Small businesses in India have been strongly and steadily holding the country’s economy together since the ill-fated global financial crisis of 2008-2009. Acting as a driving force of the growth engine, they have generated bigger employment opportunities, at a relatively lower capital cost, than large industries.
In fact, after agriculture, retail emerges as a vital part of India’s growth story, contributing 11 per cent gross value to GDP. From traditional kirana stores to modern trade and e-commerce retailing, the growth has been dynamic. The sector has not only created close to 1.9 million jobs every year over the past five years, it has also reinvigorated skill development to make the workforce more employable.
While India’s retail evolution is still in the growth phase, its true potential can be released with the comprehensive growth of every retail format, especially the traditional brick and mortar shops, which account for more than 80 per cent of the retail market. An overarching policy to govern the retail format for small business traders is the need of the hour.
Challenges for small traders
Small retail traders face a scarcity of resources in terms of raw materials and labour force. Small businesses typically tap local sources for meeting raw material requirements, which are usually available in inadequate quantity, poor quality and on an irregular basis because of large scale units. As a result, small business traders are forced to purchase raw materials from the open market at higher prices, which increases the cost of production.
Finance is yet another problem, especially for those operating in the B2B space, where revenue generation can take months and even years. These businesses function on a shoestring budget — the scarcity of capital and inadequate availability of credit facilities cause major hindrances in their operations and growth. Considering their weak economic base, the traders register lower creditworthiness, which further narrows their potential for accessing finance from banks or financial institutions. This forces them to borrow from unauthorised money-lenders at outrageous interest rates, making their financial position more precarious.
Small businesses, especially in the rural and semi-urban areas, are also hit by the lack of infrastructure — inadequate availability of transportation, communication networks, power and other facilities, particularly in under-developed areas. These factors often impact the quality and production schedule of enterprises operating in such areas.
Smoother business activity
The Department for Promotion of Industry and Internal Trade (DPIIT) has drafted a national retail policy that will support the development of 65 million small traders in the retail sector. For a retail trade sector worth $650 billion, it is crucial that the provisions of the proposed policy streamline and smoothen business activity.
Starting a retail business is no cakewalk for small-town traders. It’s not just about setting up a shop and selling a product/service. The process is much more complicated, considering one needs to procure the necessary government mandated licensing and registration — a time-consuming and expensive process. Traders who are eager to start businesses in small towns need local licenses concerning various taxes as well. The formulation of the retail policy will ease and speed up the entire process of trade licensing. This will not only drive entrepreneurship in the tier-2, 3 and 4 cities but will also generate employment opportunities for local youth.
It is anticipated that the policy will simplify access to funds for the small traders and enable their expansion across geographies. In addition to promoting ease of doing business, easier licensing procedures and hassle-free access to funds, it is hoped it will also address direct selling and hyper-market related issues, as well as focus on the welfare of traders.
(The writer is a Founding Director, 1-India Family Mart.)