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Less reason to celebrate for retailers: GST deflates festive season jubilance for SMEs in retail

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The festive season in India is a time for celebration and family revelries, and the important role of gifting in our culture has always meant that it is the busiest time for retail businesses. Large volumes of products flew off the shelves, and larger ticket items such as electronics and automobiles posted their best sale numbers. While differing parts of the market were impacted by this seasonal trend differently, since time immemorial an increase in business across the board was always the norm. However, this year, SMEs are facing the brunt of recent regulatory shocks, as well as increased competition from e-commerce players and organized retail.

Less reason to celebrate for retailers: GST deflates festive season jubilance for SMEs in retail
The organized sector is using its stronger economies of scale and bigger war chests to take advantage of the chaos amongst SMEs during this festive season

While the initial shocks of demonetization and the concomitant reduction in cash-flow have ebbed, consumers have become more risk-averse and are uncertain if this is the right time to spend their money. The cashless e-commerce economy has also become more attractive, and consumers are far more comfortable making large purchases online than they were before. The implementation of the Goods and Services Tax (GST) reform in India has also complicated matters, with massive uncertainty in the market about the impact that this will have on prices. In some sectors, confusion prevails over how packaging and price strategies from the producer side would impact the tax slab that the product attracts. While GST is expected to bring greater uniformity and transparency in the long run, the immediate impact has been curtailing the usual annual shopping spree that the festive season spells for retailers.

The organized retail sector is far better equipped to deal with these challenges. GST compliance requires SMEs to make comprehensive reports at frequent intervals, something that small setups running paper bills find hard to comply with. Smaller traders and businessmen have substantially lower capacities than large corporations, and the costs of compliance as well as uncertainty in the marketplace are much harder for them to bear. The onerous requirements of GST compliance, as well as their unfamiliarity with digital processes, make SMEs uniquely vulnerable to the current situation. Sectors such as the local handicrafts industry, small scale clothing goods stores, and even small retail shops in urban areas are all unable to unpack the complexities that come with the new GST regime in time to enjoy the benefits of the festive season.

The organized sector is using its stronger economies of scale and bigger war chests to take advantage of the chaos amongst SMEs during this festive season. SMEs that are unable to upgrade to newer technologies will face substantial problems in being able to compete. However, SMEs that have the right foresight and have paid attention to the details can ensure that they are compliant to the new GST norms and can use it to enjoy the benefits of a unified system with increased transparency. Smaller businesses that make the effort to ensure compliance and arrange their affairs better will be able to reap the benefits of the season, as some last minute real world retail therapy and shopping is always expected in the festive season in the run-up to Diwali.