How e-commerce marketplaces can drive MSME makeover

Digital empowerment is the key differentiator. Without that, our MSMEs will not be future ready.

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 to accelerate economic growth, employment, income levels and enhance supply chain efficiencies. For MSMEs to be sustainable and effective, the need of the hour is not just better automation in the production process for greater efficiencies on the input side 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. China captured the world market through the traditional method of having guilds and business centres to do transactions by providing a single-window approach. But the world has changed. Now to compete successfully in established supply chains, the best way is to invest in digital transformation and leverage modern technology. Today, digital empowerment is the key differentiator. Without that, our MSMEs will not be future ready.

India has put a goal of inclusive development and enhancing livelihoods. The Prime Minister has given the slogan of “vocal for local” and spoken several times about his vision of Atmanirbhar Bharat. E-commerce can contribute significantly in achieving this vision. It allows for 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 and thus contributes to economic prosperity and inclusive growth. 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.

However, there are certain hurdles in building a robust e-commerce sector, which need to be removed. First, address the roadblocks that the e-commerce sector suffers in terms of ease of doing business online. Sellers on e-commerce marketplaces do not get advantage of GST threshold exemption (of Rs 40 lakh) for intra–state supplies that offline sellers enjoy because they have to “compulsorily register” even though their turnover is low.

Second, the government would do well to simplify the “Principal Place of Business” (PPoB) requirement especially for online sellers by making it digital and not requiring physical presence to expand their reach outside their home state. Today, the sellers, as in offline, are required to have a physical PPoB which, given the nature of e-commerce, is not practical. 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.

Third, provide MSMEs 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 programmes, hold series of awareness sessions, provide common but important services like imaging and cataloguing, etc. These can be provided by state governments.

Equally important is to examine the existing schemes and benefits for MSMEs, which were formulated with an offline, physical market in mind, and tweak them to include the special needs to leverage online sales channels. For example, MSMEs could be given fiscal incentives to access markets and invest in digital marketing. The objective is to incentivise those who shift to the digital mode.

Fourth, build infrastructure — both physical and digital infrastructure is important for digital transformation. The road and telecom network will facilitate not just access to the consumer but also 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.

Fifth, dovetail the skilling policy and programmes with the requirements of the e-commerce sector to meet future demand of the sector.

Sixth, take specific steps to increase exports via e-commerce. 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 role by 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.

There is an urgent need to create a consolidated policy framework for e-commerce exports. Policies like the upcoming Foreign Trade Policy needs to be fully leveraged. In order to give Indian e-commerce exporters that competitive advantage they need in order to succeed in global markers, specific policy provisions that provide incentives for e-commerce exports, create more awareness and enable end to end digitisation for e-commerce exports are critical. The Foreign Trade Policy should identify these areas and include e-commerce export specific provisions in the revised policy that comes into effect in April this year.

The writer is a development economist and a former secretary, GoI

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