BackBudget 2019 | Traders left shopping around for options
Traditional traders say they are facing two big crises—poor liquidity and the onslaught of e-commerceThe FM said small traders will be among the beneficiaries of the 100% tax rebate announced in interim budget in February to people with taxable income up to ₹5 lakh
PremiumRajesh Mattal, who runs a paint shop in south Delhi, spends a lot of time these days staring at the narrow road leading to his store waiting for customers. Considering that sales are down and real estate and construction sector is going through a prolonged slump, his immediate worry is to find jobs for three of his employees.
“A large number of labourers have gone back to their villages for lack of work. My regular customers grapple with problems related to funding. How long can I retain my staff without business," asked Mattal, a father of two. His colleague Gopi said he has not experienced such a prolonged slump of over four years in the past 15 years he has been in this business.
Mattal and Gopi are among thousands of traders catering to the construction sector, the second largest job creator after agriculture. Real estate and construction sector accounts for 8.2% of India’s $2.6 trillion economy, while the contribution of agriculture is 14.4%.
It will not be easy for Prime Minister Narendra Modi, who won a second term in office with a thumping majority, to revive a slowing economy. India’s gross domestic product (GDP) growth faltered to a near-five-year low of 5.8% in the quarter ended March, slower than China’s 6.4%, to lose the tag of being the fastest growing major economy in the world.
Traditional traders say they are facing two big crises—poor liquidity and the onslaught of e-commerce. “There is an acute liquidity crunch and overall business is slowing down. Even after the Reserve Bank of India (RBI) reduced the repo rate by 75 basis points, banks are reluctant to reduce their lending rates," said Praveen Khandelwal, secretary general, Confederation of All India Traders (CAIT).
With e-commerce players offering deep discounts, the problem increases, said Khandelwal. “The Union budget is an opportunity to spell out the policy roadmap for the retail sector offering solutions to their problems. The 70 million traders in the country are the real engine of India’s growth. They deserve a better business opportunity to compete globally," he added.
In her budget speech on Friday, finance minister Nirmala Sitharaman said enrolment for the pension scheme for traders, which was announced in May, will be simple. It will require “only Aadhaar and a bank account and the rest will be on self-declaration".
The finance minister also said small traders will be among the beneficiaries of the 100% tax rebate announced in the interim budget in February to people with taxable income up to ₹5 lakh.
However, the wish list was long, and not limited to a concessional income tax slab for traders. They also expected state subsidy for two-thirds of India’s trading community to buy computers and other equipment to increase efficiency, a retail regulator to rein in e-commerce platforms offering concessional trading terms, such as discounts and premium service selectively on products sold by traders associated with them, ensuring microfinance institutions and non-bank lenders have enough liquidity to finance traders, and state support for traditional traders to establish their online presence.
The National Democratic Alliance government in its first term had barred online retailers, such as Flipkart and Amazon, from selling products of companies in which they own stakes, or entering into exclusive deals for merchandise, by introducing new regulations governing foreign direct investment in e-commerce, Mint had reported on 27 December 2018. However, the Competition Commission of India (CCI) is now studying the e-commerce industry and its implications for markets and competition. The findings will be made public in August.
One contentious area is whether deep discounts offered by e-commerce players promote competition or stifle it, one person privy to the discussions said, requesting anonymity.
The evolution of the global supply chain has impacted small businesses in India, says Chandrakant Salunkhe, founder and president of the SME Chamber of India, an industry body representing small businesses across sectors. “Mobile phone applications have created a very good platform for manufacturers and suppliers. However, people who are dependent on traditional trading are facing acute problems. They are losing their customers. Many small traders have shut shop. It has also affected domestic manufacturers." Salunkhe added members of the group were advised to adopt technology and upgrade their operations.
The demands of traders for better access to credit highlight one fissure in the Indian finance system—the acute cash crunch that non-bank lenders are facing. They have been a valued source of funds for traders who are willing to pay a little bit more interest compared to bank rates. “There has been no new fund sanctions for several months now," says an executive with a leading non-bank lender, which has defaulted on its repayment obligations, leading to credit rating downgrades.
According to Anil Gupta, vice-president and sector head, financial sector ratings, Icra Ltd, the funding problems of non-banking financial companies (NBFCs) have impacted their ability to disburse fresh loans, which is also reflected in the slowing down of consumer demand. This is likely to affect the growth of other sectors, he said.
Though banks have supported NBFCs by purchasing their retail loan portfolios, additional refinancing lines are needed for the sector, Gupta said in a note on the economy last week.
The NBFC crisis comes at a time when commercial banks are on a drive to take corporate defaulters to bankruptcy tribunals to reduce their toxic assets, and are conservative in signing cheques for new projects. With several real estate developers facing bankruptcy proceedings, the construction sector’s ability to generate demand anytime soon for material suppliers like Mattal look bleak.
Khandelwal said Sitharaman’s announcements on creating a payment platform for small businesses for supplies made to the government, the emphasis on addressing the liquidity crisis in the NBFC sector and the budget’s overall focus on the non-corporate sector will ultimately benefit the trading community.
Rajesh Mattal has no suggestions to policymakers. He says it is for bureaucrats and experts to find solutions to the problems facing India’s economy. For his problems, he has already found a solution—yoga. His workers are yet to find theirs.
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