National Retail Policy, Incentives and GST Reduction on the Minds of the Retail Industry Ahead of Budget 2022

Just as the recovery in the retail sector gathered pace in the second half of FY22, the increase in Omicron business again shook the playing field. Back in uncertain territory, the sector is looking forward to the next budget with high hopes.

Given the spiraling third wave cases and the rapidly spreading Omicron variant, the government is expected to announce a series of policy measures and incentives to support the retail sector as well as the economy as a whole. together. As a result, the government could pursue its countercyclical fiscal policy to stabilize economic cycles. Such a policy calls for reduced spending accompanied by higher taxes in sunny scenarios and increased spending coupled with lower taxes in dark times.

Given the current situation, ad valorem levies on fuels, including petrol and diesel, should be capped. Over the past two years, as crude prices have surged, so have taxes, generating inflationary pressures across the economy and dampening consumer demand.

With the impact of the pandemic for the third consecutive year, the government should take a holistic view of the entire economy and present a growth-oriented budget. For starters, the budget is expected to set the tone for the implementation of the National Retail Policy, which needs to be accelerated to harmonize the multiple laws that impede the ease of doing business in the sector. Although the retail industry is steadily recovering from deep disruption due to pandemic-induced restrictions, the sudden emergence of Omicron has upended recovery calculations. As a result, low consumer sentiment drives investment cuts.

Changes and increases in tariff barriers have further upended the apple basket by disrupting supply chains, inflating costs and eroding consumer demand. Therefore, a measure of stability in policies and the fiscal regime remains the need of the hour for retailers and the economy, which could generate tailwinds for all sectors.

To overcome the impact of periodic shutdowns and restrictions, it is highly relevant to focus on promoting digital facilities to foster contactless transactions. The digital infrastructure needs to be strengthened through incentives and the establishment of an enabling environment, which will boost supply chain management and make the online shopping experience safer, secure and convenient. Pan-India infrastructure development also needs to be accelerated, given its cascading benefits to the economy.

In addition, the national logistics policy should be released at the earliest to address supply chain gaps. If India is to achieve its $5 trillion economic vision, logistics will be one of the main pillars to facilitate this goal. According to a 2020 report by Arthur D. Little India and CII, logistics spending in India was estimated at around 13% of GDP (about $400 billion) compared to the global average of nearly 8%. This creates an annual competitiveness gap of about $180 billion, which could grow to $500 billion by 2030. A national logistics policy will address these supply chain gaps.

In addition, FDI in multi-brand trade should be raised from 51% to 75%. Relaxed FDI standards will create a more conducive environment for industry and will also benefit consumers.

In addition, GST rates on several goods – such as textiles, clothing and footwear, among others – which have been raised from 5% to 12% should be brought back to previous levels. The recent increase in GST collections indicates that there is a concerted shift from unorganized actors to the organized sector. Now is the time to streamline, reduce and simplify GST rates by moving to a two-slab regime. By reducing the burden of compliance, lower taxes will improve the liquidity of the economy and be a winning proposition for all stakeholders. These initiatives will also benefit consumers in non-metropolitan markets, generating greater demand for retail and all other trades. Supportive economic policy could also help small businesses join the e-commerce revolution.

Although the nascent economic recovery has been rocked by the third wave, these measures will provide a boost to all industries. In addition to creating more jobs and entrepreneurial opportunities, it will take the vision of the $5 trillion economy a striking distance.

The author is MD and CEO – METRO Cash & Carry India and Chairman, Retail & Internal Trade Committee, FICCI


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