Indians are expecting a lot from Pranab Mukherjee, the union finance minister, who will today be presenting the first annual budget (2009-10) of the new UPA government.

The high hopes are on account of this budget being the first budget of the ruling Congress in recent times free of ideological shackeles of the regressive ‘Left’ parties.

While, business and industry, which appears to be coming out of the worst economic downturn in many years, is expecting the fiscal stimulus   to improve domestic demand, consumers are hoping for more discretionary incomes in their wallets.

Retail sector, nascent as it is, has faced many challenges in the past one year, even before it could consolidate. Most fly-by-night operators, who had flocked to the sector assuming that there will be no tomorrow, have either already left or have been badly bruised as a consequence of falling footfalls and declining basket size.

The retail sector, which provides second largest employment, and is critical to overall economic growth of the country is, therefore, looking at the government provide several incentives that apart from consolidation will put it back on path of fast growth.

While wish list of the retail sector from the budget, as to be expected, is long, I discuss below a few salient demands that merit favorable consideration of policy makers along with present status of their implementation:

Industry Status: This is a long standing demand but quite important from the sector’s perspective. Apart from many minor benefits, accordance of ’industry’ status to the retail sector will, on the one hand, bring it under the purview of a single ministry entrusted with the responsibility for both its regulation and growth. On the other, it will allow easy flow of credit from banks and other financial institutions. Today, as no lending norms have been created for the sector, lenders extend credit to retailers in an ad-hoc manner and on discretionary basis.

Goods Service Tax: The single most reform that can bring efficiencies of scale and movement of goods from one place to the other will be to implement the policy of levying Goods Service Tax on the proposed date of 1st april, 2010. While, given the current status of steps taken in this regard and differences among the states ruled by the UPA on the one hand and NDA on the other, do not augur well for its easy and smooth implementation, one should expect that wisdom will prevail among political dispensations and the country will be brought under the purvie of GST regime at the earliest. Another hurdle needs to be crossed is the amendment of the constitution as the central government under the current laws is not authorised to collect taxes beyond factory gates. all the states will have to enact new laws to make the central government pass the constitutional amendment.

FDI: Although, retail sector is partially opened to foreign investment (FDI) as present policies allow for up to 100 per cent FDI in ‘cash and carry’ wholesale (back-end retail), and up to 51 per cent in single-brand front-end retail, the real opening of the sector will only happen when multi-brand, front-end, retail is opened for direct infusion of FDI. This, apart from bringing much needed investment, will bring technology and competition to make the sector cost effective and consumer friendly. While, Economic Survey (2008-09) has stringly recommended opening of the sector to food retailing, there are still many hurdles in the way as not only a committee of parliamentarians has opposed entry of big money in retail, ruling allies Trinamool Congress and DMK are vehemently opposed to opening of the sector.

Service Tax on commercial lease rentals: Despite Hon High Courts of Delhi & Bombay pronouncing the levy of Service Tax on lease rental on commercial properties as illegal, the draconian tax, which has a direct adverse impact on profitability of retail establishments, continues to be levied by the govenment. It is, therefore, necessary that this tax is withdrawan in the current budget.

APMC Act: If the dream of ‘farm to fork’ is to be realised in any meaningful manner, it is necessary that APMC Acts enacted by most state governments, that do not allow purchase of farm products directly from growers, need immediate change. While, farmers do not benefit, consumer also suffers because large margins are currently gobbled up by intermediaries. This has, however, to be done by state governments.

Investment in Infrastructure: If modern retail has to pass on the benefits of scale and movement efficieny, it is imperative that necessary infrastructure particularly in the area storage, warehousing, and transportation is created. In order to reduce wastage of perishable goods like fruits, vegetables, and even grains, it is necessary that large scale cold chains are created all across the county. This, among others, would include creation of facilities for cold stores, refrigerated storage and refrigerated vans, on an urgent basis. Of course, the creation of large ware housing facilities, roads, and rail carridors, are equally imperative. While, Mamta Benerjee, Railways Minister, has announced setting up of cold storage facilities at railway stations in the new budget, one only hopes that she succeeds as many such schemes were also announced in the past by ex-minister Lalu Prasad Yadav.

Single Window Licencing: Depending on the number, category, and variety of products handled, a retailer may be required to take as many as 30 licences from different authorities ranging from VAT to FDA, S&E to Weights & Measures, Police to Municipal Commissioner. Retailers should, therefore, be provided with single licence clearing authority. Moreover, there is a need to rationalise validity period of such permissions fro 1 to 5 years to a single licencing period of 5 years. Also, certain permissions are given storewise. They should be given statewise and across the chain so that front-end staff like pharmacists could be rotated depending on requirements.

VAT setoff: Allow adjustment of service tax paid on all inputs (like tax on commercial rent, communication bills, consultancy fees, etc, against sales tax collected on goods from consumers.

Repeal of FBT: Fringe Benefit Tax has been widely criticised on account of its regressive outlook and hassels involved in its computation. Every one appears to convinced that this tax will be withdrawn in the new budget.

Reduction in Custom Duty: Retailers are required to import a number of assets including equipment to create interiors, etc. It would help the retailers a great deal to reduce network rollout cost if the custom duty on import of such items is brought down from 32 per cent (overall 35 per cent) to 16 per cent.

The new store of Zedds, spread over 1,500 sq ft area, showcases an exclusive range of over 200 formals to casuals and ethnic to party wear products.

“In order to set a new definition of fashion and style and meet the ever growing demand of our products we have set up this second store in Hyderabad. The new store opening is a part of our National Expansion & Brand retailing strategy. Zedds is looking at rapid growth of the brand across India. We have plans to reach the total count of 10 EBOs (Exclusive Business Outlets) by 2010 with traces in Metros, state capitals and tier-2 cities following a mix of company owned, franchisee or a store in store format. We have made strategic awareness about our brand in Mumbai with Zedds Kiosks at PVR & Cinemax and plan to open a standalone store in Mumbai soon,” said Rajesh Rawtani, Director, on the occasion of opening of the new store.

“With contemporary designs, beautiful textures and interesting sizes, Stilletoes, Meule and Thongs Flip Flop are some of the hottest products that Zedds has ever offered,” added Rawtani.

Apart from Hyderabad, Zedds is going to target high potential areas of the country in the coming months. It is ready to expand into Mumbai and Indore in the next quarter.

Founded 15 years ago in 1994, Zedds  is acclaimed for its “contemporary styling,’ and has always been known as a ‘design ahead’ brand.

The fast growing brand attributes success to its ability of understanding the desires of its target audience, and offering them something unparalleled to satisfy their quest of ‘individual style statements’. Many of Zedds’ shoes include comfort features, like quilted lining and shock-absorbing padding. Technology, Design and Quality are three guiding principles of the brand. Zedds claims to be the first and only home brand that offers Shoes of any size.

Paying heed to long standing demand of opening retail sector to foreign capital (FDI), the Survey has sought to allow FDI in retailing (multi-brand, front-end), beginning with the food segment.

According to the Survey, while this will address the concerns of small traders (mom-and-pop stores), it will also help the country’s farmers to gain from ‘farm-to-fork linkages.

Although, the implementation of recommendations made in the Survey are not binding on the government, they do provide direction to the governmenment’s thinking on the subject.

Most modern (organised) retailers, who have been asking for removal of ban on FDI in retail, were excited with the recommendation made by the Survey in its report.

“It is a welcome suggestion and will help the Indian retail sector grow, by leading to inflow of money from overseas brands,” said Kishore Biyani, Chief Executive Officer, Future Group, to PTI.

According to Biyani, Foreign Direct Investment (FDI) will ensure a bigger playing field and sustained competition, resulting in reduction of prices for the consumer. He, however, recommended fixing a certain threshold investment for entering into the sector.

“The government should also fix a certain minimum threshold for FDI in the multi-brand segment,” Biyani said.

In India, while no FDI is allowed in multi-brand retail, it is allowed up to 51 per cent in single brand retail. Many single brand MNC retailers are unhappy with this condition. Only a few weeks ago, the iconic Swedish furniture and home improvement retailer IKEA, pulled out from the country, saying it would wait until the full FDI is allowed in the sector. IKEA had planned to invest $1 billion in India.

According to Ramanathan, “If large Indian organised retail players can exist, then why not foreign brands. The sector will become more competitive.”

Spencer’s Retail, the retail arm of RPG Group, a wholly owned subsidiary of group company Calcutta Electric Supply Company, also welcomed the Survey’s recommendation.

“We view it in favourable light. There is enough room in the Indian retail sector for everybody to grow and FDI will bring about competitiveness between Indian and foreign players,” a Spencer’s Retail spokesperson said.

According to KPMG, a global management consultancy firm, to facilitate FDI in food multi-brand retailing, the government should take steps to strengthen the structure of APMC (Agriculture Produce Marketing Committee).

“APMC has not being rolled out in all the states. There are currently many intermediaries between the producers and the consumers in the food market and APMCs could prove valuable for international food retailers and Indian farmers,” said Anand Ramanathan, Manager of KPMG Advisory Services.

Indian Council of Research in International Economic Relations (ICRIER), a premier economic think tank of the country, which was appointed to look into the impact of BIG capital in the retail sector, had come to conclusion that investment of ‘big’ money (large corporates and FDI) in the retail sector would in the long run not harm interests of small, traditional, retailers. ICRIER has estimated the worth of Indian retail sector at $309 billion dollars (2006-07). According to ICRIER, the sector is projected to reach $496 billion by 2011-12.

Interestingly, recommendations of The Economic Survey have come close on the heels of tabling of another report on retail (prepared by Parliamentary Standing Committee on Commerce) in the parliament, which fearing job losses, has recommended a “blanket ban” on entry of domestic and foreign corporates into the retail sector. Incidentally, the retail sector, after agriculture sector, is the country’s second largest employment providing sector.

The main reasons for such an unequivocal demand stems from the realisation that (a) while retail requires heavy investment for expansion, there is hardly any local capital left in the capital markets as a consequence of global financial meltdown, and (b) efficient management of multi-brand, multi-product, multi location retail, especially in the area of back-end operations, require heavy dose of technology, which over the years has been developed and perfected by foreign players.

Although, foreign investment (FDI) in India is fully admissible in ‘cash and carry’ wholesale (back-end retail), it is admissible only up to 51 per cent in single-brand front-end retail. Importantly, there is a complete ban on foreign investment in multi-brand, front-end retail. THis has resulted in keeping all the big ticket retailers of the world like Walmart (USA), Carrefour (France), Tesco (UK), and Metro (Germany), who are very keen to foray into India’s retail sector, away from entering into the country. All of these retailers, therefore, to make their presence felt  in the country, have either tied-up or trying to tie-up with local corporates, to offer their services for back-end operations like sourcing, logistics, inventory management, among others, for front-end, multi-brand retail operations of such corporates.

The present UPA government’s thinking, as reflected in The Economic Survey 2008-09 tabled today in the Parliament, raises hopes of all those who are looking for a favourable response of the government on the subject. While, the Economic Survey has made a strong case for opening up the FDI for multi-brand retail, it has recommended a gradual opening of the sector.

Improving the investment environment would require “FDI in multi-format retail, starting with food retailing,” said the Survey, adding that initially the FDI could be allowed subject to the setting up a modern logistics system, perhaps jointly with other organised retailers. “A condition could could also be put that it must have (for five years say) wholesale outlets where small, unorganised retailers can also purchase items (to facilitate transition),” added the Survey.

It may be interesting to note that the present recommendations come in the backdrop of recent tabling of a report on retail in the parliament. The report on retail was prepared by a 40-members committee headed by ex-HRD minister and senior BJP leader Murli Manohar Joshi. The report has recommended a ‘blanket ban’ on entry of ‘big’ corporates in the retail sector as well as stoppage of issuance of ‘free’ licences to foreign retailers even for ‘cash & carry’ business operations.

Although, the government this time has not to battle ideological battle on the subject with the ‘Left’ parties, whose support earlier was crititical to the survival of the previous UPA government, it should not be forgotten that even today, two of the largest allies in the present government, (Trinamool Congress and DMK) are fiercely opposed to the opening of the retail sector to the foreigners. It may be worthwhile to recall that firebrand Mamta Mukherjee-led Trinamool Congress was alleged to have vandalised the under-construction shops of Reliance Fresh, prior to celebration of Durga Pooja festival in Kolkata

The new IT brandshop is a conceptually different distribution model as Samsung India, which so far has focused on targeting consumers through channels and to some extent through government sales, has for the first time gone in for its own exclusive retail store.

The new ‘IT brandshop’ store located at Arihant Arcade, Ameerpet in Hyderabad will to showcase Samsung’s entire range of IT and consumer products, including, notebooks, netbooks, monitors, printers, consumables, digital cameras, digital camcorders, MP3 players and mobile phones. The shop will also offer IT accessories like laptop bags, headphones etc.

“Retail is a big thrust area for us as we are looking at enhancing our consumer interface this year. The IT Brand Shop will represent a one-stop shop for all Samsung IT products, ranging from notebooks to printers. In the coming months, we plan to set up IT Brand Shops in the other metros as well,” said JungSoo Shin, president and CEO, Samsung South West Asia, who inaugurated the store along with Ranjit Yadav, director, IT, Samsung India, in the presence of other Samsung representatives, dealers and customers.

The new Samsung ‘IT Brand Shop’ store has also created an ‘Experience Zone.’ This zone showcases commonly used applications like music, gaming, movie and imaging. Other digital products have been also integrated into this Demo zone to showcase convergence of digital devices.

The company, which markets its products, among others, under Koutons, Charlie Outlaw, Les Femme, Koutons Junior, K2ONE, FeeMe brands is looking at increasing the number of its stores from over 1,420 to 2,000, by the end of this financial year (31st March, 2010).

The company, which unlike many of its counterparts, operates with comfortable leverage is looking at expanding the network through additional debt. Since, Koutons prefers franchise model for expansion, it does not require much capital to expand its network. As such, it will raise capital through equity dilution only when it becomes necessary to do so.

Koutons is also trying to restrict expansion of its outlets as it wants to focus on converting existing stores into ‘family’ stores where all product categories (apparel, accessories, and footwear) are available under one roof. It will, therefore, consider increasing the size of some of its stores than to open new stores.

Koutons has also put its overseas expansion plans on hold until it is able to consolidate its position in the local market.

Koutons has in the past won several awards, including “Best Retailer Leadership Award 2008,” “Most Admired Fashion group,” “Value Retailer of the Year,” “Chain Store of the Year,” among others, while its Chairman DPS Kohli has won the “Most Admired Fashion Face of the year,” and “Brand Entrepreneur of the Year” awards.

Planet Retail Holdings Pvt. Ltd., a joint venture between Kishore Biyani  (49 per cent) and V N Sharma (an Indonesian resident of Indian origin), operates several retail chains in lifestyle segment for products covered under fashion and sports categories. While, the JV operates Planet Sports, Sports Warehouse and The Athlete’s Foot under sports segment, it operates Guess, Next and Women’s Secret, among others, in fashion segment. The company had recently ventured into beauty segment with the launch of The Body Shop stores in India. Prior to Mark & Spencer’s tieup with Reliance, Planet Retail was also operating 14 stores of the UK-based iconic fashion and homeware brand in India.

According to Kishore Biyani, Planet Retail JV had to be terminated because Pantaloon is already in a sports business, which has now become a wholly owned subsidiary of Pantaloon.

Blue Food, on the other hand, operates several restaurant chains under brand names of Bombay Blue, Noodle Bar and Copper Chimney, among others. The JV with Blue Foods, operating under the name of Pan India Food Solutions, had to be terminated because Blue Foods has already merged into a different entity.

According to Sunil Kapur, chief executive officer of Blue Foods, no operational or management changea are envisaged as a consequence of termination of the JV. It may be recalled that Indivision Capital, a private equity (PE) firm, had agreed to invest Rs 100 crore in Blue Foods in October 2008.

The Rahejas-led Shoppers’ Stop is among the country’s pioneering and leading listed retailers. It operates a flagship retail chain under its own name of department format stores across India. Soppers Stop operates Mothercare store in the country under an exclusive franchise agreement signed with the UK-based retailer in August, 2005.

While, standalone Mothercare stores in India ocuppy between 3,000 and 6,000 sq ft of space, the shop-in-shop outlets, which are located inside Shoppers Stop stores occupy an average of 2,000 sq ft in space.

Mothercare has a vision of becoming the country’s number 1 retailer of mother’s to be & baby products in its target segment. It sources 70 per cent of its product requirements in India from global vendors.

Mothercare, the £723 million retailer operating over 1,000 stores across 50 countries of the world, according to reports, is reported to be unhappy with performance of its stores operated by Shoppers Stop in India. The UK-based retailer, according to unconfirmed reports, is believed to have already commenced talks with Trent Limited, a Noel Tata headed retail arm of Tata group, for a possible tieup with the latter. Trent currently operates three retail chains under Westside, Star Bazaar, and Landmark brand names.

In fact, there is not much difference the retail formats operated by the two companies. Westside, the flagship brand of the retail is a lifestyle chain of department store format stores similar to Shoppers Stop’s flagship chain. Both of these draw a large part of their revenues from lifestyle fashion and homeware products and focus on private labels. Star Bazaar is a hypermarket value chain that mainly deals in food, grocery, fresh foods, apparel, and fast moving consumer products. Shoppers’ Stop has a sister retailer in hypermarmarket space called HyperCity. Landmark, on the other hand is a books and leisure products (music, games, toys, stationery) retail chain similar to Shoppers’ Stop’s ‘Crossword’ retail chain.

While, Shoppers’ Stop has several franchise and licensing arrangements with iconic European retail brands, Trent has recently tied up with Tesco, the world’s third largest UK-based food and grocery retailer, to set up a chain of 50 hypermarket stores. Of course, Tesco will provide only back-end and technical services as still no foreign investment is allowed in India in multi-brand retail.

Apart from famous global apparel brands like Wrangler, Lee, Arvind Brands is also retailing a number of home grown fashion labels like Newport, Flying Machine and Excalibur, among others.

While, the retailer under a licencing agreement had last month launched Polo Association, it is now working on introducing the US sportswear brand I-Zod in India.

Arvind Brands is now also going ahead with the relaunch of women’s formal wear under ‘Arrow’ brand in September, this year.

“Women’s formal wear business is growing in India. We launched it in 2005 but withdrew after the slack response. Now the market is evolving and we are re-launching the category by September,” said J. Suresh, CEO, Arvind Brands.

Arvind Brands, which undertook a Rs 400-crore investment on expansion between 2008 and 2012, has already spent Rs 100 crore on the expansion of its product portfolio. The company, which posted a turnover of Rs 440 crore in 2008-09, is expecting a turnover of Rs 550 crore this year.

The Confederation of All India Traders (CAIT), a body of traders in the unorganised sector, is seeking immediate implementation of the recommendations made by the Parliamentary Committee on retail trade.

“The recommendations of the Parliamentary Standing Committee headed by Dr Murli Manohar Joshi laid down in Parliament few days back for imposing blanket ban on MNCs and big corporate houses in the retail trade should be adopted by the Government as it is a unanimous document of the Committee comprising members of all political parties,” said Mr Praveen Khandelwal, Secretary-General, CAIT.

According to Khandelwal, the report will prove to be an instrumental document for protecting indigenous trade and employment of crores of people. The report, it may be recalled, has warned of ’far reaching consequences’ of ‘big’ investment on retail trade in India.

CAIT is also asking the government to announce a national trade policy for retail trade in the Budget being presented by the Union Finance Minister Pranab Mukherjee on the 6th July, 2009.

The traders body is also seeking the formation of a National Commission to study the intricacies and issues facing the retail trade in India. CAIT has demanded a proper representation of traders and other retail related sections in the Commission.

The committeee of 40 parliamentarians from all political parties headed by Murli Manohar Joshi, ex-HRD Minister and Senior BJP leader, in its report “Foreign and Domestic Investment in Retail Sector” has sought a ”blanket ban” on Foreign Direct Investment (FDI), as well as investment by heavy weight domestic corporates, in retail sector. The report tabled in the parliament about a fortnight ago has also demanded scrapping the policy of issuing free licences to foreign retailer for setting up ’cash & carry’ wholesale business in India.

It may be relevant to mention in this context here that acoording to the current government policy, while there is a complete ban on FDI in multi-brand front-end retail, there are no restrictions whatsoever on foreign investment in setting up ‘cash & carry’ format wholesale stores in India. Taking advantage of this policy large MNC retailers like the world’s largest US-based Walmart and the world’s fourth largest Germany-based Metro AG have already set shop in India by opening C&C stores either on their own or in partnership with local parties. The other two biggies of the retail industry in the world, namely, Carrefour of France and Tesco of UK are also in the process of foraying into the country through this format.

Even as Subhiksha, the Chennai-based cash strapped, food and grocery, discount retail chain, battles hard in the Madras High Court, to defend legal cases filed by some of its stake-holders, its founder, promoter, and managing director R Subrahmanian is confident of completing the process of obtaining financial bailout package from its lenders.

The financial package is being processed under the CDR programme of Reserve Bank by 12 of the 13 consortium members led by ICICI Bank. The dedline for finalising the process under the scheme will come to an end by 31st July, 2009. While, one of the consortium members Kotak Mahindra Bank has withdrawn from the process, six of the remaining 12 consortium members are ready to participate in the CDR. The remaining six members, though, are said to be also participating in the revival process.

“Twelve of the 13 bank lenders together with the three major shareholders are thrashing out the contours of the debt restructuring as well as the funds infusion into the company to revive operations. The contours of the revival plan of the company have been agreed (upon),” said R Subramanian in a statement.

“The deadline for closure of CDR is July 31, 2009, and the company is confident that the process will be completed well before that date,” added Sbrahmanian.

While, Kotak Mahindra Bank having filed a winding up petition against the company has withdrawn from the CDR process, “…all the other 12 banks, including the six banks that are part of the CDR and the other six which are not part of CDR, have all been working together on the revival package,” said Subrahmanian.

Subhiksha, according media report, is also believed to have filed a counter petition against Kotak Mahindra Bank in the Madras High Court.

According to Subrahmanian, various stakeholders of Subhiksha are agreeable to finance the revival mainly through equity. Subhiksha, it may be recalled, before suspension of operations of 1,600-odd stores across the country had asked for a debt restructuring of Rs 300 crore. Subhiksha is believed to be owing slightly more than Rs 550 crore to banks, while overall liability to employees, vendors, property owners, and service providers, among others, may be in excess of Rs 750 crore.

According to reports, ICICI Bank has an exposure of over Rs 180 crore, while HDFC Bank has the exposure of around Rs 150 crore. Bank of India, Federal Bank and Yes Bank have exposures of Rs 50 crore each, while Bank of Baroda may be carrying debt of Rs 75 crore in its books.

Reliance Jewels, a speciality format of Mukesh Ambani-led Reliance Retail, which specialises in offering a wide range of certified gold, gold jewellery, and diamond jewellery, launched its 12th store in the National Capital Region (NCR). The new store is located at the Gold Souk Mall in Sushant Lok-1, in Gurgaon. Reliance Jewels offers more than 10,000 stunning designs of jewellery from all regions of rhe country.

“We are delighted to bring the Reliance Jewels experience to the people residing in the NCR. It has always been the endeavour of Reliance to provide consumers with a wide range of high quality products at competitive prices. Reliance Jewels is another step in that direction- we offer consumers an unparalleled range of jewellery, backed by the assurance of hallmarked gold and certified diamonds, in an unmatched shopping ambience. We are confident that the Reliance Jewels experience will be appreciated by our customers here,” said Bijou Kurien, President and Chief Executive - Lifestyle, on the occasion.

To celebrate the occasion and to attract the customers, Reliance Jewels has subject to conditions offered a limited period special introductory discount of Rs. 50/- per gram on gold used in gold jewellery and up to 100% discount on making charges for Diamond Jewellery.

The first Reliance Jewels store was opened on 17th November, 2007. According to the original plan Reliance had targeted to open 300 speciality jewellery stores and garner 10 per cent of the total market overtaking the business of another jewellery retailer Tanishque, owned by Titan Ltd of Tata group.

The equity shareholders of Vishal Retail Ltd, the company which owns the retail chain, in the Extra Ordinary General Meeting (EGM) of the Company held on June 27, 2009, have passed a Special Resolution that authorises the company to issue and allot, in one or more trenches, upto 75,00,000 (Seventy Five Lacs) warrants on a preferential basis to Ram Chandra Agarwal, CMD of the Company. Agarwal also happens to be the founder and promoter of the company.

At the peak of the cash crunch, the retailer was said to be in talks with Reliance Retail, among others, for sale of equity by way of dilution of promoters’ equity in the company.

Global financial meltdown resulting in collapse of capital markets had its impact on India’s HNWIs (high networth individuals or dollar millionaires), as their number dwindled by 39,000 (or 31.6 per cent) from 123,000 (2008) compared to 84,000 in the previous year (2007). This is the first drop recorded for India in the past seven years.

An HNWI is defined as the one who owns net assets of at least $1 million, excluding his/her primary residence and consumables. HNWIs are among the largest spending consumers patronising purchase of lifestyle and luxury products.

These are findings of the report titled “World Wealth Report” released by DSP Merrill Lynch and Capgemini, investment banking firms, on Thursday.

“India’s HNWI (high net worth individuals) population shrunk 31.6 per cent to 84,000, the second largest decline in the world, after posting the fastest rate of growth (up 22.7 per cent) in 2007,” said the report.

“India, still an emerging economy, suffered declining global demand for its goods and services and a hefty drop in market capitalisation of 64.1 per cent in 2008,” adds the report.

Globally, HNWIs are concentrated mainly in North America, Europe and Asia. While their combined wealth in 2008 dropped by 19.5 per cent to $32.8 trillion, their overall number was down by 14.9 per cent to 8.6 million.

This was a direct consequence of global market capitalisation plummeting by $30 trillion, or nearly 50 per cent, during the year.

Responding to the crisis in equity markets, HNWIs poured more money into fixed income, cash-based investments, and real estate, said Pradeep Dokania, DSP Merrill Lynch managing director and global private client head.

“HNWIs significantly increased allocations in art and jewellery, gems and watches in 2008 compared to pre-crises levels in 2006, as alternative flight to safety,” added Salil Parekh, Capgemini, CEO, financial services, India, Asia SBU.

The report, however, is quite upbeat on hopes of economic activity gain momentum in the coming years. It predicts an annualised growth rate of 8.1 per cent until 2013 and expects the overall wealth to rise to $48.5 trillion by then.

“HNWI financial wealth will grow to $48.5 trillion by 2013, advancing at an annualised rate of 8.1 per cent driven by the recovery in asset prices as the global economy and financial system right themselves,” says the report.

Our earlier report on the subject:

Until recently, while the top two equity stake holders of the company (promoters: 59 per cent, and I-Venture: 23 per cent) were having a public spat on who effectively controlled the company as well as on the manner in which the company was operated by its managing director, it is now the turn of Zash Investments- an Azim Premji promoted private equity company– which has jumped into the fray with serving of legal notices on all past and present directors of the company, charging them with dereliction in performance of their duties.

Zash, it may be recalled, had bought 10 per cent stake in the company’s equity in the later half of 2008 for Rs 230 crore from I-Venture. Zash is now demanding an explanation from all concerned, who were then entrusted with the management and control of the company, as it believes that ”it was misled on the true financial position of the retailer.”

The legal notices, according to an ET report, have been served on all the present (R. Subrahmanyam) and past directors (nominated directors: Renuka Ramnath and Rajeev Bakshi, ex MD and present joint MDs of I-Venture respectively; and independent directors: Rama Bijapurkar, Marketing Consultant; SB Mathur, ex Chairman of LIC; and Kannan Srinivasan, Professor at Carnegie Mellon University) of the company. It may be recalled that all the nominated and independent directors had resigned from the board of the company conveying their displeasure at the way in which the company was being run as well as for not submitting the audited accounts of the company, since April, 2007.

“Premji Invest feels that the liabilities of every board member be fixed for the collapse of the retail chain. No member, either ICICI venture nominee or independent directors, can actually plead innocence, as they were in the control of the company before it collapsed,” said an official of the Premji’s PE firm. According to him, the investment company ”will go after everyone, who mislead it in buying a stake in the company.”

A courtroom battle, as such, can not be ruled out in the matter unless I-Venture and Zash do not come to an understanding in the matter. This is particularly important as the 180 days’ time limit for consideration of financial package by 12 lenders (Kotak Mahindra Bank has already lefy the consortium led by ICICI Bank) comes to an end within a month on the 31st July, 2009. As reported earlier, the lending banks are processing the cash starved company’s request under the Corporate Debt Restructuring (CDR) programme of the RBI.

Interestingly, the biggest loser in the game has been the investment firm of Azim Premji, since Subhiksha ran into cash crunch immediately after it bought the minority stake from I-Venture. The retailer was forced to close down all 1,600-odd convenience stores of the retail chain that it was operating across the country. I-Venture is reported to have recovered eight times the original investment it made in the company through stake sale to Premji.

Subhiksha is also fighting several legal battles with most of it stakeholders, including employees, vendors, service providers, lenders, and property owners, among others, in the Madras High Court.

Subhiksha was founded 12 years ago at Chennai (1997) by R Subrahmanyam, a first generation entrepreneur, has been educated at the premier educational institutions of the country (IITM and IIMA).