Identifier
Created
Classification
Origin
07CHENNAI512
2007-08-14 11:39:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Consulate Chennai
Cable title:  

KERALA PLANS LAW TO CURB CORPORATE RETAIL GIANTS

Tags:  ECON PGOV IN 
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VZCZCXRO9636
RR RUEHBI RUEHCI
DE RUEHCG #0512/01 2261139
ZNR UUUUU ZZH
R 141139Z AUG 07
FM AMCONSUL CHENNAI
TO RUEHC/SECSTATE WASHDC 1129
INFO RUEHNE/AMEMBASSY NEW DELHI 2704
RUEHCI/AMCONSUL KOLKATA 0827
RUEHBI/AMCONSUL MUMBAI 5097
RUEHLM/AMEMBASSY COLOMBO 1352
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
UNCLAS SECTION 01 OF 02 CHENNAI 000512 

SIPDIS

SENSITIVE

SIPDIS

COMMERCE PASS TO MARKET ACCESS AND COMPLIANCE - BRYAN LOPP

E.O. 12958: N/A
TAGS: ECON PGOV IN
SUBJECT: KERALA PLANS LAW TO CURB CORPORATE RETAIL GIANTS

REFS: A) CHENNAI 00314 B) 06 CHENNAI 0109 C) 05 CHENNAI 2087

UNCLAS SECTION 01 OF 02 CHENNAI 000512

SIPDIS

SENSITIVE

SIPDIS

COMMERCE PASS TO MARKET ACCESS AND COMPLIANCE - BRYAN LOPP

E.O. 12958: N/A
TAGS: ECON PGOV IN
SUBJECT: KERALA PLANS LAW TO CURB CORPORATE RETAIL GIANTS

REFS: A) CHENNAI 00314 B) 06 CHENNAI 0109 C) 05 CHENNAI 2087


1. (SBU) SUMMARY: Kerala's leftist government is drafting a law to
curb the entry of large corporations, whether multinational or
Indian, into the retail sector. The state's Finance Minister says
the law will regulate, not ban, the entry of corporations into the
retail sector. Although media contacts say the government is merely
paying lip-service to anti-corporate sentiment in the state,
enactment of the proposed legislation could spell trouble because it
would give local government discretionary authority over retail
establishments. Moreover, opponents of organized retail in
neighboring Tamil Nadu are looking to Kerala as a model. END
SUMMARY.


WE WILL NOT BAN, ONLY REGULATE, SAYS FINANCE MINISTER
-------------- --------------


2. (SBU) Kerala Finance Minister Dr. Thomas Isaac (Protect)
confirmed that a bill is in the works to regulate the entry of large
corporations into the retail sector. Isaac refuted media reports
that Kerala plans to ban retail giants. "It is impossible to ban
them," he said, "but we have to regulate the sector to prevent
chaos." According to Isaac, Kerala will regulate the location of
retail outlets and require businesses to provide adequate
infrastructure. The regulations will be enforced through municipal
governments. (COMMENT: Local municipal government enforcement of
the regulations could prove problematic for multinational retailers.
Coca-Cola's difficulties in Kerala (reftels) began when it locked
horns with a difficult local government. END COMMENT) Isaac
believes retailers will not oppose state-imposed requirements for
standard facilities, such as sufficient parking spaces, but
acknowledged that using licenses to regulate the location of retail
outlets will likely cause major concerns.


3. (SBU) Minister Isaac said the government also plans to impose a
tax on the major retail companies, from which small traders will be
exempt. Furthermore, he said proceeds of the new tax will be used
to fund programs to ensure the "welfare" of small traders, as well
as to improve municipal infrastructure. He emphasized the tax will
be equally applied to Indian and multinational corporations. He

said the government will hold a consultative meeting on the
threshold limits for such a tax with the state's existing retailers,
represented by their organizations including the Kerala Vyapari
Vyavasayi Ekopana Samithy (Traders and Industrialists Coordination
Council - KVVES).

KERALA MEDIA SAYS IT IS ONLY RHETORIC
--------------


4. (SBU) Kerala media sources, however, are skeptical about the
government's proposed regulations. They told post the government is
mainly going through the motions to appease anti-corporate sentiment
in the state. Despite the rhetoric, they said there will be little
practical limitation on major retailers' entry into the market,
pointing out that Thiruvananthapuram and Kochi have already issued
several licenses to corporate retail outlets. In some cases, local
leaders from Kerala's ruling Communist Party of India (Marxist),
actually inaugurated the new retail outlets. Media contacts also
questioned the feasibility of imposing additional taxes on corporate
retail outlets, as doing so would conflict with India's value-added
tax system.


TAMIL NADU WATCHING KERALA CLOSELY
--------------


5. (SBU) In neighboring Tamil Nadu, where retail chains have grown
more rapidly, the state government has said it is watching the
developments in Kerala to decide future policy. Allies of the
ruling DMK party, such as the PMK, have demanded that Tamil Nadu
copy Kerala and ask local bodies to deny licenses to big retail
outlets to save the livelihood of 600,000 small traders. A
high-ranking Tamil Nadu bureaucrat told post the government is aware
of the opposition to corporate involvement in the retail sector, but
it does not have the authority to curb the commercial activity.



COKE'S EXPERIENCE: DISCRETION IN LOCAL HANDS DANGEROUS
-------------- --------------


6. (SBU) COMMENT: Kerala's healthy consumer market, which is fueled
by remittances from expatriates in the Gulf and elsewhere, makes it
a tempting target for corporate retailers. At the same time, the

CHENNAI 00000512 002 OF 002


state has a tradition of leftist politics and a network of small
retailers lobbying together under the banner of KVVES.
Notwithstanding the media view that the talk of regulating retail is
only rhetoric, there could be trouble ahead for corporate retailers
if the leftists and KVVES win out and Kerala gives local government
discretionary power to license corporate retailers. Coca Cola's
experience demonstrates that local governments in Kerala are more
than willing to use their discretionary powers to disrupt a
company's operations for political reasons (reftels). On the other
hand, businesses have little to fear from calls for Tamil Nadu to
follow Kerala's lead as Tamil Nadu, with its generally
business-friendly environment, is unlikely to turn too hostile to
corporate retailers. END COMMENT.

HOPPER