As the Indian retail market prepares for unprecedented growth, the upcoming Budget (interim followed by complete budget later in the year) is expected to give impetus in unlocking its full potential. The retail industry is projected to reach $1.1 trillion by 2027 going up to $2 trillion by 2032, at a CAGR of 25 per cent. With the industry remaining dynamic, contributing to more than 10 per cent of the nation’s GDP and about 8 per cent of its employment, there are anticipations that the government will unveil measures aimed at fostering the long-term growth of this crucial sector.
Last year’s budget announcement was also positive and forward-looking, which focused on the growth of rural India, a main base from a Consumer and Retail segment. While the budget announcement implementation aimed to enhance consumption growth for the sector, consumer spending took a hit in the past year due to inflation, erratic rains, and rural slowdown.
To tackle the challenges, the upcoming budget holds immense significance for the Indian consumer and retail industry. The sector hopes for measures that boost disposable income and rural demand, such as tax cuts for lower income brackets, increased agri-infrastructure investment, and rationalisation of GST rates on essential goods.
Additionally, the sector expects support for omnichannel retailing through infrastructure development and ease of doing business reforms. A focus on domestic manufacturing and PLI schemes for consumer goods could further strengthen the sector’s resilience against global headwinds. Overall, the industry yearns for a budget that prioritises consumer sentiment and facilitates sustained growth for retailers, both online and offline.
Here are some expectations and key areas to watch for in the Budget:
Streamlining the Indian retail landscape: A cohesive National Retail Policy is awaited, especially with the upcoming budget. This policy aims to boost the sector’s global competitiveness and sustainability, paving the way for smoother business operations. It will not only foster overall retail growth but also unlock access to affordable credit, while propelling digitisation and modernisation within the trade. Additionally, the policy promises improved infrastructure across the supply chain, enhanced skill development and workforce productivity, and a robust grievance redressal mechanism for the industry.
Shaping a digital future: With technology at the centre of operations for many retail and ecommerce companies, the government should explore incentives for business’s engaged in innovation of digital technologies. Tax incentives can encourage a much-needed impetus on higher usage of AI / ML and blockchain technologies.
Rationalisation of basic customs duties: With an aim towards being ‘Aatmanirbhar Bharat’ and to promote growth in domestic manufacturing, stakeholders would foresee rationalisation of basic customs duties on certain imports such as crucial components used in the manufacturing of high-end mobile phones, as well as consumer durables. Continued exemption of basic customs duty (BCD) on crucial imported components like CRGO steel, crucial for maintaining the cost-effectiveness of the Indian electrical equipment sector.
Extension of incentives for the manufacturing sector: In order to boost manufacturing in India, the Government in October 2019 introduced concessional tax rate of 15% for new companies that engage in manufacturing or production of goods including consumer goods. The incentive was available till March 2024. It is recommended that the last date should be further extended by one more year from March 31, 2024, to March 31, 2025.
Clarity on provisions of tax deduction on benefits (Section 194R) and payments to Non-Resident for import of goods: Significant Economic Presence (SEP) of a non-resident is created in India when it sells goods or services to a person in India beyond the prescribed threshold limit. On creation of SEP, the income of the non-resident seller is taxable in India and the importer is required to deduct TDS while making remittances. The provisions are wide enough to cover even normal import of goods. Since a lot of importers operate in the consumer industry, it is recommended that the government should amend the SEP provisions and keep normal import of goods completely out of its ambit. In case the same is not possible, attribution rules should be prescribed to enable the importers to compute the income of the non-resident seller and deduct TDS thereon.
Ensuring disposable income: Rationalisation of GST and Income Tax rate structure has been one of the most prominent industry demands for long. Any incentives by the Finance Minister on rationalisation of GST and Individual tax rates will leave a higher disposable income in the hands of the consumer and push consumption which has been slowing down. The higher outlay for rural support programmes, such as MGNREGA/Minimum Support Price for agri purchase will also aid in increasing rural demand.
Budgeting for retail renaissance: For independent retail across India, the upcoming budget is expected to aid financing options. A dedicated fund, channeled through a revamped trader finance scheme in collaboration with SIDBI, would be a powerful catalyst and is a key ask from Indian retailers.
The synergy of traditional and digital retail, coupled with strategic budgetary measures, has the potential to propel India to the forefront of the global retail landscape. The nation’s journey towards becoming a USD 2 trillion retail economy by 2032 is contingent on the right blend of policies, investments, and support that foster a thriving and inclusive retail ecosystem.
(Naveen Malpani is partner and consumer industry leader, and Akhil Chanda is partner of tax at Grant Thornton Bharat)