FM's consumption boost of Rs 1 trillion to turbocharge e-commerce cos

While India e-commerce is booming, retail sector is steadily recovering post 'unlock' to reach over 80% of pre-Covid levels of about $780 bn in 2020, according to RedSeer

Ahead of the festive season, Finance Minister Nirmala Sitharaman announced measures that would stimulate consumer spending and capital expenditure. These would, according to the government’s own estimates, generate demand of Rs one trillion and in turn help growth of gross domestic product (GDP). 

According to industry executives and analysts, these measures would have a positive impact on e-commerce and omnichannel retail companies, as they would help in the digital transformation of micro, small and medium enterprises (MSMEs) and the revival of Indian economy.

These measures include LTC (leave travel concession) cash voucher and festival advance scheme. These schemes would enable government and private sector employees to use their LTC tax-free benefits for different types of purchases. Also, there is an interest-free festival advance of Rs 10,000 that is being granted to the government employees.

“The decisions announced by Hon’ble Finance Minister (Sitharaman) are a big step in the direction of giving a fillip to consumer demand in India,” said Rajneesh Kumar, chief corporate affairs officer, at e-commerce major Flipkart. “The announcement of the LTC cash voucher and festival advance scheme will help to propel the latent demand in the economy.”

Kumar said e-commerce has been at the forefront of addressing this latent demand and the government’s decisions to give more money in the hands of consumers to spend through digital mode will give a boost to online buying. He said this would in turn help millions of MSMEs and sellers. 

“We at Flipkart welcome the government’s decision and will continue to support the economy through addressing consumer needs, creating jobs and income streams for businesses through our partnerships and programs,” said Kumar.

The Covid-19 pandemic has accelerated the shift to e-commerce, as an increasing number of consumers are shopping online in greater frequency. Upcoming festive sales are expected to push up the annual GMV of e-commerce companies to around $38 billion, a 40 per cent growth over the previous year, according to research firm RedSeer Consulting. The e-commerce festive sales could alone cross the $7-billion mark.

Ankur Pahwa, partner and national leader, e-commerce and consumer internet at consultancy EY India, said the upcoming festive season will play a key role in the revival of the businesses, which have witnessed one of the sharpest dips due to the ongoing pandemic. “The customer sentiment is slowly bouncing back with positive indicators especially in the online space, and recently announced initiatives by the Finance Minister (Sitharaman) will spur consumption by infusing liquidity in the hands of the public, which will benefit both offline and online players,” said Pahwa.

Other industry executives said that these schemes of the government are practical if the consumers do digital transactions, which would lead to the growth and collection of GST (goods and services tax).  Besides that, as people are not travelling due to Covid-19, these schemes would enable small businesses to digitise faster and help the sellers reach a large number of consumers in different parts of the country. “This way e-commerce platforms like Amazon, Flipkart and JioMart would become a normal conduit for small businesses to reach consumers,” said an executive of a large e-commerce company, who wished to remain anonymous. “Once implemented by the government as well as private-sector, we are expecting a wide base of people who have disposable income, which they need to spend before it gets lapsed.”

While India e-commerce is booming, India's retail sector is steadily recovering post 'unlock' to reach over 80 per cent of pre-Covid levels which was about $780 billion in 2020, according to RedSeer.

“The Indian retail industry has pinned their hopes on festive shopping to recover from the immense loss of business caused due to the pandemic,” said Kumar Rajagopalan, CEO, Retailers Association of India (RAI). “The retail fraternity welcomes the announcement by the Union Finance Minister on the schemes for government employees as a stimulus to boost demand in the economy.”

Rajagopalan said the LTC Cash Voucher scheme will encourage spending on categories which attract a GST of 12 per cent or more. These categories include apparels, computers, consumer durables, smartphones and home appliances. The other categories include furniture and home furnishings, beauty and personal care. Rajagopalan said the 'festive special festival advance scheme' will boost festive spending. “We hope the 'LTC cash voucher scheme' can be introduced for the private sector employees as well to bring about an overall festive cheer and add further impetus to economic recovery,” said Rajagopalan.

Some experts also pointed out that since government employees have job security, they can spend the money, but the private sector would be more careful in dealing with these schemes due to the uncertainty in the business.