The need for an ‘industry status’ is immediate. In these Covid pandemic-hobbled times, the MSME sector and retail are the biggest avenues for economic growth at the bottom of the pyramid. The retail sector has been one of the fulcrums of the India’s post-Covid growth phase.
The writer is MD-CEO, METRO Cash & Carry IndiIndia’s retail sector is one of most dynamic and fastest growing in the world, projected to reach $1.3 trillion (₹98.3 lakh crore) by 2025-26, according to a Bain & Company 2021 report. Accounting for over 10% of India’s GDP, the sector is the second-largest source of employment generation and livelihood for millions of MSMEs, after agriculture. Despite bridging the employment gap challenge, it has gone unrecognised as the sector languishes from a series of problems, including not been accorded industry status.
The need for an ‘industry status’ is immediate. In these Covid pandemic-hobbled times, the MSME sector and retail are the biggest avenues for economic growth at the bottom of the pyramid. The retail sector has been one of the fulcrums of the India’s post-Covid growth phase. As per the Retailers Association of India (RAI), India’s retail industry achieved 93% of pre-Covid sales by February 2021 itself. Compared to this, the auto industry grew slowest during the last five years despite huge incentives like concessions on power, water and land.
Between April 2000 and March 2021, the cumulative FDI inflow in the retail sector stood at $3.7 billion (₹27,973 crore). Unfortunately, despite such a robust future and enviable track record, there has been no discussion on according industry status to the retail sector. While market forces typically end up separating winners from losers, it is also important for the government to enable small retailers to be part of the ecosystem so that they, too, can grow at their own pace where the competition comes not from having big and deep pockets but from good business practices.
Fortunately, small kiranas now have access to organised wholesalers, which enable them to take goods on credit, something the financial institutions have been found wanting. In its biannual financial stability report, the Reserve Bank of India (RBI) has noted that persistent rise in commodity prices is ‘high risk’ compared with what was perceived in October, which could escalate to building it up into a super cycle with the peak not in sight. This is quite alarming and could impact the margins of the retail sector.
Hence, policy intervention is necessary to ring-fence the interest of small retailers and kiranas from getting affected by the cyclical impact of inflation and commodity prices. For that to happen, kiranas should have ready access to capital at a lower rate of interest, and financial institutions should be willing to encourage these retailers. Once an industry status is given to the sector, it will help regulate the sector, offer ready access to bank funds at low rates, and allow those employed in the sector to receive better wages and employment conditions.
As of now, the retailer is forced to get as many as 40-50 licences and permissions. In this context, it is pertinent to formalise the informal segment of the retail sector and have a separate department that will help get these requisite permissions through a single window. Also, these licences should be issued for at least five years, instead of the current annual renewals.
MSMEs’ role in propelling India’s growth cannot be undermined. According to government data, the share of MSME gross value added in all-India GDP at current prices (2011-12) for 2018-19 and 2019-20 was 30.5% and 30% respectively. The share of export of specified MSME-related products to all-India exports during 2019-20 and 2020-21 was 49.8% and 49.5% respectively. There are about 11.1 crore workers in the MSME sector, while employment generated by this sector during 2020-21 and 2021-22 (as of July 2021) is 5.95 lakh and 1.19 lakh respectively.
Recently, Nirmala Sitharaman sensitised the banking sector to the woes of the MSMEs and asked banks not to shy away from offering them loans. This needs to be appreciated. At the same time, a formal structure should be put in place to address the sector’s demands. Despite the woes of the Covid pandemic, the retail sector has shown enough buoyancy. Recognising and catalysing the unorganised sector, particularly in retail and wholesale, will provide the much-required impetus India needs to its growth story.