How government can maximise ecommerce-led economic development and generate employment
Part 1 – Out of stock: Understanding obstacles in the adoption of E-commerce
When it comes to the e-commerce sector, the pandemic has accelerated adoption across economic strata while also enabling small sellers to keep their businesses viable and meet the demand of their consumers. E-commerce has gone from being a convenient option to a necessary channel. Internet users in India have touched 700 million active users with more people embracing technology each day.
However, the e-commerce sector has been facing issues such as hesitancy by businesses to adopt modern methods of doing business.
A recent report prepared by the TISS on ecommerce (TISS report) has provided some interesting insights to make a case for why and how businesses can digitalize, and what is stopping them.
Micro, small and medium enterprises (MSME) sellers look at e-commerce expectantly. For them, to unlock the potential of ecommerce, an ecosystem – which enables them to address the challenges of onboarding, logistics, inventory management, and deliveries – is the push that can catapult them to the future. However, according to the report, many such businesses lack the required digital experience and marketing and communication know-how to effectively leverage the benefits of e-commerce.
Part 2 – Add to cart: How E-commerce has changed the game for MSMEs
Constituting nearly 30% of the Indian GDP and 40% of overall exports, the MSME sector employs more than 110 million people across the country. They are also critical to bridging the gap between the rural and urban economies, with half of all MSMEs operating in rural India. Growth in the MSME sector has the potential to define India’s economic future, and e-commerce has been – and will be – a huge driver for MSMEs. For example, e-commerce-enabled cross-border trade has also allowed Indian MSMEs to cater to larger markets and engage with the international consumers directly. Digital-first brands have leveraged the market and infrastructure of large e-commerce players to gain direct access to a global consumer base, reduce transaction costs, eliminate cross-border payment issues, and create exceptional brand recall. This has led to higher valuation, and increase in funding for homegrown labels.
Contrary to the perception that it will erode the business opportunities of small traders, e-commerce has been instrumental in bridging gaps on both the demand and supply side. For example, according to the TISS report, 70 percent MSMEs that provided services through digital platforms experienced a revenue growth.
Established e-commerce marketplaces are equipped to – and often do – offer training and awareness programmes to MSMEs. Such programmes have the potential to enable MSMEs to sell effectively, build better inventories and also learn digital marketing skills. It also benefits marketplaces through increased sales.
For instance, Flipkart has revamped their seller on-boarding processes to ensure that MSMEs, who may not have prior digital expertise, are able to list their products and access a wider base of customers with ease. Similarly, Amazon on-boarded 150,000 new MSMEs in 2020 alone.
MSME sellers also face challenges beyond onboarding. These include logistics support, cataloguing, grievance redressal, logistics management, and deliveries. Larger sellers, as well as established marketplaces, can undertake initiatives to upskill MSME sellers. This can also improve customer experience. For instance, some marketplaces have set up initiatives to tie up with small businesses and ‘kirana’ stores to conduct last-mile deliveries across India, creating a domino growth effect. As a result, MSMEs have been able to integrate with logistics markets, supplement their regular income, and generate higher footfall.
The government can maximise e-commerce led economic development and employment generation by adopting an enabling policy framework that promotes, and not restricts the sector.
Part 3 – Order delayed: The way forward
While India’s 64 million MSMEs have been supported by the government thus far, a few gaps remain. The government can greatly help MSMEs through targeted policy actions that support the domestic retail industry.
Predictability and regulatory certainty are central to this. Knee-jerk policy changes – such as sudden changes to the FDI regime, reversing granted regulatory approvals to deals in the sector, or proposals calling for fall-back liability (of marketplaces for mistakes of sellers) – can considerably erode India’s standing in the eyes of investors and trade partners. For example, the reactionary tax law amendments triggered by the Supreme Court’s Vodafone judgment evoked criticism from the global business community, and left a bitter after-taste in the investor community’s mouth.
If the government seeks to promote the growth of MSME sellers and competition by creating equal opportunities for them, then the objective will be better served through a holistic and enabling policy framework that provides a fillip to the industry as whole, and doesn’t restrict it through compliance burdens, or selective/targeted penalisation of larger enterprises.
Any move that takes away from the industry the chance to innovate and improve will stymie the growth of the sector in its early stages. It may also stand in the way of the Prime Minister’s call to build ‘Atmanirbhar’ small businesses, which continue to benefit from e-commerce. In fact, other allied ecosystems such as warehousing, retail and logistics also stand to lose from a limiting policy approach. With e-commerce becoming a default option for many to shop in India, the government needs to revisit its approach to enable the sector.
Bino Paul is professor and associate dean at Tata Institute of Social Sciences
