E-commerce as Driving Force for MSME Growth

Background:

  • A significant major contributor to the India growth story is going to be manufacturing. Manufacturing by small units, cottage units and MSMEs, if effectively facilitated, will be the game changer.
  • For MSMEs to be sustainable and effective, the need of the hour is not just better automation but also more channels for accessing greater markets and opportunities to become a part of the national and global supply chains. E-commerce marketplaces are today the best possible enablers for this transformation at minimal cost, innovation and investment.

Why should we invest in digitalization:

  • China captured the world market through the traditional method of having guilds and business centres.
  • Today, digital empowerment is the key differentiator. Without that, our MSMEs will not be future ready.
  • E-commerce allows products even from hinterlands to get to the national market, thus, providing opportunities to artisans and small sellers from Tier-2/3 towns to sell online to customers beyond their local catchment.
  • By investing in supply chains, the e-commerce sector provides opportunities for MSMEs to partner them in supply and delivery networks. Start-ups and young brands are also finding opportunities to build national brands and even going global.
  • This leads to additional income generation through multiple livelihood opportunities.
  • Many offline stores are also adopting e-commerce to leverage these opportunities and the traditional and modern retail models are moving towards more offline and online collaborations.

Issues involved:

No GST threshold exemption

  • Sellers on e-commerce marketplaces do not get advantage of GST threshold exemption (of Rs 40 lakh)for intra–state supplies. Online suppliers have to “compulsorily register” even though their turnover is low. Offline sellers enjoy this exemption up to the turnover threshold of Rs. 40 lakh.

Place of business:

  • Today, the sellers, as in offline, are required to have a physical PPoB which, given the nature of e-commerce, is not practical. The government would do well to simplify the “Principal Place of Business”(PPoB) requirement especially for online sellers by making it digital.
  • Replace physical PPoB with Place of Communication. Eliminating the need for state specific physical PPoB requirement will facilitate sellers to get state-level GST with a single national place of business.

Wrong concept of MSME:

  • MSMEs should be provided with handholding support to understand how e-commerce functions.
  • The government can collaborate with e-commerce entities to leverage their expertise and scale to create special on-boarding
  • These can be provided by state governments. There is need to examine the existing schemes and benefits for MSMEs, which were formulated with an offline, physical market in mind.

Infrastructure

  • There is a need to build infrastructure — both physical and digital infrastructure is important for digital transformation. The road and telecom network will facilitate access to the consumer and enable the seller from remote areas to enter the larger national market as well as the export market.
  • A robust logistic network and warehouse chains created by e-commerce platforms enable similar access and reach. The National Logistics Policy should focus on e-commerce sector needs.

Problem of skilling

  • Dovetail the skilling policy and programmes with the requirements of the e-commerce sector to meet future demand of the sector.

Role of Export:

  • We need to take specific steps to increase exports via e-commerce.
  • There is a need to identify products that have potential for the export market, connect e-commerce with export-oriented manufacturing clusters, encourage tie-ups with sector-specific export promotion councils, leverage existing SEZs to create e-commerce export zones.
  • India Posts can play a significant roleby creating e-commerce specific small parcel solutions at competitive rates, building a parcel tracking system, and partnering with foreign post offices to enable customs clearances.

Way forward

  • There is an urgent need to create a consolidated policy framework for e-commerce exports.
  • Policies like the upcoming Foreign Trade Policy need to be fully leveraged.
  • The Foreign Trade Policy should identify areas and include e-commerce export specific provisions in the revised policy that comes into effect in April this year.
  • By facilitating and supporting e-commerce, we can leverage the potential of MSMEs in manufacturing which could help in the economic growth of the country by creating job opportunities.