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Thursday, September 16, 2021

How custom-made policies can boost the Indian grocery retail sector

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COVID-19 has hit the retail industry hard. Many small retail outlets have shut because of low sales and the inability to pay the rentals. The question is, were we doing good before the pandemic? The answer is NO! It was already bad, and COVID just made it worse.

Hence, new retail policies should address long-term challenges rather than short-term reviving strategies. Retailers are expecting reforms and relaxation from the upcoming Budget and the new ecommerce and retail policy. Realising the plight of small and medium retailers, the Government of India is taking action to improve the current situation.

Indian grocery retail is such a large and fragmented sector that one policy for the entire space cannot do justice to all retailers. Governing bodies need to tailor-make policies for different segments. 

Nearly 15 million retailers, including micro, small, and medium businesses, belong to different segments. We can categorise merchants by store format, store size, product assortment, end consumers, monthly sale value, taxation, financial capability, and digital affinity.

When one thinks of policies and regulations, the crucial things are ease of doing business, relaxation for the underserved, financial inclusion, and monetisation.

Ease of doing business

This particular piece is not about just framing a policy. It needs execution on the ground, and technology can play a vital role. 

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Grocery retailers need their own association that can focus on the particular needs of several segments. One association for all retail categories for pan India does not do justice to underserved grocery retailers. There is no way to consult them before making laws.

Technology can help take the opinions of millions of retailers across the country. Governing bodies and the proposed association can roll out an app for e-polling to gather data while framing policies. 

Also, technology needs to be tailor-made for different segments of retailers. Many small-format retailers shy away from technology and waste hours on manual and repetitive operations activities. Kirana segment remains unorganised even after a decade of digitisation because of low digital affinity.

However, a significant and large segment of lakhs of mid-sized retailers can benefit to a greater extent from technology. But, can governing bodies boost the retailers with high digital affinity who genuinely want the ease of doing business to focus more on improving their business. 

The mid-sized store is such a segment where new tech solutions can be executed on the ground. Government can look at promoting and sponsoring such early-stage ideas and startups.

Relaxation for the underserved

The GST Composition Scheme is already in place, and recently, the limit has been revised to relax compliance for small retailers. But, the scheme treats all businesses the same when it should not. Grocery/FMCG business is comparatively a low margin business than other categories like electronics, apparel, etc.

The same turnover limit does not do justice to grocery retailers as they make less gross margin. Governing bodies should increase the turnover threshold from Rs 1.5 crore to Rs 3 crore for GST registered grocery retailers. The one-size-fits-all approach does not seem to work here. 

In addition to the above, more tax relaxation to young FMCG brands can also boost retailers. Charging young brands less GST than incumbents will lead to competitive prices and some part of it can be passed on to retailers by such brands in the form of more margin. 

Financial Inclusion

The formal credit is not accessible to most retailers because of a lack of data and vintage. Also, retailers do not classify under MSME policies. Thankfully, the Retailers Association of India (RAI) is working in this direction. It has urged the centre to allow retailers to register under MSME so that retailers too can be entitled for all benefits available to MSME.

The retailers’ association has also asked the government to modify or extend the Pradhan Mantri MUDRA Yojana Scheme to include financial support for the digitalisation of kiranas and small retailers. 

We need to come up with new ideas. The proposed solution is loaning against GST credit. Every retailer holds unsold inventory for which he has already paid GST at cost while purchasing. Governing bodies and banks can come up with secured loans against available GST credit.

Monetisation

Giants like Flipkart and Amazon are working with small shops and helping them earn more through additional income streams. Several early-stage startups are working in making such stores a local hub for Electric Vehicle charging, battery swapping, courier pick-up and drop-off, kiosks for other digital services and shopping. This will help small merchants make extra few thousand over and above their primary income. 

In a nutshell, the combined efforts by retailers, governing bodies and the startups working on innovative ideas will not just revive the grocery retail segment, but take it to the next level.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)

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