As one of the fastest growing and dynamic industry, the Indian retail industry, which accounts for over 10 per cent of the country’s GDP and around 8 per cent of the employment, has its eyes set on the Union Budget 2020.
As per a report by Assocham, the Indian retail market is set to cross the US $ 1 trillion mark by 2020, owing to the rise in per capita income. However, it would also depend on various factors like recovery of manufacturing and other sectors, incentives in the Union Budget and availability of money in the hands of consumers to make purchasing decisions.
The segment has been witnessing drastic changes including high consumer activism, supply chain model, advertising activities and introduction of new players in the market.
2019 was somehow tough for the retail players as they struggled to keep themselves on the expected growth chart and Budget 2020 is pegged to be an opportunity for the Government to address the issues faced by the sector and steer the economy towards growth path, moving forward.
The RAI has, in its pre-budgetary memorandom for the financial year 2020-21 sent to the Union Finance Minister, said that there are certain areas that still require urgent attention even as the Government has already made substantial efforts to revitalise the retail sector. Kumar Rajagopalan, Chief Executive Officer, Retailers Association of India (RAI), asserts, “There is a need to create a positive sentiment in the market. One of the measures required for that is to reduce the tax burden so that there’s more money in the hands of the middle class.”
Furthermore, he also said that the Government needs to take measures that would facilitate retail businesses to grow. “The Budget should look at easing GST-related troubles for consumption-led items, be it reducing tax slab or simplifying procedural issues. We believe that implementing a retail trade policy, which is predominantly focused towards ease of doing business will be of immense help. There’s a need for ensuring that finance is available for retail because if retail flourishes, consumption automatically goes up giving support to all industries. To help grow and compete with global brands, the smaller retailers would require a subsidised rate of financing and the larger retailers will have to be given access to global funds. Unless this happens, local retailers will always be small in comparison with global retailers who have cheaper access to funds as they don’t have a cost of capital.”
Even as the forecasts say that the industry is slated for a phenomenal growth, around 88 per cent of the total retail market is still dominated by unorganised retail that consists of mom-and-pop stores and traditional kirana stores. The remaining 12 per cent of the sector, which is organised market, is valued at around US $ 95 billion and in that, about US $ 24 billion is e-commerce retail.
While consumption stood at the top pf the list for the retail industry, other concerns revolved around GST regulations and taxation system to make the processes hassle free. “Ramesh Kaushik, VP – Brand Experience, Blackberrys, said “2019 was a mixed year where the retail industry witnessed many ups and downs especially with regard to consumer spends which were weaker in comparison to the previous year. We are sincerely hoping this budget to be a pro-consumption one that will help elevate the purchasing power of customers. We are expecting developments towards stated rebate of state and central taxes and levies scheme. In addition, we are anticipating focused industry-specific initiatives like infrastructure policies that will help the garment industry for deeper penetration. Apart from this ‘Digital Infrastructure’ also remains a cornerstone of India’s growth strategy; hence sharpening focus on new-age technologies like 5G will help boost online potential and drive the digital journey of Indian consumers.”
Sudhanshu Agarwal, Founder & Director, Citykart, backs this even as he lays focus on importance of infrastructure policies, “With the upcoming union budget, we are looking forward to the Government’s decision to streamline the retail process with simplification of the GST slab and structured implementation of new mechanism. We are optimistic that new policy incentives will provide further impetus to the retail sector in 2020. Furthermore, we are also hoping the Government to invest in infrastructure policies that will help retailers to flourish in Tier-3 and Tier-4 cities in full bloom.”
Also, the Budget should focus on simplification of the Government laws that will have a positive impact on the sector and will give freedom to try new techniques and introduce new trends. The Budget should also introduce measures to promote partnership and collaboration for accessing new channel capabilities, digital technologies and facilitate easier entry into the new market which will go a long way in optimising costs. While the Narendra Modi-led Central Government had yet again put an emphasis on ‘ease of doing business’ and promoting ‘Start-up India’ in its second term, the industry has its eyes on new incentives and bold reforms that will encourage new entrants in the retail industry to expand their activities across various platforms. Farooq Adam, Co-Founder, Fynd, asserts, “From this Budget, we would like to see a broad spectrum of reduction in taxes that will stimulate the average customer to spend more and there should be policies to avoid any surprises in regulatory and compliance frameworks for start-ups and corporates.”
The Government is expected to allow the refund of GST input to start-ups to spur entrepreneurship. Another measure that could accelerate the growth of start-ups is to lower the taxes on Employee Stock Ownership Plans (ESOPs) which will help start-ups streamline their costs as the current tax incidence on ESOPs is relatively high.
Moving on, the industry is also betting on Government to take initiatives in order to sustain and grow MSMEs since a large number of small and medium enterprises generate employment for a huge population of the country and the sector requires a comprehensive national retail policy to provide a framework for small businesses and assistance in the form of special incentives, which can be small finance solutions. Nidhi Yadav, Creative Head and Founder AKS Clothing, avers, “It’s time to unroll the Government’s sponsored Fund of Funds (FoF) of Rs. 10,000 crore to resolve the funding issues of the MSMEs in apparel, retail and other sectors. Secondly, for better funding support from venture capitalists, private equity firms, policies need to be clarified on crowdfunding and other possible financial routes.” On the other hand, to surge market demand, the Finance Minister should present a comprehensive yet clear e-commerce policy. Besides, for the young and aspiring women entrepreneurs of India, the Finance Minister must introduce some motivational schemes, so that their knowledge and skills may get utilised in the economic development of the country.”
While reduction in corporate tax rates and incentives to MSMEs are expected to boost investors’ confidence, such measures are estimated to take some time to yield results. The expectation of the industry, therefore, is that the primary focus of the upcoming Budget should be on policy measures to give an immediate stimulus to boost consumption. Puneet and Yatin Jain, Directors, ODHNI, said “Over 6 crore MSMEs are sharing around 29 per cent to India’s GDP and they expect the Government will introduce favourable policies and allocate substantial funds for the growth of MSMEs. Presently, out of 3,238 applications filed by MSMEs, 2,031 applications have been disposed off by the Government under the delayed payment monitoring system called MSME Samadhaan. Apart from the lack of access to capital, infrastructure, skilled labour and power supply issues are some of the problems that plague MSMEs in India. Therefore, Indian entrepreneur hopes that the Union Budget 2020 will provide some long-term benefits to the MSME sector with better access to credit and lenient taxation policies.”
Even as the corrective measures by the Government (including demonetisation, implementation of GST, etc.) had an adverse impact in the short term, the Finance Minister is expected to announce measures that will hasten the recovery and this has amplified the industry’s hopes for a efficacious Budget. Rajendra Agarwal, Managing Director, Donear Industries Ltd., concludes, “We expect this Union Budget would aim at elevating employment opportunities, cutting down corporate taxes in order to stimulate demand, enhance welfare allocations to increase consumer demand, encourage export competitiveness, allocate CapEx (Capital Expenditure) for infrastructural purposes, harness Public Private Partnership (PPP) directed towards increasing consumption and economise power costs in order to aid the economy.”
While the country improved its ranking by 14 places to 63rd rank out of 190 countries in the World Bank’s Doing Business 2020 report, it further targets to rank within the top 50 countries by next year’s report.