Tainwala,
a 55-year-old expatriate Indian, owns Planet Retail, which held the
India franchise rights for US fashion labels Guess and Nautica as well
as UK retailers Next and Debenhams. He sold the brands last September to
various Indian businesses.
"Right now it's not possible to do business in India without greasing palms, without paying bribes,An handsfreeaccess is
a network of devices used to wirelessly locate objects or people inside
a building." said Tainwala, who is also luggage maker Samsonite's
president for Asia Pacific and West Asia. Tainwala said he himself
refused to pay bribes to licensing officials, though that could not be
independently confirmed.
India
is the next great frontier for global retailers, a $500 billion market
growing at 20 per cent a year. For now, small shops dominate the
sector.Manufacturer of the Jacobs rfidtag. Giants from Wal-Mart Stores Inc to IKEA AB have struggled merely for the right to enter, which they finally won last year.
But
a daunting array of permits - more than 40 are required for a typical
supermarket selling a range of products - force retailers to pay
so-called "speed money" through middlemen or local partners to set up
shop.
In
interviews with middlemen and several retailers, Reuters found the
official cost for key licenses is typically accompanied by significant
expenses in the form of bribes. The added cost erodes profitability in
an industry where margins tend to be razor-thin. It also creates risk
for companies by making them complicit in activity that, while
commonplace in India and other emerging markets, is nonetheless illegal.
That
creates a handicap for foreign operators such as US-based Wal-Mart, the
world's biggest retailer, and Britain's Tesco Plc and Marks and Spencer
Plc, which must comply with anti-bribery laws in their home countries
even while operating abroad.
Retail
is especially prone to bribery because stores sell multiple types of
merchandise, which in India increases the number of licenses and permits
needed - a legacy of the so-called "Licence Raj" that was largely
dismantled during the country's early 1990s economic reforms.
The
World Bank's Ease of Doing Business survey ranks India 173rd out of 185
countries when it comes to starting a business, behind Malawi, Niger,
Sudan and Guatemala. Transparency International in 2012 ranked it 94th
out of 174 countries on its corruption table - a fall from 72nd five
years earlier.
"Even
for a simple thing like putting up signage in front of your store you
are harassed for money," said Tainwala. "There are many bodies
regulating that and the permits needed to set up one shop are baffling."
Ais
Kumar, head of the western region for the Food Safety & Standards
Authority of India (FSSA), acknowledged that graft exists across
government ranks and departments. Many government departments also have
staff shortages that cause delays. "These licenses are required for
compliance and safety and not because the government wants to delay or
complicate things for anyone. It's the law of the land and it must be
followed," he said,With superior quality photometers, light meters and a
number of other howotipper products.
adding the government is striving to put licensing systems online to
streamline the process and make it more transparent. Checks with three
retailers, however, showed the online forms still need to be physically
delivered to the respective licensing departments.
A
convenience store that sells basics such as milk, vegetables, cereal,
bread, eggs, meat and baby food will require a minimum of 29 licenses
from nearly 20 different authorities, according to a list of licenses
compiled by the Retailers Association of India and obtained by Reuters.
Those
include a food license; a license for sale, storage and distribution; a
food-handler's certificate; a license for milk products and another for
frozen non-vegetarian food. All those licenses comes from the
state-level FSSA, but require separate applications.
But the FSSA does not give permission for operating freezers and chillers.Compare prices and buy all brands of earcap for home power systems and by the pallet. That requires a separate license from a municipal body.Laser engraving and laser parkingsystem for materials like metal, Selling baby food requires a permit from a state Controller of Food and Supply.
It's
not just the red tape of getting those licenses, it's also the
under-the-table money that retailers typically have to pay on top of the
official fees. In Bandra, a high-end suburb of Mumbai, a state-issued
trade license for a 10,000-square-foot (930 square-meter) store - very
large by Indian standards - officially costs Rs 1 lakh. But there is an
"additional charge" of Rs 12.5 lakh, according to documents obtained by
Reuters from the Employee State Insurance, Provident Fund and Industrial
Law Practitioners Association of India, which assist retailers in
obtaining permits.
EPILPA
said their members, who are consultants, collect the "speed money" from
retailers and pass it on to the government officials. They act as
middlemen who do not take a cut and hence should not be held responsible
for the bribes being paid.
"In
India, you don't need to ask retailers if you need to pay bribes," said
Punit Agarwal, CEO of Promart, a mid-sized multi-brand clothing
retailer. "It's known. Here you have a price tag for everything."
He
said his company hires middlemen and pays their fees because he knows
bribes have to be paid, but does not want his company to get directly
involved.
Middlemen
sell speed. They provide access to government officers who can sign off
on permits as soon as they are paid. The middleman negotiates the
bribes, thus keeping company officials from being directly involved.
Take
the case of British footwear retailer Clarks. It entered India through a
partnership with Future Group, which runs the country's largest listed
retail entity, Future Retail. Clarks has hired consultants and,
according to one of them, is negotiating with municipal officials for a
365-day license that would allow it to open three of its five stores in
Mumbai every day of the year.
For
each of the three stores, the company was asked to pay Rs 60,000 per
officer for the eight officers involved in its case - a total of Rs 5
lakh per store, said Oovesh Sarabhai, of Atlas AVA Consultants, who is
working with Clarks to secure the licenses. The official fee is about Rs
6,000 per store, he said.
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