Retail sector: How FM's focus on rural, education, BHIM app & others could drive consumption

The finance minister coined a new expression, “Transform, Energise, Clean India (‘TEC India’)”. The finance minister also mentioned that the focus of the budget for 2017-18 would be on the ten important sectors, including farmers, infrastructure, financial sector, digital economy, and tax administration, to TEC India.

The finance minister explained the long-terms benefits of demonetisation, including greater digitisation, increased financial savings, formalisation of the economy; that would ultimately result in higher tax revenues. The importance of Goods and Service Tax ('GST') was also reiterated in terms of its impact on growth, competitiveness, indirect tax simplification and greater transparency.

The importance of the retail sector in India can be evaluated by the growth pattern; the total market size, $600 billion in 2015, has grown exponentially at a CAGR of 7.45 percent from the year 2000. The sector is expected to grow to $1.3 trillion by 2020.

FM’s thrust on the improvement of rural and urban infrastructure should also develop the retail sector. Considerable investments are promised on the improvement of railway infrastructure, road infrastructure, logistics, houses in rural areas, electrification, and provision of safe drinking water; this will have a positive impact on the creation of employment, increase in purchasing power of the underprivileged population. Hence, impacting the consumer business sector in a positive manner.

Representative  pic

Representative pic

The finance minister also reckoned the importance of the development of the agriculture sector. To promote the agriculture sector, various initiatives are proposed, such as providing more credit to the farmers with interest moratorium for a specified period, promoting research and development, introduction of dedicated micro irrigation fund, new packaging facilities, extension of benefits to all who are involved in transferring farm produce from the villages to the markets, etc. These initiatives should help in increasing the employment, demand, production, which in turn would strengthen the retail segment.

Finance minister Arun Jaitley stressed on the requirement of investment in the education sector. With increased vocational and professional education level among the masses, we can expect more informed and mature buying habits and in turn leading to an evolved trade sector.

Schemes to increase the penetration of digitisation, such cash backs, bonus for referral of BHIM app or other e-payment methods, should also lead to more evolved buying habits among the end users and strengthening the trade sector.

The government has taken various actions to strengthen the finance sector. In the current budget as well, we could see the vision of the government for the finance sector. With the more matured finance environment, lower lending rates, etc. revenue generating activities should also improve; this aspect should also improve the spending surplus and hence improving the trade in the country.

The budget also enlisted various avenues to enhance the employment in the country. Apart from various other schemes to increase the employment, it is proposed to introduce a special scheme for creating employment in the textile, leather, and footwear industries. Increase employment shall lead to increased demand and improved trade in the country.

From the direct tax perspective, the finance minister proposed to reduce the tax rate for the lower income group, up to Rs 500,000, i.e. from 10 percent to 5 percent. This reduction in tax rate should result in higher spending surplus for the mentioned segment of the population; resulting in boosting the trade sector.

From an indirect tax stand-point, it seems that GST should meet the July 2017 deadline. GST is expected to play an important role in removing the various artificial trade barriers and would also be a huge boost to trade in the country. It would also help retailers to enjoy the benefits of a simplified indirect tax structure and reduce the cascading effect of taxes.

Further, it is also proposed to provide exemptions from the indirect taxes perspective for imports of digital components such as specified card readers, specified micro ATM, finger print readers/scanners, etc. Further, it is also proposed to exempt parts and components for the manufacture of such devices. This move is in line with the government’s vision to move towards a less cash economy.

Though there are not many reforms or proposals under the budget having a direct impact on the retail sector; it is quite evident that the vision of the government is moving towards a more matured and evolved trade sector.

(The writers are Partner, Senior Manager, and Assistant Manager with Deloitte Haskins & Sells LLP.)

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Updated Date: Feb 07, 2017 15:39:15 IST

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