The Prime Minister aims to double the Indian economy from $ 2.5 trillion in 2020 to $ 5 trillion by 2025. The Indian retail sector is worth $ 850 billion, employs 50 million people and most importantly connects the Indian ecosystem with 30 million small and medium enterprises (SMB) to its customers. Therefore, the retail sector needs to play an important role in realizing the economic vision of our country.
An important delivery to the retail sector is the increase in the economic growth rate (at 15% + pa) at 2X in nominal terms. In doing so, any economic policy related to the retail sector should create lucrative employment that is capable of absorbing the growth of Indian job seekers (estimated at 30 million per year), accelerating the transformation of the unorganized sector of India into an organized sector. Creating better infrastructure for its citizens and fulfilling their material aspirations responsibly. The healthy and vibrant retail sector will also accelerate India’s exports, catalyze the health of the SMB ecosystem and provide a ready-made market for domestic manufacturing.
So what is such an approach?
First, priority should be given to growth, rather than regulating the sector. Economic policy should set targets for ecommerce (i.e. 30% CAGR) and overall retail growth (i.e. 15% CAGR) growth. Second, economic policy should set dimensions and goals for employment creation. Third, economic policy should define and plan specific areas of infrastructure that need to be developed to serve retail and SMBs and to encourage capital investment – foreign and domestic.
Let’s cover the growth. Technology, especially digital technology allows retail growth – not just ecommerce – and it has proven itself in China and the Western world. The retail approach should reduce friction to digitization. Current regulations on taxes prevent offline retailers from digitizing and going online. In order to digitize and sell online, small and medium-sized businesses have to seek separate tax registration in each state and their counterparts who choose not to digitize agree to block their cash flows by withholding taxes that they do not have to bear.
The approach to trying to grow the retail or ecommerce sector should adopt a goal to eliminate this conflict and level the playing field.
Next, let’s take a look at what the policy can do to further accelerate employment in the ecommerce sector. The ecommerce / retail gig creates a workers’ economy. Employers of frontline workers, especially gig workers, face background verification and sourcing supply costs from different labor pools. This approach can create a national labor exchange and facilitate background verification through Aadhaar.
The infrastructure required for ecommerce includes warehouse, transportation and payments. Public sector units (PSUs), railways, ports, postal department, airports and defense companies have large amounts of unused land or warehouse infrastructure that can be monetized through win-win arrangements with ecommerce operators. Railways should set specific goals and create special corridors or run special trains for ecommerce and also generate additional revenue. Upcoming regulations on payments can add further friction through a number of actions without consultation or adequate change management, not reducing friction. Instead, the policy will enable payment innovations such as allowing access to credit and Aadhaar databases, removing OTP for online transactions that deregulate, and allowing ecommerce players to extend credit to customers. Such laudable policy objectives make ecommerce more inclusive and accessible to a wider population, thereby expanding the customer transactions group and creating a verifiable electronic path for purchases that increase tax revenues.
Worldwide, ecommerce has proven to boost exports. The regulations governing exports in India, documentation of the physical flow of exports and internal payments were designed for the pre-electronic era. Requires smaller packages, lower ticket values, B2C orders, rejections and revenue handling and faster shipping speeds – this is not ecommerce friendly. The retail policy should set targets for draft regulations specifically designed to promote exports by resolving these conflict areas.
An important lock on the current thinking is to consider ecommerce as a separate industry, trying to control it through a separate approach. Unlike telecom or IT, ecommerce does not create a new class of products or services. Instead, it uses technology to make existing products or services more efficient. The technology is pervasive throughout and is also preferred by offline retailers. Similarly, consumers move smoothly between the physical world and the online world during the buying stages – search, innovation, research, price comparison, installation, after-warranty and maintenance and repurchase purchase. By having a special policy for ecommerce that excludes physical retail, there is a risk of creating artificial structures that make it easier to do business and add costs.
In essence, retail is at the center of the Indian economy. Accelerating retail growth can change the way India buys and sells, thereby changing the lives of consumers and shareholders and thereby changing India as well. The structured approach will accelerate the transformation of India into an economic superpower; Equally, a bad idea or regressive approach can slow down that transition.
For future generations, we hope this is the past and not the next.
(Raghavrao VP, Finance, Amazon India.)