'Budget must focus on connectivity in tier 2-5 cities'

Focus on connectivity infrastructure investment in tier 2 -5 cities

(Photo: @SnapmintEmi)

By Nalin Agrawal

 

Focus on connectivity infrastructure investment in tier 2 -5 cities - The availability of inexpensive data plans and smooth connectivity along with safer and easier online cashless transaction apps are driving sales upwards in the e-commerce industry in smaller cities all over India. The consulting firm RedSeer estimates that 19 million more online shoppers will be added in 2018 from Tier II+ cities. In contrast, four million shoppers will be added from Tier 1 cities. Currently, 56 million digital shoppers from smaller cities and rural areas are online. Regional air connectivity in hitherto unconnected Tier- 2 to 5 cities is in for a major boost with at least 56 airports and 31 heliports getting ready. These airports and helipads being developed as a part of the Government's efforts to provide connectivity to unserved cities and towns with the potential to offer aviation services will be a boon in times to come. However, the budget should cut down duties on Oil to reduce transportation costs so that the cost of distribution in Tier-II- V cities comes down. The government needs to continue showing strong support to these cities by trying to upgrade the urban infrastructure by upgrading the MRTS, airports; introducing SEZs etc.

 

The smaller towns and cities classified as tier II, III and IV contribute more than 50% to e-commerce and online retail. However, there is limited logistical reach and reliability in these regions. Deeper penetration of courier services and further enhancement of postal services will go a long way in cementing the logistical roadblocks.

According to industry grapevine, a sizeable chunk of merchants in tier II cities onwards can be seen going back to cash transactions. Efforts thus should be made to incentivise merchants for accepting digital payments, even if it is for a notable percentage of the entire payment. On the other hand, the Government should also offer some tax benefits for fintech companies making investments towards lending to people without credit access.

In order to boost demand, steps need to be taken to increase the disposable income in the hands of the consumers. The rationalisation of income tax slab rates is the need of the hour. Previous budgets have rendered relief in the form of rebates to individuals having an annual income of up to Rs 5 lakh, thereby marking their tax liability to nil. The same set of individuals could still be handed over a nil tax liability (without any rebate), if the Government decides to increase the non-chargeable tax slabs to Rs 5 lakh - a move which will certainly increase the disposable income of the common man.

A large part of the cash economy which is now under the lens of GST has rendered many businesses unviable due to shrinking of incomes. This impacts the income and consumption of associated households, which are primarily in tier II-V towns. A reduction in GST can thus play a critical role.

The Government is currently focusing on measures that are expenditure heavy. This is a vicious cycle - in order to balance the ongoing fiscal deficit, it will have to increase revenues, which in turn will bring down consumption. An increase in manufacturing output is therefore extremely critical- a scenario that will not just bring down bank NPAs (which will increase liquidity) but also boost consumption. A boost in manufacturing and investments in clothing, electronics and semiconductor industries will not just reduce product prices but also help lower the volume of imports in these categories. 

Outside of defence, railways and homeland security- the budget should focus on reducing expenditure via disinvestment centric initiatives. There is a critical need to erase unfriendly tax burdens which pose a roadblock for fintech startups. Offering incentives to fintech companies and an overall reduction in the corporate tax would go a long way. 

(The author is Founder and CEO, Snapmint, an online financial services start-up)