Govt must support consumer sector in Budget 2022 by implementing national retail policy, higher spending

By Rajat Wahi

India is a consumer-driven economy. The retail sector is expected to touch US$1.3 trillion by 2025 compared to the current size of US$883 billion in 2020. The pandemic has been extremely disruptive, with each wave bringing its own set of challenges. It has defined a “new normal” for businesses and may have altered business dynamics forever. 

The retail sector expects the government to accelerate and implement the national retail policy to streamline the growth of all formats of retail trade and remove the distinction between e-commerce and physical retail. The policy aims to ensure easy and quick access to affordable credit, facilitate modernisation and digitisation of retail trade, promote modern technology and superior infrastructural support, develop physical infrastructure across the distribution chain of retail trade, etc. It also aims to boost foreign investment in the marketplace and e-commerce platform.

The government can support the growth of Consumer Industry by implementing policies that would enable the players in the industry to operate efficiently and thrive in a new business landscape.

Ease of doing business to accelerate multi-channel or hybrid capabilities: 

The future of the retail sector will be defined by an omni-channel approach where online and offline channels will not only compete but be complementary to each other. For a growth in the hybrid capabilities, it is important for the government to implement policies to support retail growth, including a common regulatory framework for retail across whole country. It could push for the single-window clearance portal for all retail licenses, including reducing the number of licenses that retailers need to apply for, to create a “one-stop-shop” for approvals and clearances to improve ease of doing business. This will enable investors, entrepreneurs, and businesses to obtain approvals and clearances for expanding brick & mortal retail stores across India. 

Government can create policies to support technology development 

COVID-19 also pushed the adoption of digital technology, enabling kirana stores/neighbourhood mom-and-pop shops to adopt technology to expand their businesses. More kiranas are going online providing app-based ordering and last mile delivery, offering a variety of payment options, and automating their bookkeeping, invoicing, and inventory management processes. 

The government can further support this by accelerating digital infrastructure, creating policies to provide an environment for secured transactions and to ensure protection of consumer data. The government can also further incentivize and encourage organized players and can provide grants, low-interest loans, tax incentives, etc. to encourage start-ups to develop innovative solutions to help modernize kiranas.

Building infrastructure to optimise retail supply chain: 

The retail environment is likely to continue to constantly evolve and requires that retailers transform their in-store supply chains and operating models to become more flexible, adaptive, and resilient. 

As more retailers are moving towards building their supply chain capabilities, it is imperative that the industry supports commercial deployment of digital supply chain networks. The government has announced its plans to develop multimodal logistics parks, making logistics more efficient, reducing operating costs for retailer, and offering consumers a wider assortment. This will create new cost and revenue opportunities through enhanced connectivity mechanisms. 

The government can also push for large scale manufacturing hubs to offer end to end production facilities for packaged foods manufacturing to enable more companies to launch packaged foods.

Providing financial and operational support to MSMEs: 

Covid has drastically affected the Micro, small and medium enterprises (MSMEs) and they have been facing challenges including raw material shortage, rising input costs, lack of financial resources, etc. They are looking to accelerate their recovery beyond the pre-pandemic levels.

In line with the mission to achieve Atmanirbhar Bharat, the government can reduce raw material prices to pre-Covid levels so that Indian manufactured products can compete locally and internationally. The government can reduce the compliance burden in all aspects, including taxes, loans, audits, or licencing. The government can also work towards easing credit access for MSMEs by reducing the process for application and disbursement of loans for small businesses.

Providing operational support to enhance India’s export competitiveness: 

To improve India’s export competitiveness, the government can reduce import duty on certain products and manufacturing inputs that are not being manufactured in India but that are used in final and intermediate products. Further, export incentive could be transferred directly to the bank account of the exporters such as duty DBK, instead of routing through issuance and transfer of credit Scripts. The government can work towards changing the duty slabs to more competitive levels over the next 3-5 years to boost domestic manufacturing, along with policy actions like production-linked incentives and phased manufacturing programmes.  Finally, the government can simplify the documentation and regulations (export, returns, payments, etc) required for sales through the ecommerce/online platforms of retailers, so as to allow consumers globally to purchase and return products from India through these channels, and thereby reach the targeted $10bn of ecomm export sales by 2025.  

Higher spending in the budget due in February will lay the foundations for an even stronger growth in the next 4-5 years. The government could work towards building a budget on the pillars of simplification, standardization, and digitalization, which can pave the way for growth and accelerate a short-term economic recovery.

(Rajat Wahi is Partner at Deloitte India. The views expressed are the authors’ own.)