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Online retailers' discounts diminish amid pandemic

According to SBI's research note, the use of online delivery platforms, such as Grofers, Nature Basket, and Licious soared during the pandemic and most retailers on these platforms tend to have higher prices than in their physical stores. (Photo: Reuters)Premium
According to SBI's research note, the use of online delivery platforms, such as Grofers, Nature Basket, and Licious soared during the pandemic and most retailers on these platforms tend to have higher prices than in their physical stores. (Photo: Reuters)

  • According to a research note on the recent inflation numbers produced by the State Bank of India, online retailers have started selling more items at the maximum retail price as more people are buying essentials online amid the covid-19 pandemic

NEW DELHI : Have you noticed the discounts that online retailers offered on essentials are diminishing? As more people are buying essentials online amid the covid-19 pandemic, online retailers have started selling more items at the maximum retail price (MRP), according to the State Bank of India's (SBI) research note on the recent inflation numbers.

There are now fewer discounts as there is a supply and demand mismatch. "Interestingly, before the covid-19 (pandemic), the prices of e-commerce outlets were much lower than the MRP. However, due to the rise in demand and less supply, now there is no/less bulk discounts in e-commerce. So, the prices of e-commerce platforms and Kirana stores have converged," stated the research note.

"The use of online delivery platforms, such as Grofers, Nature Basket, Licious, etc., has soared during the pandemic. Most retailers in these platforms tend to have higher prices than in their physical stores," added the note.

According to the note, the consumer price inflation (CPI) put out by Central Statistics Office (CSO) doesn't capture the aberrations or distortion in prices caused due to pandemic. SBI's research team re-estimated the CPI headline number by using SBI card data.

According to its estimates, since Dec 2020, CPI inflation for the five months ended April 2021 is higher than CSO estimate on an average by 60 basis points (April 2021 computed inflation is at 5.35%). One basis point is one-hundredth of a percentage point.

"This has happened as spend on oil in December has crowded out the spending on other discretionary items, like health, grocery and utility services," stated the report.

Looking at relative prices and factoring in the distortions, the report reaches three conclusions. One, the healthcare expenditure in CPI could increase from the current level, which is likely to squeeze in expenditure on other items of discretionary consumption, a recipe for a cutback in consumption spending.

Two, the increase in fuel prices since December, as the government is facing a collapse in revenue receipts, directly impacts the consumption spending on discretionary items, other than on health which is currently unavoidable.

The share of non-discretionary spend has jumped to 59% in April from 52% in March. The report states that oil prices should be cut through tax rationalization. If not done, the consumers' non-discretionary spending will continue to get distorted and crowd out the discretionary expenses, leading to a rise in inflation. "Furthermore, there has been an increase in the use of online delivery platforms, which is not considered by the National Statistical Office (NSO). If it considers online prices, there would be 10-15 bps impact on CPI inflation," the report stated.

The commodity price rise and interest rate hike uncertainty in the US could make it difficult for the Reserve Bank of India to manage conflicting targets of inflation, exchange rate and adequate liquidity amid weak growth.

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