Budget 2020 is keenly awaited and expected to revive consumption through various measures.
Economic slowdown continues to hurt sales across businesses with consumer and retail sector being no exception. Based on the industry reports and public statements, it is understood that major players in the consumer and retail sector have struggled to follow the growth story majorly on account of the consumer sentiments which has damped the demand.
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As per the industry reports, growth in the sector has fallen from 13.5 percent in 2018 to 9.7 percent in 2019.
Also, September 2019 saw the slowest consumption in rural areas in the last 7 years mainly on account of lower farm income and liquidity constraints following stress in the non-banking finance sector.
In addition to driving the demand, the government has an uphill task to recoup the confidence of India Inc and get them to spend money on expansion. The profitable companies have been incentivised by the Finance Ministry by recent corporate tax rate cut. The extra money will find its way to the ground only once India Inc sees a pickup in the consumer demand.
In these times, Budget 2020 is keenly awaited and expected to revive the consumption through various measures. Nobody can doubt this government’s intentions to work on these lines and the past few months are corroborative proof of the government’s intentions when they slashed the corporate tax rate, lowered Goods and Services tax (GST) on selected items, relaxed Foreign Direct Investment norms (in contract manufacturing), etc.
Bleak economic scenario has made consumer class cautious with their spending. In order to leave more money at the disposal of the consumers to boost demand, the finance minister should consider announcing measures such as reducing the income tax rates / aligning tax slabs for individuals, exempting Long Term Capital Gains on sale of listed shares, etc.
Need to focus on rural income
A pick-up in rural income would have a cascading effect in driving rural consumption and the same can be achieved if the government notch up their spending on agriculture and infra projects and other job creation programmes say like MGNREGA are required.
Budget 2020 should consider further liberalising FDI norms around multi-brand retailing especially in less sensitive areas like electronics, apparel, FMCG, consumer durables, packaged food, etc. This will not just help in job creation but also attract foreign investment in India and would definitely help in notching up India’s position in global charts of ‘ease of doing business’.
Lastly from the indirect tax / GST standpoint, the government can look at easing / deferring norms related to proposed e-invoicing, input credit, etc. It would help the sector focus more to cater to the demand and revival of the growth in the sector.
The Budget 2020 could be a ground for the finance minister to lay a path for driving the demand and vision for India Inc. Considering the government’s intention in the past, one can expect a positive announcement in Budget 2020 from the retail and consumer sector perspective.
Paresh Parekh is Tax Leader for Consumer Products and Retail Sector at EY India. Nitesh Malpani, Senior Tax Professional, EY, also contributed to the article. The views expressed are personal.