India's retail sector is pinning hope on the interim Union Budget 2024 to revive consumption-led demand, be it through direct tax cuts or indirect schemes that create more jobs and put more money in the hands of consumers.
As the pandemic pressure receded, the $1 trillion retail industry was faced with renewed challenges in the form of high inflation. This pushed commodity prices to record highs, forcing companies to raise prices and subsequently leading individuals to be more frugal with their spending.
Though the affluent class continues to spend, there is still stress in the mass segment, so much so that consumption has not picked up the way it was expected, even in the festive season when people tend to spend more.
Data shared by the Retailers Association of India showed that sales grew just 7% in the October-November period. In December, the growth further slowed to 4%, despite retailers offering steep discounts in the marriage season to clear unsold inventory. RAI suggests that the industry reported growth due to new store openings. Otherwise, the like-for-like sales fell 5%.
"Retailers who sold categories with high value and consumer financing did see business growth," said RAI Chief Executive Officer Kumar Rajagopalan.
"Consumers seem to have bought cars and high-end electronics on EMIs, while they curtailed spends on other discretionary spends," he said.
With the budget being interim in nature, no big-bang announcements are expected. However, retailers expect the government to take steps to stimulate consumer demand and prioritise spending in order to expedite recovery. They expect the budget to focus more on retaining the roadmap of growth with some flavour of populism, according to industry leaders.
"The budget must prioritise growth-oriented measures to stimulate demand and consumption," RAI said in its pre-budget recommendation.
The apex body for the retail industry has recommended to the Union government that the budget should focus on offering benefits or concessions in the form of lower taxes, which will boost consumer sentiment. The budget should also outline supportive policies and simplified regulations for the retail sector.
Retailing in India, which is largely unorganised, accounts for about 10% of its gross domestic product. The size of the industry is estimated to grow 10% annually to reach $2 trillion by 2032, making it the fastest-growing retail market of the world, according to a joint report by Boston Consulting Group and the RAI.
The share of modern retail, inclusive of e-commerce, is projected to contribute 35% of the share, while traditional retail's share is expected to be 65%.
Some schemes, such as the PM Mudra Yojana, are expected to gain focus as it can be a good avenue to provide financial support to small-scale shops and brick-and-mortar stores, Deloitte Touche Tohmatsu India LLP. said in its pre-budget expectation report.
The government should also consider allowing 100% foreign direct investment in multi-brand retail trade, at least for products manufactured in India, addressing existing barriers to push for seamless growth and harmonious coexistence of traditional and modern retail, according to Deloitte. "In this regard, implementing a unified national policy is crucial."
Ravi Saxena, chief executive officer of Wonderchef Home Appliances Pvt., expects the interim budget to offer incentives like reduced taxes, infrastructure support and streamlined regulatory frameworks.
Axis Securities' Key Recommendations
Investments in digital infrastructure, skill upgradation, job creation, and the development of micro, small and medium enterprises will indirectly reignite consumption spending in the economy, especially in rural areas.
Increased agriculture income schemes and incentives to support the farm economy and rural household income are expected to be healthy ahead of state and general elections.
Increased investment in agri-infrastructure, such as cold chain, warehousing, logistics and irrigation, along with developing infrastructure for reducing post-harvest losses and improving rural connectivity, may have a bearing on boosting demand.
Increased allocation to urban development projects may lead to job creation and potentially drive demand and urban remittances.
Raising the limit for tax-saving investments under Section 80C from the current Rs 1.5 lakh would increase disposable income.
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