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Some hits and misses in retail, consumer sector

Jaleel M. by Jaleel M.
February 3, 2022
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Some hits and misses in retail, consumer sector
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Union Budget 2022-23: The government focused more on longer-term value creation than short-term substitutes like subsidies

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Budget 2022: Some hits and misses in retail, consumer sector

Indian Union Budget 2022: File image of Nirmala Sitharaman. PTI

The Budget 2022-23 is highly focused on ‘growth’ and ‘capex spending’ across sectors and is a positive step in the right direction. For a ‘multiplier effect’ which the consumer retail sector looks out for, Budget 2022-2023 seems to have strategically chosen to address the ‘supply’ side, instead of giving a ‘direct booster’ to the demand-side for increasing disposable income.

In the medium to long-term, Budget 2022-23 seems to be aiming at giving a good push to infrastructure by significantly increased capital expenditure, with a renewed focus on supply chain and logistics, and domestic manufacturing. This should, in the medium to long-term, result in a strong employment generation, buoyancy, and growth in the economy, thereby benefiting the sector.

Key takeaways for the sector from the Budget 2022-23:

Capital expenditure

Large capital expenditure increase of 35.4 percent in FY 2022-23 vs FY 2021-22, taking the capex of the government to 2.9 percent of GDP. This is the highest-ever allocation for capital expenditure in the last 10 years. The money spent on infrastructure would help create jobs and boost the consumer economy.

Supply chain / logistics

As a part of the ‘PM Gati Shakti’ initiative, a Unified Logistics Interface Platform designed for ‘Application Programming Interface’ will be set up. This is expected to provide for efficient movement of goods through different modes, reducing logistics cost and time, assisting just-in-time inventory management, and eliminating tedious documentation. Most importantly, this may provide real-time information to relevant stakeholders, and improve international competitiveness.

The sector would be happy to see the Budget’s focus on improvement in supply chain/logistics by proposing setting up multimodal logistic parks, 100 cargo terminals over the next three years. This measure would not only help in reducing transportation and other supply chain-related costs but also help the sector expand its reach.

SEZ Act to be replaced

The Special Economic Zones Act will be replaced with new legislation that will enable the States to become partners in ‘Development of Enterprise and Service Hubs’. This is likely to cover all large existing and new industrial cover enclaves to utilise the available infrastructure and enhance the competitiveness of exports.

Digitisation measures

The measures around Digital Banking and Digital payment such as 75 Digital Banking units in 75 districts of the country by Scheduled Commercial Banks are likely to provide a big push to the digital banking infrastructure of India.

The continued financial support for the Digital Payment ecosystem will continue so as to promote the use of payment platforms that are economic and user friendly and likely to support e-commerce activities.

Startup status

Current provisions to qualify as an eligible start-up inter alia require the start-up to hold a certificate of eligible business from the Inter-Ministerial Board of Certification and to be incorporated on or after the first day of April 2016 but before the first day of April 2022. Due to delays in set-up owing to COVID, the period of incorporation of the eligible startup has been extended by a year from March 31, 2022, to March 31, 2023.

Beneficial tax rate of 15 percent

Straight from the wish list of the sector, the beneficial tax rate of 15 percent for new manufacturing companies has been proposed to be extended by one year viz. from 31 March 2023 to 31 March 2024.

Again, from the wish list, 100 percent exemption proposed in respect of amount received by an individual on medical treatment of COVID for self/family members. Also, a 100 percent exemption is proposed in respect of the amount received by a member of the family of a deceased person from the employer of the deceased person. Amount received from non-employees on the death of a person exempt to the extent of Rs 10 lakhs. This benefit will be applicable effective April 1, 2020.

Customs duty reduced

Customs duty reduced on inputs required for the manufacture of consumer goods such as simply sawn diamonds, camera lens used in mobile phones, specified parts of transformers used in chargers and adapters may help in enhancing domestic value addition.  Removal of customs exemption on certain items, and providing concessional duties on the raw material that go into the manufacturing of intermediate products will support the Government’s objective of ‘Make in India’ and ‘Atmanirbhar Bharat’ especially in sectors like electronics, gem, and jewellery, etc.

Overall, the Budget seems to have focused more on longer-term value creation which is expected to create the right enabling platform for employment, incomes, and consumption, rather than short-term benefits with respect to ‘putting more money in consumer wallets’ or special subsidies or support to the industry. However, some expectations around rationalization of ESOP taxation, Equalization levy, set off of unabsorbed losses for retail sector on amalgamation, etc. have not been dealt with in the Budget 2022-23.

Paresh Parekh is Partner and National Tax Leader for Consumer and Retail Sector, EY India. Nitesh Malpani, senior tax professional with EY India, has also contributed to this story. Views expressed are personal.

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