When the Union Budget was announced in 2018, it held a lot of promise for the retail sector. The announcements included the allowance of 100% FDI in the sector of single brand retail and even granted industry status to the retail sector. These changes while widening the scope of consumption, also resulted in a significant improvement in the overall turnover. The Retailers Association of India (RAI), at the time, had said that the reduction of corporate taxes for MSMEs to 25% was a very welcome move and would benefit a large number of retailers.
Looking Back at 2018
As we stand in 2019, on the verge of the new Budget, we can look back at the year that went by and see that there have definitely been some improvements. With consumers still preferring physical stores over online shopping, the buying patterns between the urban and rural population continues to be vastly different. Small, independent enterprises have benefited significantly in the last year as they dominated the retail landscape. In spite of their monopoly over this market, there was some competition faced in the form of outlets in small shopping centres, and malls opening up in Tier II and III cities.The introduction of payment schemes and strategies to manage pricing effectively have been certain steps taken by retailers to entice customers. Larger organizations launched features like payment wallets which can be used even in their retail outlets.
Speaking of the upcoming interim budget, there are several expectations when it comes to MSMEs. There are three broad categories into which we can divide the expectations from the Budget 2019, that is, from the customer’s perspective, the industry’s perspective and the vendor’s perspective. Here are the expectations based on the categories:
Looking at the customer’s perspective, the immediate requirement from the government would be an increase in their buying power. What happens when they have spendable income in their hands is that they are willing to purchase more, thus benefiting the entire retail ecosystem. The one way in which the government can immediately help is through reduced taxation for them. Secondly, based on the geographical locations which we are found in, we have seen that a majority of the customers prefer cash based interactions. Thus, we need to include schemes which are similar to those available to buyers who reside in urban areas such as EMI or Deferred payment products. This financial inclusion will result in an increased buying power.
From the perspective of the industry, if companies are going to target remote geographies like Tier II, III and IV cities, there needs to be improved infrastructural facilities available. Right now, due to poor infrastructure, we have to invest a lot in order to maintain the same level as we have in larger cities. So if there were some tax breaks we could avail it would be very helpful. Right now, for instance, we need to take care of everything, right from power generation to investments for telecom connectivity. Having to build our own infrastructure leads to greater investments on our part, which are not always justified by the revenues generated. So, if there were some tax exemptions we could avail for the expenditure made here, it would be helpful for us.
Likewise, as Mukesh Ambani very rightly said, “Digital is the new oil”, and we need to incentivize this in a way that companies will be willing to invest in products which will facilitate storage of this new oil. Innovations like Big Data will benefit from data storage and will eventually help in developing analytic platforms which will use such underlying data and help develop many applications across various industries,eventually benefiting the customer experience. The government needs to push people towards a more digitized approach to make this successful. In addition, moderation of GST rates for items of mass consumption would be a welcome measure which will also push consumption.
In the value retailing segment, the major components of the vendor eco system consists of Small and Micro enterprises. Most Small and Micro enterprises face the issue of fund allocation from banks, because banks are hesitant to even consider them for evaluation. The looming question here is, what funds can be made available to them, so we can avail them to improve our business? Monetary issues are still plaguing the grass root level organizations, so what is the government doing to relieve us of this? De-monetisation has been good in that it has curbed the usage of black money and helped transition the move away from a cash based economy. However, if the same is not substituted by alternative sources of funding the large base of SMEs will suffer and any disruption of the vendor base affects our supply chain.
While there are several skill development programmes being organized by the government, those who are skilled labour, aren’t being able to reach the people who are in need of them at reasonable prices due to the vast geographical differences which are coming in. Vendors face problems like quality standardization and online access. The government should come up with a unified forum where the pain points can be addressed openly.
All in all, looking forward we can gauge that there are several expectations of the retail sector from the Budget 2019. These challenges will hopefully be addressed and resolved as that will lead to the overall growth and will uplift the retail sector significantly.
The article has been penned down by Ravinder Singh, Co-Founder & COO, 1-India Family Mart