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 
 
¶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