The retail industry is one of the most important sectors of the Indian economy. It is the sector that connects the industry with end-users. The sector has been on a constant growth path in the previous decades and the advent of e-commerce has been a boon for the industry.
Despite being one of the key sectors of the economy, the retail sector has been plagued by issues like inefficiencies, wastages, high input costs, and shrinking margins. The year 2020 came as a roadblock in the growth path of the retail industry and added to its above-mentioned woes. The pandemic affected almost every aspect of life and business and the retail sector was one of the worst affected ones.
The budget 2021 is coming at a time when India is looking forward to leaving behind the unfortunate memories of 2020 and entering into a decade of growth and prosperity. The first budget of the new decade holds promises for the entire economy and the retail sector has its own expectations. In this article, we will discuss the most important issue currently faced by the retail sector - the rising input costs.
Input Cost Affects Affordability of Product
Being the most critical issue faced by the retail sector, the high rising input cost needs special attention in this budget. The input cost in terms of cost of doing business, raw material, logistics, and storage are already amongst the highest in the world and constantly growing. This results in the higher prices of the final product. In a highly price-sensitive market like India, retailers cannot increase the price of their products beyond a certain limit. To keep the prices in the affordable range, retailers have to often cut down their profit margins on the product. This results in a fall in the profitability of the business.
Focus on Regulatory Measures to Control Rising Input Cost
In the past few years, the government of India has taken several revolutionary steps in order to make doing business easier in the country and their efforts have paid off. Now that the ease of doing business has been taken care of, the retail industry expects this budget to focus on regulatory measures to bring down the cost of doing business.
Raw material is the most important factor for any finished product. High costs of raw materials have been hurting the retail sector for eternity. The budget 2021 should focus on measures to bring down the cost of raw material. These measures could be in terms of tax incentives for raw material producers and reducing the freight and logistics costs. Another important measure that the upcoming union budget can take is the relaxation of the import duties of raw material like high-grade steel.
Build Efficient Supply Chains to Reduce Wastage
As mentioned previously, one of the reasons for high input costs in the retail sector is wastage. The cost of wastage of raw material is ultimately borne by the retail sector. The budget needs to focus on building efficient supply chains to reduce wastages and timely delivery of the raw material to the industry. Efficient supply chains will also help in bringing down the cost of the logistics which is another important factor for the final product.
Tax Reforms to Reduce Cost
GST reforms like an Input tax credit for the retail industry should be another measure that can be taken in the upcoming budget. Input tax credits will help the retail industry cope up with the ever-rising costs of the inputs. This will help the industry keep the costs of their products low and the benefits will eventually be passed on to the end-users.
The Union budget 2021 can help the retail industry promptly get back to its growth path by focusing on controlling the rising input costs. Lower input costs will help the retail industry remain profitable and the entire economy will benefit from it.