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The Retailers Association of India (RAI) has appealed to Finance Minister Nirmala Sitharaman to reconsider the implementation of price-based Goods and Services Tax (GST) rates on retail products. A group of ministers (GoM), appointed by the GST Council to review rate rationalization, has proposed changes to the tax rates on various goods. These changes include increasing the GST rate for shoes and watches priced above a certain threshold from 18% to 28%.

RAI, the leading organization representing Indian retailers, comprises approximately 13,667 member establishments, including both large and small retailers, collectively operating around 600,000 retail stores across the country. The association's letter to the Finance Minister, obtained by Storyboard18, raises concerns about the GoM’s recommendations.

In mid-October, the GoM suggested shifting shoes and apparel priced above ₹15,000, and wristwatches priced above ₹25,000, to the highest GST slab of 28%. This introduces a price-based GST rate, which RAI argues would significantly impact the retail industry.

The letter emphasizes that increasing GST rates by 10% will lead to a proportional rise in the prices of premium products, potentially reducing their sales volume. Additionally, many of these products face global competition.

Kumar Rajagopalan, CEO of RAI spoke to Storyboard18 during Ekam hosted by RAI, “Our concern is whether a product like a suit priced at ₹15,000 should be classified as a luxury item. People often wear such attire for weddings or special occasions. Imposing a higher GST on these products may encourage consumers to seek alternative, possibly illegal, avenues to acquire them.”

He further noted, “The government’s intent to increase revenue through higher GST rates may not materialize. Many consumers will opt to buy these products from overseas, or worse, these items could enter India unofficially. We have observed that higher taxes often result in an influx of counterfeit products, undermining legitimate markets.”

The letter warns that this policy change could hinder the growth potential of the retail sector, resulting in revenue losses for retailers and reduced GST collections for the government. Moreover, the proposal could jeopardize the government’s Make in India initiative by making Indian products less competitive internationally.

In the medium term, higher prices in India could render these products uncompetitive in global markets, reverting growth rates to pre-2018 levels of around 5-6% annually. Consequently, the total revenue collection may decline under the higher GST rate compared to the current structure.

Rajagopalan cautioned, “If the government implements price-based GST on premium products, sales will decline due to higher costs, and counterfeit and spurious goods will gain a stronger foothold in the Indian market.”

He concluded, “This move contradicts the government’s aim to improve the ease of doing business. Multiple GST rates for products with the same GSTN codes create unnecessary complexity. We urge the government to reconsider this decision and maintain the current GST rates.”

With India riding on the wave of premiumization, and being fastest growing economy in the world, premium categories are yet to showcase its true growth potential. Swiss watches exports to India is just over 1% of the world and India ranks 22nd for Swiss watch export. Retailers have cautioned the government to consider speaking to stakeholders before taking a concrete stand on the issue. 

Price based GST will boost counterfeit products, RAI writes to govt

The Securities and Exchange Board of India (SEBI) issued a directive last week mandating that regulated entities must terminate any ongoing associations with financial influencers, or "finfluencers," within three months, as per reports. These entities include recognized stock exchanges, clearing corporations, and depositories. 

The directive targets entities tied to unregistered advisors who provide recommendations on securities without SEBI's express permission.

The circular states that SEBI-regulated persons must ensure that no associated person or agent gives any direct or indirect advice on securities. 

SEBI explicitly forbids regulated entities from associating with any individual or group that makes performance claims related to securities without the board's approval. This move follows SEBI's earlier ban in June on unregistered financial influencers who offer advisory content and performance claims without permission. 

Exemptions to SEBI’s rule include individuals focused solely on investor education, as long as they refrain from providing explicit investment recommendations or performance claims. Additionally, associations made through “specified digital platforms” with robust controls to prevent and mitigate unauthorized activities are allowed under SEBI’s guidelines.

SEBI’s latest clampdown stems from concerns over the potential risks of unregulated financial influencers. Often operating on a commission-based model, these influencers can impact financial decisions, sometimes promoting biased or misleading advice. 

SEBI aims to introduce a regulatory framework that ensures finfluencers are accountable for the advice they give, safeguarding investors from poor financial guidance.

In a consultation paper released in August, SEBI outlined further restrictions for regulated entities, banning any form of financial promotion, reference, or technical engagement with finfluencers.

SEBI mandates regulated entities to sever ties with finfluencers within 3 months

According to a recent report by U Grow Capital, India is poised for a substantial increase in household wealth, with an estimated 11.3 crore households projected to earn over Rs 30 lakh annually by the financial year 2031. 

This growth marks a critical shift in Indian economic landscape, as the number of middle-class households-those earning between Rs 5 lakh and Rs 10 lakh per annum-is also expected to rise significantly, by 28.3 crore in the same timeframe.

The report outlines that from FY21 to FY31, the number of affluent households (with annual incomes exceeding Rs 3 million) will surge by 113 million, while middle-class households (earning between Rs 0.5-1 million) will expand by 283 million. This growth trajectory is underpinned by a favourable macroeconomic environment, characterized by consistent annual growth rates exceeding 7% over 16 of the past 30 years.

Key indicators reflect this resilience: India's core inflation has reached a four-year low in FY24, the current account deficit has turned into a surplus, and the gross non-performing assets (GNPA) ratio has dipped to a multi-year low of 2.8% as of March 2024. These factors contribute to a solid foundation for sustained income growth across Indian households. 

Additionally, India's external sector remains robust, with improving vulnerability indicators, positioning the nation to surpass Germany in GDP by 2027. The report emphasized that India's role in the global economy is set to expand significantly, with its contribution to world GDP expected to double between 2009 and 2029.

Looking ahead, per capita GDP in US dollars is projected to double by 2029, which will further enhance consumption and spending among Indian households. This rise in per capita income presents new opportunities for businesses as consumer demand escalates across various sectors.

11.3 crore households to earn over Rs 30 lakh by 2031: Study

Often pitted against each other, coming together of marketing and finance resources are redefining the growth of companies today. A successful and strong CMO and CFO alliance hinges on the CFO understanding consumer demand and marketing initiatives objectives and a CMO who works through data.

In partnership with Kantar, Google recently spoke to dozens of Fortune 1000 company leaders and marketers across industries about this topic. During those conversations, one alliance emerged as the most critical: the CMO and CFO power pair.

A majority of top executives said that their most senior-level marketing leaders not only have strong relationships with their CEOs but also with their CFOs. We also heard that leaders of digitally advanced companies reported much higher levels of synergy between their finance and marketing teams than did the leaders of digitally emerging companies.

Experts in the industry that Storyboard18 spoke to highlighted that over the years, the pressure on budgets and business outcomes have put pressure on the CMO to also be a co-owner of delivered ‘numbers’. This, in turn, has brought the CMO in closer proximity to the CFO, who is primarily responsible for keeping the number delivery on track.

Symbiotic relationship

In new age companies, the relationship between finance and marketing is evolving into a more symbiotic one where they come together to work towards the growth of the business.

“Today the calculation of return on marketing spends is much easier and more efficient than what it used to be a couple of years back," says Smita Murarka, who is the chief marketing officer of Duroflex. "This has built new bridges between the two functions," she adds, saying that at Duroflex, the two teams work collaboratively towards planning a campaign and even on analysing the results of the campaign.

Murarka shares that regular conversations with the company's finance team helps her team have data driven insights about the impact of marketing efforts on the business.

“The insights also help us plan the areas where we can focus our efforts more efficiently,” she adds.

The Google-Kantar study quoted above states that CMOs who can translate their marketing metrics into business impact—such as tying incremental investment to a certain sales growth percentage year over year—are 37 percent more likely to report revenue growth compared to leaders who communicate strictly in marketing language.

Shared insights

For online hotel booking platform OYO having a CFO that works closely with the brand and marketing team not only helps the company with strategic insights but also ensures that the marketing budgets are being leveraged wisely.

Mayur Hola, head of global brand, OYO says that their finance team is like members of the extended marketing team, in fact "our star players". The company’s strategic finance team works closely with the marketing team from the very initial stages of the company's campaign.

“They understand the scale of marketing allocation that works best for the business. And together we work to make our campaigns super-efficient and not wasteful. And finally, our group CFO Abhishek Gupta is the biggest champion of the brand. These are folks who are hard-nosed when it comes to finances and totally understand what investment in the brand will reap. As such they sow. In a nutshell that is the ideal relationship and we're fortunate to enjoy the same,” he notes.

Key challenges

One of the biggest challenges, which could possibly be dubbed as a major bone of contention, for CMO-CFO function is how RoI is calculated.

Duroflex’s Murarka believes that analysing everything in terms of RoI is something that comes naturally to finance. However, sometimes, it is important to understand that ROI is not always tangible, it is not always something that can be put into numbers.

“The outcome of marketing efforts is the growth of the business, but it is also customer loyalty, it is also brand salience. Building them takes a significant part of marketing efforts as well as spends, and they are as important as sales for a business,” she explains.

Marketing, being one of the larger expense lines, has always been seen as a cost, expendable, whenever there is any profit pressure or need to cut costs.

Ajay Kakar, chief marketing officer, Aditya Birla Capital Limited notes that for a company that believes in keeping the customer at the forefront, today, there is need and pressure for the CMO and CFO to be aligned about the ‘cost-benefit’ of the marketing budget.

“To borrow from an accounting vocabulary, I believe that marketing budgets and agendas should be categorized as balance sheet and/or P&amp;L items - those that will take time, but deliver on agreed-do outcomes, and those that will have immediate or attributable outcome within the same calendar year. The CMO-CFO jodi therefore has to work together, from vision, to strategy, till execution and outcome. And presenting a joint face to the management and board is the need of the hour,” he adds.

Upskilling and keeping up with times

Pradeep Mishra, CFO – Duroflex admits that while finance would want to measure everything through the ROI lens, it is often very difficult to quantify the long term impact of brand building activity of the marketing function.

“Understanding the two activities and balancing them with the financial objectives is a very important activity. And, when there is a conflict between the two teams, both teams should learn and understand how to balance long term value creation vs the financial targets every year,” he notes.

Mishra also emphasises the need for finance teams in companies to upskill themselves and better understand the evolving digital space, customer tracking etc.

“The skills needed now are totally different from what finance were trained into and this will be fast evolving at the pace of changes in the likes of the customer and changes of his requirement, so it is going to be a progressive journey to constantly reskilling oneself,” he concludes.

As brand building and marketing becomes more specialised and highly trackable in a digital-first world, data driven insights can bring marketing and finance resources together to achieve key business goals. Their unified efforts can turn the fortunes of the company that is looking to achieve sustainable growth. A Jodi No.1.

FINANCE