GST to hit wholesale biz in short term: Metro
Metro Cash & Carry, which operates 24 stores across the country with an aim to open 26 more by 2020, recently closed a store in Punjab.
New Delhi July 10, 2017,: India’s wholesale business will bear the brunt of Goods and Services Tax (GST) for at least a quarter, said Arvind Mediratta, MD & CEO of the local arm of German retailer Metro Cash & Carry.
“In June, we saw an impact of 10-15% (slowdown in sales),” said Mediratta. “People are refusing to buy anything. Even those who have applied for GST Identification Number, have been advised by their CAs to play the wait-and-watch game. The market was clawing back after demonetisation, but now it has been hit again by GST.” States, including Punjab and Gujarat, which have a large number of traders in the wholesale business dealing in cash, have been the worst hit due to demonetisation and GST, said Mediratta. “In these areas, many people do business without invoices. The price table is low because nobody pays taxes and wholesalers have an unfair price advantage.”
Metro Cash & Carry, which operates 24 stores across the country with an aim to open 26 more by 2020, recently closed a store in Punjab. The size of organised wholesale business in India was Rs 6,800 crore in 2016, according to Nielsen. But, it accounts for only 2.6% of the total consumer packaged goods market.
“People are now creating multiple companies to beat GST,” said Mediratta. “They are creating five to 10 companies worth Rs 10-20 lakh each. For small traders, it’s difficult to comply with the process of getting compensation, while big businesses can hire consultants. There are around one crore kirana stores in the country, out of which 40% don’t have business licences. Around 20% of the rest have VAT numbers. So, for the others, breaking their businesses into smaller Rs 20 lakh units is the way to beat the system. But it won’t be easy.”
To mitigate the short-term impact of GST, the B2B retailer has set up GST kiosks at its stores to help traders file returns for a fee. It has also increased the size of its sales force, which visits kirana stores to take orders and subsequently help deliver goods from the company’s warehouses.
Mediratta said although GST will be good for the cash-and-carry business in the long term, it will lead to some small competing businesses shutting shop due to non-compliance. Consolidation in the logistics space is also expected. “Every supplier was opening warehouses in various states to avoid Central Sales Tax (CST). Now, the number of smaller warehouses will come down and master warehouses will stay.”