The Hindu : Call for law on franchise agreements

Online edition of India's National Newspaper
Friday, Apr 19, 2002

Southern States

Southern States - Karnataka

Call for law on franchise agreements

By Our Staff Reporter

Bangalore April 18. The Minister for Large- and Medium-scale Industries, R.V. Deshpande, today urged the Union Government to enact a specific law to curtail the application of the Monopolies and Restrictive Trade Practices Act to franchise agreements, considering the growing importance of franchising in the country.

He was speaking after inaugurating a one-day conference on "Opportunities in retailing and franchising - India's strategic response" and catalogue show organised by the Greater Mysore Chamber of Industry (GMCI), here.

"Organised retailing constitutes only one per cent of the total market, and it will grow six-fold by 2005, with food and grocery accounting for about 40 per cent. Organised retailing, which was around Rs. 5,000 crore in 1999, is projected to grow to about Rs. 30,000 crore by 2005. The organised food and grocery segment is projected to grow from Rs. 4,400 crore to Rs. 24,000 crore in the same period," he said.

"Over the next five years, large retail outlets in India have planned, or are constructing, 3.6 billion square feet of additional space, and opportunity for an extra 7.5 billion sq. ft. exists, according to a study by the KSA Technopark."

Mr. Deshpande said there was no legislation on franchising. In the absence of a specific governing legislation, the Indian Contract Act, 1872 and other allied Acts were applicable to a franchise agreement. Other areas of the law which were applicable to franchise agreements were intellectual property laws, competition laws, consumer protection laws and labour laws.

He said franchising accounted for 17 per cent of world businesses, but in India it was less than three per cent. The existing highly organised franchising concept in the country included the Mumbai taxiwalla and tiffinwala, and Udupi hotels. The common factors among them were standardisation and systemisation.

Some important factors affecting franchising in India were: small market size, price sensitivity, indigenisation, and management. Schools, nurseries, khadi bhandars, government institutions, healthcare, and crèches had high scope for growth through franchising, Mr. Deshpande said.

S.N. Agarwal, Chairman, Karnataka State Council, Federation of Indian Chambers of Commerce and Industry (FICCI), in his welcome address said, in India, the franchise economy was yet to take off. The annual turnover achieved by franchised businesses here was in the region of Rs. 8,000 crore to Rs. 10,000 crore. But this was a mere fraction of the potential that India offered, he said.

Harbans Thukral, President, GMCI, M. Satyanarayana Swamy, President, Federation of Karnataka Chambers of Commerce and Industry, and C.Y. Pal, President, Franchising Association of India, and Chairman, Cadbury India Ltd., spoke.

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