October , 2019
Can the festival of lights illuminate the Indian economy
14:54 pm

Gaurav Kapil

Diwali, the festival of lights, follows the celebration of Dhanteras. During Dhanteras, bulk orders for commodities were placed in abundance to retailers and it used to be the prominent ‘dhan’ earning period for them. But the deluge of bumper online sales during Dhanteras has changed the whole situation, reducing this festival to just another business day for most retailers. Additionally, the slowdown in the economy is set to play spoilsport this year.

Persisting slowdown in the economy

India’s GDP is crawling at 5% and the pessimism about job generation as well as income growth has increased. Most physical retailers feel there is no money in the market. The final consumption expenditure has reached a low of 3.1%, which indicates the dismal state of the market. One reason is that earlier most of the products consumed during the festive season used to attract only 4-5% VAT but with GST, the rates have shot up to 18%, thereby pushing up the prices. In such a situation, the customers are buying only a limited number of products.

A recent RBI report states that the Indian consumers’ confidence in the present economic situation has reached a six-year low. The Current Situation Index (CSI) has dropped to 89.4 in September as compared to 95.7 in July 2019. Clearly, the sentiments of the market are down and there are no immediate symptoms of its revival.

Additionally, online and organised retail has rendered the conditions darker for small sellers. There is no denying the fact that online shopping has disrupted the trade for traditional players. Online shopping sites such as Amazon, Snapdeal, and Flipkart are making magnificent profits in this pre-Diwali festive period. These shopping sites have successfully managed to lure customers with the help of low cost EMIs, free delivery and high discount rates.

Online retail hitting unorganised retail

Online shopping is becoming a trend not only in metropolitan cities but also in small cities and towns. Even consumers from tier II and tier III cities have ditched local retailers. In 2018, a staggering 92% of online orders in the pre-Diwali period were from non-metro cities. Amazon has reported that over 88% of its new customers are from small towns. Like Amazon, Flipkart’s has also adversely affected big stores, departmental chains and the traditional retail sector. Steps like demonetisation and the GST roll out have also negatively impacted small players and only benefitted large business houses.

What should be done?

There is an urgent need to boost the unorganised retail sector before it collapses completely. Some major reforms are required to strengthen this sector. The small scale retailers should be pulled out from the GST composition. Further, there should be additional taxes on goods imported by online platforms to curb the losses being faced by Indian retailers. These additional taxes will bring parity in prices and may bring back some customers to the physical retailers. Online shopping has robbed the charm of local markets. Retailers still hope to have good festive sales this year but it cannot be denied that forced formalisation of the unorganised sector has destroyed the local markets. The rapidly growing e-commerce sector has taken the sheen off  Dhanteras sales.


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