The COVID-19 pandemic has had an unprecedented impact on the global economy, and its effects are likely to be seen and felt for a long time. In India, the two-month plus lockdown has affected consumption in unique ways, with consumers hoarding up essentials, and dynamic zone categorisation being brought in. With most non-essential activities halted, activities like mall visits, dining out, and outdoor entertainment have come to a standstill.
With retail under immense pressure, the lockdown has impacted multiple facets of India’s consumption economy – wages, employment, intra-state and intra-city movements. In April, 2020, the Retailers Association of India (RAI), the National Restaurant Association of India (NRAI), and the Clothing Manufacturers Association of India (CMAI) said that they jointly anticipated a 25-30 per cent impact on business with a multiplier effect on supplementary industries, along with large job losses. Whilst they now aim to recover cash flows, government interventions could just be the catalyst to provide the final push for the industry. The government has been swift in taking decisions to bring pace to the economy and has announced various policies to relieve the worst affected sectors.
The recent stimulus announcements made by the Finance Minister have been focused on relieving MSMEs via a provision of government-backed collateral-free loans, a 12-month moratorium on principal repayment, and capped interest rates. The government also announced that it will back loans worth INR three lakh crore to boost the lending confidence of banks . These will be directed towards working capital loans to help businesses to get back on their feet.
Further, considering the retail sector's mission-critical role in the economy, Unlock 1.0, has set the tone for a gradual revival of the economy. However, there still needs to be a clear consensus on the reopening process. Clarity on operating in the ‘new normal’ would also be helpful.
Below are some recommendations that can help the sector tide over these difficult times:
Working capital support: Some of the immediate steps that could support small retailers could be around the deferment of GST and other statutory payments along with a provision of direct benefits like wage subsidies, rent and utility payments waivers. Additional lines of credit and interest subsidy and default relief could help ease the working capital burden.
Digital India: The current push for Digital India needs more emphasis in today’s scenario. As customer engagement turns contactless, more and more retailers will opt for online channels for distribution. However, such changes require upskilling and investment by the government in emerging technologies like cloud, data and cybersecurity. Digital learning platforms, too, are needed to propel this change.
Support to MSMEs: The government should consider tax rebates to encourage MSMEs to adopt new technologies and build an efficient IT infrastructure. It is also important that SMEs develop digital competitiveness. The sector is also highly impacted by foreign currency and SMEs are negatively impacted by growing hedging costs. Tax reforms to encourage hedging and insurance would be a good idea and shall enable SMEs to not take undue exposures and mitigate their business risks.
Monetary and fiscal measures: To propel immediate demand in the post-lockdown scenario, one of the key steps would be to ease liquidity through the relaxation of fiscal and monetary policies.
Well-defined standard operating procedures in the unlock period: Clear guidelines focused on aspects such as permission procedure to open stores, time restrictions of store operations, movement of staff and delivery vehicles, product pricing restrictions, the number of staff and customers allowed in a store basis area, and odd/even store restrictions, among others, are needed to be implemented with urgency. Quick implementation of standard operating procedures coupled with a uniform approach to re-opening procedures would help ease operations and also lead to the success of the countless industries ancillary to it.
Physical governance in shared spaces: If implemented efficiently at locations, physical governance can enable collective action to improve shared spaces, promote destinations, and respond to the crisis using collective resources.
A ‘profit-sharing lease’: This could be a measure that could be considered to aid the recovery process. Here the landowner, which is often the government, can form mutually beneficial relationships with businesses of all sizes. In this scenario, the government can provide land at a modest base price for rent, allowing small businesses to wade through the storm and continue operations during the lean business period. This will allow the lessors to continue to earn revenue and stay afloat, whilst governments take a percentage of annual revenue at the end of the lease term.
Job opportunities: As revenues come under pressure and payment obligations pile up, workers will be the hardest hit, irrespective of borders and industries. It is a pressing issue that remains to be prioritised. Policies that enforce a cap on laying off employees and provisions for direct wage subsidies to those affected are some ways that the government can help alleviate the impending unemployment crisis.
To summarise, the revival of the retail sector requires regulatory homogeneity to drive consumption, backed by strong investor and consumer confidence. Quick agile steps will provide the necessary impetus to the sector in the short-term and will be crucial to restore the economy’s growth curve.
(A version of this article appeared in Economic Times - Retail.com on June 15,2020)