Did the government forget the retail sector?

The rising number of infected cases and death toll is resounding alarm bells for the global economy. Almost all sectors ranging from aviation tourism, hospitality, to retail, and manufacturing are grappling with the impact of COVID-19 pandemic. The fears of a global recession to follow the outbreak are even more frightening.

The economic destruction of the coronavirus pandemic is starting to be felt at home too. Amid the near-halt economic activity, layoffs are inevitable. A recent sectoral analysis of the impact of social distancing on various sectors in the latest PIDE Bulletin shows that layoffs in the wholesale and retail sector are likely to touch 4.55 million in the ongoing partial lockdown scenario.

The gravity of this number is highlighted by the fact that it represents 70 percent of the total vulnerable employment in the sector (6.5 billion) and 37 percent of the total expected layoffs (12.32 million) in the ongoing partial lockdown. Not only are the retail sector expected layoffs highest among all sectors, it is the second largest sector in terms of employment after agriculture and thus has one of the highest proportion of vulnerable employment in the country. The situation could get worse in case the government resorts to complete lockdown – the sector layoffs as per the study could go up as high as 90 percent!

However, unlike the exporting businesses, construction sector, and others that have been part of the government’s relief package, the retail sector has received little attention. The sector’s growth momentum has been broken during the last two years due to the economic slowdown amid currency devaluation, interest rate hike, and industry experts highlight that the sector is already reeling from the increase in GST from 6 percent to 14-17 percent in the last budget that has severely hit the bottomline and cash flows, leaving no room to maneuver in the current crisis situation.

While the retailers have sought support from the government to survive, what is important here is the fact that the country’s GDP is largely driven by domestic consumption rather than exports, and the retail sector is a key component of the domestic demand.  The retail sector contributes over 30 percent to the services sector and provides more than 16 percent employment in the country.

Moreover, the ecosystem of retail is much more than the shops; the sector highly depends on domestic manufacturing and as the study points out, reduction in demand due to the closure of outlets under lockdown would mean significant slide in domestic manufacturing. The effects are devastating as the sector has over 50 allied sectors and many SMEs that would also feel the heat from the layoffs.

The fear of a domino effect is colossal, but that’s true for many other sectors as well. The two key concerns of the retail sector are the rents they pay and the working capital needs. What the government can do in this situation is provide incentives like cash flow loans, lowering sales tax, deferring penalties and rents, abolishing minimum tax temporarily – like the rest of the world - in return for business registration, integration and digitalization – something that would go a long way once this menace is over.