Over the past two months, the retail sector has shown several signs of recovery, with business at the same levels due to the pandemic, and is aiming for a full recovery on all indicators. However, with the sudden rise of the third wave, several worries have started to plague the retail industry again. Given the current scenario, the industry expects the government to make the right decision that will not only see it through this period but also ensure a full recovery of the sector.
For example, according to the Retailers Association of India (RAI), the retail sector achieved 96% of pre-covid sales in September 2021, driven by growing consumer demand. Experts believe that the increase in purchasing power has led to a growing demand.
Therefore, the government should take measures, bring measures or programs for the sector that could have an additional impact on consumption growth, or at least not allow consumption to fall back to pre-September levels.
Harsha Razdan, Partner and Head, Consumer Markets and Internet Business, KPMG India agrees with the same, saying, “Given the overall decline in consumer sentiment, we might expect the budget to focuses on stimulating consumption by providing disposable income in the hands of the consumer, creating jobs and increasing government spending, while maintaining fiscal discipline.
Current industry challenges
Along with the focus on maintaining consumer demand, there is a need to carefully consider the factors that have long held the industry back.
“The abnormal surge in commodity prices, which began to rise more than a year ago, has clouded revenue forecasts and continues to pose a serious challenge to businesses,” said Dinesh Chhabra, CEO of Usha. International.
In addition, Chhabra added, “In addition, supply chain logistics issues are also increasing the burden on businesses. For a brand, intransigence in its quality business becomes unsustainable unless the share of the price increase is passed on to the consumer. Rising prices are impacting consumer spending, negatively affecting the recovery and growth of our economy.
Parag Kulkarni, Managing Director of AO Smith India, added: “The consumer durable goods industry has been facing raw material cost challenges for over a year, and we are confident that the budget for the Union will help reduce cost pressures for manufacturers and improve affordability for consumers. The budget could also consider reducing taxes on green and energy-efficient products, which could help stimulate demand and increase consumer adoption of sustainable products. »
Rising production material costs and logistical challenges seem to be some of the common challenges facing the industry. The government is supposed to keep these factors in mind when drawing up the budget for the year.
Possible measures
Last year, although there was no major change in terms of income or corporate tax, there was also no additional tax burden expected due to the second Covid wave. This year, the retail sector expects more given the damage suffered over the past two years.
“Reducing the overall tax burden and simplifying compliances could be the two goals the industry is looking forward to. Providing additional tax deductions on investments in retail infrastructure, higher depreciation of capital goods used in the industry, allowing GST as input for all marketing expenses, including free samples, marketing materials, etc. are some of the areas that could be looked at,” Razdan added.
Parag Kulkarni, Managing Director of AO Smith India, said: “The consumer durables industry has been facing raw material cost challenges for over a year, and we are confident that the budget for the Union will help reduce cost pressures for manufacturers and improve affordability for consumers. Water purifiers and water heaters have become essential household items. We expect the budget to help streamline the tax rates on these durable consumer goods, thereby increasing the popularity and need for these products in India. »
In fact, in the modern Indian retail industry, which is expected to grow at a CAGR of 15% to reach 18% by 2025, the top three retail categories driving growth are apparel and Accessories (18% retail penetration), Consumer Electronics (6% retail penetration) and Home & Living (6% retail penetration). To continue the growth of the sector, these categories need not only direct benefits in terms of taxes, but also incentives through indirect means.
“We believe the budget needs to focus more on value creation, including special incentives and subsidies for consumer electronics and component manufacturing. We all agree that India has a good will in the market world. The country will have immense opportunities for growth by taking advantage of new innovative technological aspects that facilitate the life and governance of its citizens. We want a stronger momentum to reinvent the Digital India campaign with better reach, faster technology and more efficient and a planned schedule,” said Mandeep Arora, Managing Director of UBON.
“Currently, GST paid on the construction of buildings/showrooms used for retail is not allowed as a deduction/credit and therefore becomes part of the overall cost. Any respite/relaxation on such hold may be the right measure of improvement that the industry needs,” Razdan added.
What about the retail trade policy?
A National Retail Policy, which is believed to have been in the final stages for more than a year, is expected to be shared for public consultation soon. The policy will cover several areas such as ease of doing business, streamline retail compliances under one umbrella. In fact, retailing in India is governed by many laws: the Shops and Establishments Act, the Competition Act, the Consumer Protection Act, the Essential Commodities Act and the legal metrology, etc. Additionally, retailers may need to obtain 16-25 licenses to open a store in many cases.
A slew of laws, compounded by variations in state-level implementation, create immense complexity for retailers, especially those with a pan-Indian footprint, according to a report by industry body CII and the Kearney Council. Trade policy is likely to respond to these changes by offering a more simplified approach.
Razdan said, “Recently, the government informed parliament that it is proposing to have a national retail policy. The policy objectives are expected to increase employment, accelerate investments, bring about infrastructure development and usher in the growth of the Indian economy. The preparation of a draft National Retail Policy is a step forward and public consultation is also expected to start soon. The industry sincerely hopes that the national retail policy will become a reality as soon as possible.
