retailers to invest in the back-end to improve their competitiveness.
• Experience from other countries also indicates that this type of separation between
frontend and backend has not been done (e.g. China, Thailand)
• Some share of back-end investments are often undertaken by specialist supply chain
companies and integrators. Such companies could be sister concerns, subsidiaries or
professional logistics and service providers.

It is however very important to understand the following.

• Clearly defining what constitutes backend

o For food, Backend constitutes supply chain which includes logistics
(transportation), handling, cold-chain for storage, contract farming, F&V sorting,
grading and collections centres as well as regional processing centres for
staples and other regular items of mass consumption. It will also include training
& development establishments to create a talent pipeline
o Similarly for non food, for instance electronics, apparel, general merchandise,
sports equipment, there is no substantial back end infrastructure to be created
since supplier will have his own manufacturing capabilities.
o For above mentioned reasons, there is clear need to distinguish food and non
food for specifying stipulations on investments in backend
• Clear articulation of how investment in backend made by sister concerns / subsidiaries /
alliances / dedicated outsourcing contracts would be aggregated

Based on above, CII strongly believes that no stipulation to be prescribed for back end as it will
happen automatically when front end retailing is open to international retail chains.

7.3 It is necessary to encourage only genuine players in this sector and avoid a
situation where retail outlets are run through working capital support from financial
institutions. Should a minimum threshold limit for investment in backend infrastructure
logistics be fixed? If so, what should this financial threshold be?

As proposed in the CII response in paragraph 7. 1, CII believes the sector would be well served
by encouraging both strategic and financial investors to invest. CII fully agrees that only
genuine players, who can bring in capital or expertise, should participate in the sector. A

3
possible means to ensure this in the food category is to provide a filter that only allows
investors above a certain scale, or undertaking a minimum threshold of investment.

This scale and size of investors in this sector would differ by format since some formats require
greater scale and size (e.g. food retail) compared to others that require less amount (e.g.
books / furnishings). Hence Gil suggests that there should not be any stipulated limit for the
non-food category.

Further, as proposed in paragraph 7. 1, restrictions as to exit can be imposed in both the food
and non-food category.

For food, minimum capitalization norms can be suggested depending on the level of foreign
investment. Gil's suggestion would be for:
(i) the foreign monies to be brought into the company must be at least US$ 15 million for
foreign investment upto 49% (this should be a criteria for the automatic route).
(ij) the foreign monies to be brought into the company must be at least US$ 25 million for
foreign investment upto 74% (this should be a criteria for receiving FIPB approval).

7.4 To develop our rural sector, should conditionalities be put on the FDI funded
chains relating to employment? For example, should we stipulate that at least 50% of
the jobs in the retail outlets should be reserved for the rural youth?

Setting a stipulation for rural employment is not practical

• Empirical evidence reveals that organized retail is the one of the key sectors which
can create substantial employment opportunities and more specifically employment for
local people who are 1dh and 1~ pass outs. In India, modem retail has already
created over 600,000 new jobs in the last 10 years and has the potential to create as
many as an additional 6.5 million new jobs by 2018 (Job growth estimated to grow
annually at an rate of 28% for the period 2007 to 2012 - Refer Annexure I).

• - 90% of work-force at a retailer is in the stores. The stores tend to be in areas of high
population density (i.e. urban areas) for economic feasibility. Such a stipulation would
require a flight of resources from rural to urban areas - neither practical, nor desirable.
• Monitoring a stipulation like this is fraught with risks and amenable to corruption,
especially in defining who is a rural person and who is not.

Hence, Gil does not recommend a stipulation to employ rural youth while retailers can be
asked to work together to develop training infrastructure to generate employment and
employability.

7.5 Similarly, to develop our SME sector through local sourcing, should we
stipulate that a minimum percentage of manufactured products be sourced from
the SME sector in India?

Gurrently retailers are sourcing from this sector anyways. Large parts of the FMGG sector
actually out source manufacturing to smaller units. Many retailers source their private label
4
from small Indian players. Gil believes that this collaboration opportunity will enable the SME
sector to improve their competitiveness as well as their quality substantially and open up
export opportunities for them

This is a difficult stipulation to implement and monitor since

• Some of these SME firms may operate in multiple names to hit the right limits
• Tracking and monitoring can create an unnecessary cost and burden

With the intent to stimulate local manufacturing in food, Gil is completely supportive of
maximization of local sourcing from not only SME sector but all local players.

For non food, as mentioned in 7.2, local sourcing stipulations are not applicable as the
suppliers will be setting up their own manufacturing capabilities.

7.6 How best can small retailers be integrated into the upgraded value chain? Can
they be provided access to the logisticsl supply chain set up by the FDI funded
retailers? Should it be stipulated that a minimum percentage of the latter's sales
should be made to retailers through special wholesale windows?

The cash-and-carry format which is already operational in India already provides for this
access to small retailers. As such, there is no need for an additional stipulation.

7.7 As a part of a calibrated reform process, should foreign investment for such
stores be initially allowed only in. cities with population of more than 10 lakhs
(2001 census)? As there may be difficulties faced with regard to availability of real-
estate in such cities for setting up such ventures, should an area of 10 kms around
the municipal/urban agglomeration limits of such cities be included within the
definition of the city?

Benefits of modem trade should be available to all consumers. All research indicates that
consumer aspirations are similar across different categories of towns, cities and villages.
Hence, such a stipulation will impede that flow and constrain the economic feasibility of
retailers over time
• Where a store is set should be a function of demand and ability to serve
• With a good supply chain a retailer can easily service 200-300 km from its distribution
centre, which would cover both large and small cities (by popUlation)

The Government's avowed policy is to bring to the benefit of modem trade and infrastructure
to all parts of the country. In fact by limiting the areas we will actually restrict investments
which would flow to rural and semi-urban agglomerates which would improve substantially
the quality of life of people in such areas. Hence such artificial divides should be avoided.

5
7.8 Will any of the conditionalities mentioned above be inconsistent with our
commitments under the agreement on TRIM at WTO? If not, to ensure national
treatment, can such conditionalities be extended to all retail chains in India above
a certain size? Will such extended conditionalities be consistent with Article 301 of
the Constitution?

The Government of India would be the best authority to decide on the same, in consultation
with legal experts.

It would be instructive to understand whether retail- as a service - comes under the aegis
of TRIM.

7.9 What additional steps should be taken to protect small retailers? Should an
exclusive legal and regulatory framework be established to protect their interests?
Is a. Shopping Mall Regulation Act required? Does this require intervention at
national level or should this be left to the States?

Indian retail is currently highly regulated. For instance a Hypermarket business:

• Requires over 30 licenses and approvals (Refer Annexure II)
• Is impacted by -40 different regulations (Refer Annexure III)
• Cutting across> 15 government bodies for the same
• Across central and local government levels

Similarly, the small retailers are subject to many regulations - most of them at a local level.
An additional regulatory structure would add to the burden of the retailers and increase the
cost and complexity of monitoring and govemance for the government.

Instead of adding new regulations, CII is of the view that the Government should streamline
current regulations. This system will also help the smaller retailers to run their businesses
better and follow ethical practices and contribute to tax revenues.

Consumer rights are already protected through various consumer laws, forums and civil
courts. We believe what is required is a greater streamlining and proper enforcement of
existing regulations - rather than additions to the same.

7.10 The present public distribution system provides a valuable safety net to
vulnerable sections of society. To ensure that the integrity of the PDS system is
not weakened and buffer stock is maintained at the desired level, should
Government reserve the right of first procurement for a part of the season or put
in place a mechanism to collect a certain amount of levy from private traders in
case the level of buffer stock falls below a certain level?

It is the Government's right and duty to manage the PDS system effectively. As such, it
could reserve the right of first procurement from the farmers. CII believes that it may not
6
be appropriate to have fines levied on any organized retailer (whether FDI funded or not) if
the system does not work efficiently. There are many challenges in the current system and
the Government should actively work to meet them.

7.11 How should compliance be ensured with the above stipulations? Should a
centralised agency, to be nominated by the State Governments concerned, be
empowered to grant permissions to every outlet to be opened? The onus of
proving compliance with these conditions could rest with the concerned retail
chain. The chains could submit an annual statement to such State Government
agency providing proof of compliance. Should this agency be empowered to
monitor compliance of the present cash and. carry outlets too?

As noted in the response to 7.9, this sector is already heavily regulated. It needs streamlining
and simplification rather than an additional regUlation or regulator.

Compliance to specific stipulations if any can be self-reported and tracked under the aegis of
the DIPP.

7.12 The penalty for non compliance could include cancellation of approvals as well as
denial of future permissions for such activities. What additional penalties could be
levied? Should civil penalties be imposed? Or criminal? Or both?

The Indian legal system is considered robust enough to take care of any non-compliance
issues that may arise. Plus, the prerogative of cancellation of approvals as well as denial of
future permissions is retained with the Government and can act as a significant deterrent.

Any non-compliance should be SUbject to civil penalties only.

**************

7
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