Inclusion Under MSME Sector to Pave the Road to Recovery for Retailers

Smaller retailers and traders will now also be able to avail themselves of the Resolution Framework for COVID-19 related stress announced by the RBI.
Inclusion Under MSME Sector to Pave the Road to Recovery for Retailers

Economies across the globe went under stress as COVID-19 hit them hard. People everywhere had to witness job losses, closure of business, or salary cuts which led to negative consumer sentiments. The unprecedented crisis also led to unplanned expenses, thus cutting down the purchasing powers of consumers. India was no exception. The direct impact of all this is on the retail sector. To top it all, India also had to face the toughest and longest lockdown, which meant that for the most part of the last 16 months, shops have either been closed or working at sub-optimal levels. Malls have been mostly shut, and high-street shops have been working under severe restrictions. All this has had a debilitating impact on the sector that is the largest employer in India after agriculture. The US$ 900 billion retail sector is likely to incur over US$ 30 billion losses in FY22 due to the pandemic and repeated lockdowns.

According to the Confederation of All India Traders (CAIT), during April’21 alone, the losses will impact every single retailer and will make it hard for many of them to even stand back on their own feet. While both organized retail and unorganized retail have suffered, the personal and social impact is evidently higher on the unorganized sector. However, as the government is steadily lifting the curbs, the retail sector can hope for some respite. Many stimulus packages have been announced to offer breathing space to MSME sectors, the backbone of the Indian industry. In this context, the recent announcement by the Union Ministry of Micro, Small, and Medium Enterprises to include retailers and traders under the MSME sector will make the stimulus accessible to the retail sector, and thus certainly help it in coming out from the crisis. 

This decision will also help in addressing multiple other issues that are plaguing the country’s retail sector. The inclusion of retail and wholesale trade under MSMEs will now help them in getting the benefit of priority sector lending under RBI guidelines. This will ensure that over 25 million retailers and traders will get better access to financing options, leading to more robust economic movement via employment generation. After all retail sector is critical for the movement of migrant labor across the country. 

Smaller retailers and traders will now also be able to avail themselves of the Resolution Framework for COVID-19 related stress announced by the RBI. The apex bank’s Resolution Framework enables MSMEs with aggregate exposure of up to Rs 25 crore and classified as ‘standard’ as of March 31, 2021, to avail of this restructuring scheme without being downgraded to another category of asset. This will also open the gates for the sector to be able to get registered on the Udyam portal which will provide them access to cheaper bank loans, tax rebates as well as preference for government tenders.

COVID-19 has revolutionized the digital landscape across the world. Even in India, the majority of customers are now more comfortable with digital payments and e-commerce transactions than ever before. This will put further pressure on traditional retail business, and will thus force all retailers and wholesalers to modernize their business, align themselves to the new digital reality. They will need to move along with the digital train and skim the benefits of this movement, rather than stand in its path and get crushed. A symbiotic relationship will be required with the digital domain. This will however require investments in manpower and technology at every level – whether it’s a small neighborhood Kirana store, or a large department store chain. The timely decision to include retail & wholesale trade in the official MSME ecosystem will provide them with this much-needed access to credit and loans to modernize and digitize themselves. 

If this can be achieved successfully, it will go a long way in boosting the retail sector’s contribution towards GDP and overall economic growth. Besides getting the financial benefits, the retailers and traders will also be able to enjoy the benefits of various other government schemes earmarked for the MSMEs. This decision, if appropriately coupled with the National Retail Policy (NRP), can give a major boost to the retail sector. With the employment of about 35 million, the sector employs almost 8 percent of the Indian workforce. It has the potential to add 25 million new jobs by 2030.  The onus now lies on the banks. It is critical that the banking sector supports the retailers wholeheartedly to ensure the benefits reach to a maximum number of people in the sector and therefore translate into real benefits and growth on the ground.

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