While the cash crunch and increased prices due to GST have led to a sharp decline in demand, repeated appeals of traders to the Centre have failed to evoke a response.
New Delhi: With Diwali just a day away, markets in and around Delhi look like they’re ready for festivities. But dig a little and you will find that traders, big and small, are wary. Will customers actually turn up or, like every festival since demonetisation last year, will they have to make do with lower sales? Most sellers this Diwali insist that sales are just about 40% of what they were last year, and they are blaming both demonetisation and the shift to the Goods and Services Tax (GST) from July 1 for it.
“Bhaiyya, bahut pareshani main hain (Brother, we are in deep trouble),” says Kaushalya Devi, whose family is in the pottery business. She sells her wares on a street in Indirapuram, Ghaziabad. “Log aa hi nahin rahe (People are just not coming),” she laments, adding that the situation being seen on Diwali is just a repetition of what was witnessed during Karwa Chauth and Navratri.
Her son, Satpal, explained that the family sells karwas during Karwa Chauth, handis during Navratri and diyas, Lakshmi and Ganesh statues and hathris during Diwali. “But the sales are down to just 40 paise in a rupee and we can’t fathom why,” he said with moist eyes.
What is troubling nearly all small sellers is that while they still have to bribe corporation staff and cops to sell their wares, the low sales mean that rather than taking home profits, it has become a matter of recovering the cost now.
A little distance away, Phool Mohammad, originally from Etah in Uttar Pradesh, who has set up a small shop selling Rangoli colours which he procures from Kanpur, looks equally dejected at the sales. But he still manages an occasional smile because his life does not depend on his Diwali sales. “I am basically a farmer and just come here for four-five days to make some extra money. But this time it looks unlikely that I will make any,” he says with a wry smile.
For many others too, Diwali is just about making a little extra. Bechan Chaudhary from Supaul district in Bihar has a paan shop back home and comes to Delhi around Navratri and stays here till Chhath, which comes six days after Diwali, to sell decorative items. “I usually used to make money equivalent to my three or four months’ earning during that period. But this time I am struggling to even break even,” he said.
The same is true even for traders of regular items like fruits. Sunil of Neelam Fruits said the sales have failed to take off following demonetisation. “We first thought it would be a small phase, but the customers have just vanished. Forget about big baskets of fruit we used to sell earlier, even the sales of loose fruit have dipped.”
Considering these sellers sell goods on which there is no GST and where cash is at play, the question is why then are the sales of even regular goods down.
Spending by business community has declined
Devinder Singh, owner of Roobsun Stores at Shipra Suncity, offered an explanation saying that the prime reason is that the business community has been deprived of its savings and earnings by demonetisation. “The salaries of people have only gone up, so what changed then? It is just that people who were in business are no longer sure about the future and are unwilling to spend much,” he said.
Singh, who has been in the trade for over three decades, said during Navratri, he experienced a strange phenomenon. “Halwa and chana are common items during Ashtami-Navmi and their preparation requires suji and black grams respectively. Last year I had sold 15 sacks of suji and eight of grams, this year the figure was down to just three and one respectively.”
As for Diwali, he said, the business community is buying fewer gifts. “Earlier they would buy for bank staff and business partners. With property sales and business down there are no favours to be taken by means of housing loans and the like and so the purchase of gifts has also gone down.”
Small traders suffering due to e-commerce
Some of the loss of customers is also due to the expanding e-commerce business. As Gurgaon-based e-tailer Ashish Arora, who runs a business-to-business enterprise, said: “With Flipkart, Amazon and Paytm regularly coming out with sales and tying up directly with manufacturers, people are finding better deals on these platforms. Similarly, sites like Bigbasket and Grofers have impacted grocery and vegetables and fruit sales.”
He believes the bigger impact of these e-commerce platforms has been on the sales of mobile phones and consumer durables, especially around festivals like Diwali. “With some of them tying up with big brands, the stockists, wholesalers and retailers have been completely eliminated. For example, Flipkart has tied up with VU and offering a 32 inch LED for less than Rs 12,000. How is anyone else supposed to compete on such sharp margins?”
Also read: Thanks to GST and Poor Demand, A Dim Diwali for Dharavi’s Once Vibrant Small-Scale Businesses
Arora believes that as in the US, the retail would die a slow death in India too and only big supermarkets and e-commerce sites would remain. “It is not that money has vanished, people’s purchasing style has changed. Those who will not change would perish, but some others would still survive and thrive. For example, the wholesaler of handloom items from Panipat in Haryana have used these platforms to expand their market,” he said.
Hike in GST rates impacting sales
As for the impact of GST, Arora said it has only perpetuated the culture of buying in black. “Sanitary ware and furniture come under the 28% bracket but they are still being sold without slips. The need of the hour is to improve compliance with the law to provide everyone with a level playing field.”
Noor Mohammad, who runs an electrical goods shop, however, differed on this aspect. “When we purchase any fan, be it table, ceiling or exhaust, the tax rate is 28% and it is charged straight away by the manufacturer. With the earlier rate being 12%, the cost has gone up by 16 percentage points. Now since customers do not want to pay this extra amount, the sellers usually do not show it on paper but charge it through higher price.” Stating that the printing of higher maximum retail price or MRP on the goods usually comes in handy for this, he said the higher prices have still led to a sharp decline in Diwali sales.
Circulation of money has dropped
Giving a detailed explanation for the drop in sales, Praveen Khandelwal, the general secretary of Confederation of All India Traders, said: “Diwali sales are down 40% so far. The main reason is that the customer does not have cash liquidity, people’s investment in real estate and gold have not fetched them gains and so money is lying blocked. The traders were hopeful that Diwali would be good this time so they blocked their capital in buying stocks but the sales are not happening. The wholesale markets of Delhi, where it was difficult to set foot this time of the year, are lying deserted.”
Khandelwal said that while the traders were still recovering from the shock of demonetisation, the GST came in and its glitches and procedures have taken a toll on their time and money. “Even today there is confusion, strain and resentment among the traders due to GST because they are not able to comply with the law purely due to the failure of the pattern. Even now the fundamentals and compliance continue to confound the trading community.”
He said the low Diwali sales were also due to the fact that most of the items bought around the festival have been put in the 28% tax bracket and “no consumer wants to pay a third of the cost in tax”. Earlier these items like furniture, house building material, consumer durables, beauty cosmetics, luggage, decoration items and watches were taxed at 5% to 12%.
Manufacturing is also suffering
The business and manufacturing is dependent on money circulation and this is what has impacted sales, said Khandelwal, adding that now the traders have to pay advance to the company to get the material. “Earlier a lot of business was running on credit. When money circulation is down, the sales get impacted.”
So the challenge of cash liquidity along with the unnecessary challenges posed by the GST have ousted the consumers and caused confusion among the traders, he said. Moreover, he said, they have been saddled with paperwork as apart from GST returns they are also required to file income tax, service tax, excise and old VAT returns.
“Nationwide brick and mortar shops are suffering. They have not closed down as yet but if the central government would not take proactive steps then that scenario could emerge. The government is acting like a mute spectator, the Reserve Bank of India is not trying to infuse greater liquidity and the banks are afraid of lending out to retailers though they are flushed with funds,” rued Khandelwal. He added that repeated appeals of traders to the Centre for resolving their problems have evoked no response.
Cracker ban has also contributed to the losses
The ban on the sale of firecrackers, insist traders, has also contributed to the lower sales. As Rahul Chauhan, who runs a food business in Noida, said: “The cracker ban has impacted the mood of the children and parents alike. Exchanging gifts happens all through the year, but for many, Diwali was all about bursting crackers with their children and relatives. This has dampened the spirit.”
Chauhan, who participated in the ten-day-long Shilpotsav Diwali festival at Noida stadium grounds, said despite the ticket prices being halved by the organisers, there was a 50% drop in footfall. “Most exhibitors, who used to make half a year’s earning at the event, have reported losses this time.” This Diwali has truly been different and for all the wrong reasons.