India’s New Twilight Law: 24/7 Operations for Retailers

July 8, 2016 Posted by India Briefing Reading Time: 5 minutes

India’s Union cabinet recently approved a bill that will allow several commercial establishments to operate for 24 hours a day. The Model Shops and Establishments (Regulation of Employment and Conditions of Service) Act 2016 will permit malls, shops, restaurants, banks, and cinema halls to operate on a 24/7 basis. The bill is to have a significant impact on India’s business climate, market dynamics, and employment rate.

The proposed Act will cover all premises and shops, with the exception of those covered under the Factories Act 1948. However,it should be noted that the Act is only advisory in nature. State governments can choose to accept or reject the Act and implement it accordingly. Thus, the impact on businesses will be determined by the respective state in which the business operates.

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Impact on the Business Climate

The proposed law would mark a significant improvement to the business climate in India and is indicative of the business-friendly policies of the central government. Earlier, 24/7 establishments would need a significant amount of paperwork – government clearances and approvals – from several branches of the executive, including the police department. If the law is implemented by the respective states, it will remove these bureaucratic bottlenecks and reduce the existing burden of regulatory compliance.

For instance, an oft-faced problem of current 24/7 establishments is the payment of bribes to obtain clearances from localized branches of the executive. The Model Shops and Establishments Act intends to mitigate the scope for such bribery and corruption that tends to hold back businesses in India by providing a regulatory interface that minimizes the number of touch points between businesses and members of the executive. The Act paves the way for an improved business climate that rewards entrepreneurial ventures instead of hindering them.

Market Dynamics

The new law is expected to drastically change the market dynamics in India. The fact that businesses will now be able to operate 24/7 will spur domestic consumption and production of goods and services. To date, goods and services have only be offered for around 10-14 hours per day; the extra hours per day will convert directly into increased consumer spending and, therefore, increased revenue for businesses.

Consumption-Production Cycle

Consumers will welcome this move, as it becomes more convenient for them to purchase goods and services during night hours. This is particularly the case for those working normal work hours who find a paucity of time to shop. The time-bound nature of the market is also what has created a growing preference among consumers to avail of online marketplaces. The new law is expected to influence this dynamic significantly. Independent economic analysts note a predominant consumer preference for getting a ‘real-feel’ of the products they purchase. This is why online market places have to offer replacement services as consumers cannot experience or examine the product before delivery. The new law will help in empowering brick-and-mortar stores to stay open all night. This enables them to compete better with e-commerce platforms and capture a larger market share.

Producers are enthusiastic, as the new law finally allows them to optimize their sales by catering to consumers even at odd hours. This will inevitably increase their revenue and help grow their businesses. Owners of restaurants and similar establishments, in particular, note that consumers have been demanding these services for a long time.

Employment Rate

The new Act is expected to boost employment creation in two ways. One, through regular retail and service outlets that will need labor to service a 24/7 consumer demand cycle. Two, through smaller shops and companies, which are expected to mushroom in areas around larger markets. This will generate employment within the informal economy. A rising employment rate also bodes well for producers, despite implying higher wages. Simply put, it boosts demand and thereby creates the need for higher supply.

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Observations

The Model Shops and Establishments (Regulation of Employment and Conditions of Service) Act paves the way for a healthier economy that promotes robust business activity. Businesses that understand the nuances of the new law, before it is formally adopted by state governments, stand to gain significantly. This is possible through various methods, including market feasibility studies, regulatory tracking, and consumer mapping. Companies that use such tools will be able to respond to new laws and regulatory developments with a shorter turn-around time and improve their business efficiency.

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Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email india@dezshira.com or visit www.dezshira.com.

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