Trouble in Trade

Eid is a visual barometer of how the Valley economy, in particular the local businesses, are doing. Last week this newspaper, reported that Eid, “traditionally a period of jubilation and commerce, is instead marked by a palpable sense of apprehension and economic strain”. Others quoted shopkeepers reporting a “95 per cent drop in garment sales during this Eid shopping”. Traders across the valley have spoken in the media about an “unprecedented slump forcing layoffs”.

The anecdotal evidence of a slump in trade business is corroborated by official data published by the Directorate of Economics and Statistics. It shows that the tertiary sector, which accounts for 60 per cent of the local economy, is caught in a slowdown. The rate of growth of the tertiary sector of which trade is a large part, halved to 5.8 percent in 2023-24 from 11 per cent in 2022-23. Within trade, income growth from the Hotel & Restaurants declined from 38 per cent to 13 per cent. This sharp decline in segments of the trade sector is despite an overall growth of 7 per cent in the economy.

This retail trade slowdown borne out by government data as well as the sentiment on the street is incongruous with the lakhs of crores of investment proposals from tens of thousands of investors that government officials claim at different fora. The latest figure for investments in 2023-24 is Rs 3,389 crores, and 8,500 investment proposals worth Rs 1.69 lakh crore in the works with the potential to create 6.06 lakh jobs. If this was indeed so, trade and business should have been booming. Far from a boom, it is under stress.

The total size of the tertiary sector is currently about Rs 1.5 lakh crores, with 20 per cent coming from the government in the form of public administration. A significant part of it is driven by autonomous public expenditure. By pumping Rs 40,000 crores annually into the system as salaries and pensions, the government is creating income in the hands of the more 6.5 lakh people (4 lakh government employees and 2.5 lakh pensioners). With the average family size of 5, it is effectively 30 lakh people.

The remaining part of the tertiary sector is related to the artisanal businesses coexisting and complementing a growing horticultural sector. Both these productive sectors have strong linkages with trade and transport. This, along with the intermediaries of final consumption, has created a very large trade business. The size of the business tertiary sector is about Rs 1.25 lakh crore, which is about 40 per cent of the domestic economy. It is not often highlighted but J&K contributes about 1 per cent of the national GDP. Even though the per capita income is marginally below the national average, it accounts for around 1 per cent of the national market.

The trade and retail services in the Valley are not homogeneous but a variegated sector comprising of diverse businesses based on different business models. The tourism-related trade, for instance, includes hotels, restaurants, transport and trade as also artisanal shopping. With an exceptionally high tourist footfall, the tourist-related trade segment should have done well.

It will come as a big surprise that share of Hotels and Restaurants in the SDP of J&K is not even 1 per cent. To be precise, in 2023-24 it was estimated to be 0.93. Before that it was even much less at 0.69 in 2021-22. What this means is that the total income generated by the entire hospital and restaurant businesses across J&K is just about Rs 2,700 crore per annum. To put this number in perspective, the annual revenues of one hotel chain, Indian Hotels Corporation, the promoters of Taj, are Rs 6,900 crores! Even a decade year old startup, OYO Rooms, founded in 2012 has a top line of more than Rs 5,000 crore. The moral of the story is that even if the hospitality business is booming, it is too small to have a big impact on economic growth of Kashmir.

By all accounts – segmental data is not available – the localized informal segment dominated by small players is seeing a marked slowdown. The organized intermediaries between the national suppliers and local consumers suffered a major disruption in the supply chain network post the lockdown and then the Covid period. In some cases, government institutions like NAFED replaced the private business network. The latter was built on bonds of livelihood and shared prosperity, which is not the case with government agencies. The horticulturists of Shopian, for instance, and the commissioning agents of Azadpur have for decades shared good times and survived bad times together.

As a result, trade financing has become a big issue. Traders are facing a liquidity crunch (“market main paisa nahi hai” is a constant refrain nowadays) as their working capital lines and limits have come under stress as the new suppliers prefer advance payment for supplying the goods. Earlier these would be delivered on credit. With lower levels of business activity, banks, especially J&K Bank, have recalibrated the cash-credit limits of almost all businesses and trade in line. The net result is a vicious squeeze in businesses: the turnover is low, resulting in reduced credit limits which in turn constrain growth in business turnover.

At the same time, production costs of all trading and manufacturing activities have increased due to inflation, interrupted transportation and regulatory risks associated with it trading in Kashmir. Consequently, their margins have been all but wiped out. This reduced profitability is resulting in employee layoffs and threatening closure.

The trade and manufacturing segment linked to the government is also a big consumer of goods and services. Even the capital expenditure that government incur generates second order demand for basic consumption trade. Here the big hit has been caused by GeM, the dedicated digital e-commerce platform for different goods & services procured by the Government. This has dealt a crippling blow to the government supplier business.

This specific online platform aside, the rise of e-commerce in general has posed serious challenges and brought significant changes to the retail industry worldwide. There is no way to insulate brick and mortar stores and shops from this pervasive trend. The only way forward is for trade to adapt to the new changes in consumer behavior to be able to stay competitive in the market.

Factoid:

Most local newspapers carried J&K Bank’s transactional data of Rs 14,000 crores withdrawn in 4 crore transactions, ahead of Eid, implying a gluttonous consumption of bakery, mutton and other eatables. It may not be quite so. Of the Rs 14,000 crore, more than Rs 3,500 – Rs 4,000 crore would be government salary, pensions and related transactions. Also, daily income generation (average daily GSDP) for the same period is Rs 4,500 crore. As such the Eid expenditure would probably be not more than Rs 3,500 to Rs 4,000 crore. This amounts averages to Rs 5000 per head given the valley population of 75 lakhs. Be that as it may, even the Rs 14,000 crores when seen in terms of the average transaction size, it is under Rs 1,500 per transaction. Interestingly, while digital channels processed more than 9 crore transactions, the average ticket size was just Rs 1,000. The physical channels, ATMS and branch counters, serviced only 0.5 crore transaction, but the average ticket size was almost Rs 10,000.

The author is Contributing Editor Greater Kashmir