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Budget 2021 | Government should look at reviving consumption for economic growth

With the government’s focus on the Make in India and Atmanirbhar Bharat, budgetary initiatives will continue to promote Indian startups.

January 30, 2021 / 05:53 PM IST

This finanical year has undergone a myriad of changes, especially when it comes to the consumer buying behaviour and spending patterns. With economic pressures rising, most consumers are now cautious about their shopping expenditures, particularly their discretionary spends. Hence, we have witnessed value-conscious decisions gaining ground, if not price-conscious ones.

With this makeover, we have also seen brick and mortar stores, various small sellers and micro, small and medium enterprises (MSMEs) now adding e-commerce platforms as a new channel to explore incremental revenues. We expect Budget 2021 to provide a focused view on retail and e-commerce players, small retailers and MSMEs operating in this space.

Here are some areas which we believe that the Budget could cover this year:

a) E-commerce focus on data protection and consumer interest

We did see the draft e-commerce policy gaining clout last year. A comprehensive policy coupled with tax simplification from the budget could help uplift consumer spending. Further, the policy is expected to provide a level playing field for smaller startups and MSMEs which are looking to expand their presence in tier 2-3 cities.

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Data is the new fuel for business and the government is expected to pass the Personal Data Protection (PDP) Bill which impacts all online businesses. Data privacy will form an important part of the policy framework, keeping the consumer's interest at the centre. An easy migration by online companies to comply with new data handling practices can be expected post the announcement. Recently, we have witnessed a popular instant messaging platform being discussed with regards to data privacy and compliance.

b) Investment in digital infrastructure

The untapped rural potential continues to be key to drive rural consumption. Hence, the government’s focus on improving digital infrastructure across the country and working towards improving connectivity in rural areas could help drive the growth of the retail industry and make rural the next big battleground for e-commerce firms. Budgetary provisions for the telecom sector would also help define this landscape.

c) Simplification in regulatory compliances

We could also expect the government to provide continued support on effective implementation of GST in e-commerce operations—both on simplification as well as e-enablement. With several transactions taking place in this domain, the Budget should focus on reducing the compliance burden and relook at the provisions relating to tax collection at source. Further, since private labels form an important element for larger retailers, we could expect incentives around the corner for locally manufactured products.

d) Support for the overall retail landscape

To boost retail, we could anticipate provisions for allowing retailers to register themselves under MSME and avail all associated benefits for the short term. A modification or extension of the Pradhan Mantri Mudra Yojana Scheme could help provide financial support to kirana stores and small retailers for digitalisation.

e) Encouraging MSME growth and development

With the growing adoption of smartphones and internet penetration, e-commerce is increasingly becoming important for MSMEs. Today, MSMEs play an integral part in the overall business-to-business supply chain of e-commerce. We can expect the Budget to announce some growth initiatives for MSMEs either by way of simplifying compliance procedures or reducing tax burden or easing working capital requirements. Further, any reduction or exemption on TDS for e-commerce platforms could provide a huge relief to MSMEs. Easy compliance requirements or exemptions to MSMEs from certain mandatory compliances could facilitate easy access to capital for businesses.

Enabling MSME growth will be key as it will help augment job opportunities. Leveraging the creation of government e-marketplaces to stimulate MSME growth could play a key role in the overall MSME growth and development.

f) Investments in logistics and back-end infrastructure

With changing rules of businesses, omnichannel retailing and last-mile deliveries being critical cogs in retail, issues such as high cost of operations and inadequate supply chain infrastructure continue to affect the industry at large especially in hinterland cities. The government could consider these sectoral issues and provide investments in developing supply and delivery infrastructure. Technology-led innovation and automation in this sector has created significant data in the system to leverage and the government may just see this as an opportunity to explore.

g) Startup culture to foster innovation

India has emerged as the third-largest robust start-up landscape after the US and China. It is expected that in the Budget, the government’s focus on the ‘Make in India’ and ‘Atmanirbhar Bharat’ initiatives will continue to promote startups. To boost the ecosystem, the government may liberalise the startup regime further in context of tax benefits, eligibility conditions, etc. Moreover, we could expect certain relief packages or lower interest on capital for start-ups.

Overall, the government should look at devising measures to revive consumption for economic growth. Along with relaxed FDI norms to attract private investments, it will be important to provide schemes to increase disposable income in the hands of the aam aadmi or rural consumers, which, in turn, will act as a catalyst in boosting the revenues of e-commerce platforms. We sense a Budget that will be supportive of this sector, thereby helping consumer-facing companies thrive and drive India’s consumption economy.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Harsha Razdan is Partner and Head of Consumer Markets & Internet Business at KPMG in India.
first published: Jan 30, 2021 01:30 pm

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