E - Commerce Policy highlights

Overview

The e-commerce industry in India has witnessed exponential growth over the last decade and is poised for rapid growth in the years ahead, with increasing internet penetration and availability of affordable smartphones. With the advent of the Internet in 1995, the setting up of e-commerce portals started to gain popularity. The early e‐commerce entrepreneurs in India only used the internet as an effective medium for facilitating matrimonial alliances, travel‐related transactions and recruitment process.

The e-commerce space expanded with the introduction of online shopping portals in 1999, and the growth further spurred with the onset of a market place model for buying and selling pre-owned products. In 2002-03, e-commerce portals for online ticket booking for railways and airlines were introduced and by 2007, the space for online ticketing platforms for movies and live shows also started to gain momentum. Post 2007, a number of start-ups stepped into the Indian e-commerce market such as Flipkart, Infibeam, Myntra and Snapdeal etc., and gained customers through rigorous marketing and daily deal discounts. During this period, the forward and backward linkages of these sites were strengthened as well. By 2011, India’s small business owners could gauge the benefits of e-commerce when portals such as Infibeam and Buildbazaar provided a self-service platform for users to create an e-commerce store, upload their product catalog, customize their site and sell products. With the entrance of the global e-commerce giant- Amazon- in the Indian market, online sales of electronic goods, fashion, beauty, home essentials and healthcare began to upsurge. Since 2014, the Government of India has announced various initiatives namely, Digital India, Make in India, Start-up India, Skill India and Innovation Fund.

Market Size and Potential of E-Commerce in India

The Indian E-commerce industry has been on an upward growth trajectory and is expected to surpass the USA to become the second largest e-commerce market in the world by 2034. The Indian e-commerce sector is expected to grow at an annual growth rate of 51 percent during 2017-2020, recording the highest growth rate globally, supported by rising incomes and surge in internet users. According to the NASSCOM Strategic Review 2018 on IT- BPM sector in India, the e-commerce market in India registered a y-o-y growth of 17 percent, to reach US$ 38.5 billion in 2018-19 from US$ 33 billion in the previous year. According to IBEF, India's e-commerce market has the potential to grow more than four folds to US$ 150 billion by 2022.

As of September 2018, internet subscribers in India stood at 560.01 million. With growing internet penetration, internet users in India are expected to increase from 445.96 million in 2017 to 829 million by 2021. Further, e-commerce is also gaining traction among customers from Tier 2 and Tier 3 cities that are witnessing increasing disposable incomes but have limited access to branded & high quality products.

The average online retail spending in India stood at US$ 224 per user in 2017. Online retailers now deliver across “12,500- 15,000 pin codes” out of nearly 100,000 pin codes in the country. With logistics and warehouses attracting an estimated investment of nearly US$ 2 billion by 2020, the penetration of e-commerce to remote locations is set to increase. Indian warehousing sector is expected to double in size by 2021.

Opportunities for E-commerce Industry in India

With the Digital India initiative, virtually every aspect of life is becoming digital, from banking, to agriculture or any other commercial sector. The rapid growth of e-commerce has also benefitted from the introduction of GST in India, which has replaced the multi-tax regime with a single tax system, providing small sellers with the opportunity to compete with large corporates, especially in the sale of goods and services over the internet. The e-commerce industry has directly driven the growth of micro, small & medium enterprises (MSME) in India by providing them with access to finance, technology and training, and has a favorable cascading effect on other industries as well. There are nearly 51 million MSME units in India that manufacture more than 6000 products and account for nearly 40 percent of India’s total exports. In the recent times, MSMEs have been able to successfully leverage e-commerce in lowering their production costs, earning higher profits, and in realizing their untapped export potential.

The Government e-marketplace (GeM), which is a platform created by government for transforming procurement of goods and services by Government Ministries/ Departments, PSUs, autonomous bodies etc., recorded a cumulative procurement by the central and state governments worth of US$ 3.46 billion in FY19, and has a target of US$ 7.15 billion for FY20. Being an open platform, GeM offers no entry barriers to bonafide suppliers who wish to do business with the Government. The filters for selecting goods which are Preferential Market Access (PMA) compliant and those manufactured by Small Scale Industries (SSI), enables the Government buyers to procure Make in India and SSI goods effortlessly. As per the Ministry of Commerce and Industry, GeM is likely to eventually emerge as the National Public Procurement Portal (NPPP), in line with the global best practices of most developed economies that have a single NPPP. As a result, billions of dollars could be saved in public procurement, thus, enhancing opportunities for domestic industrialists.

In order to increase the participation of foreign players in the e-commerce field, the Indian Government has increased the limit of foreign direct investment (FDI) in e-commerce to 100 percent (in B2B models). E-commerce industry in India has registered 21 Private Equity (PE) and Venture Capital (VC) deals worth US$ 7 billion in 2018. Many of India’s blue-chip PE firms which had previously avoided investing in e-commerce are now looking for opportunities in the sector. Increasing investments by the Government of India in rolling out the fiber network for 5G will also help boost the sector. The rapidly growing e-commerce sector needs robust logistics and supply chain in order to enhance the efficiency and reachability of the e-commerce players.

Rural India, with an estimated population of 906 million as per 2011 census, has nearly 213.30 million internet users as of December 2018. Therefore, there exists an untapped potential for increasing penetration in the rural areas. Consequently, internet penetration in rural India is expected to grow by 45 percent by 2021, as compared to the current growth rate of 21.76 percent. As the internet penetration in the country increases and more international retailers start operating in India, the share of organized retail market is also expected to increase from 12 percent in 2017 to nearly 22-25 percent by 2021, thus increasing the size of the e-commerce market from US$ 24 billion in 2017 to US$ 84 billion in 2021.

Export Promotion through Ecommerce Policy

India has the second largest Internet base in the world with internet users projected to grow by 11 percent to reach 627 million in 2019. E-commerce in India is currently regulated by several regulatory bodies in India. The first Internet banking policy was initiated by RBI in 2001 followed by intermediary guidelines by Ministry of Electronics, Information and Technology (MeitY) under the IT Act in 2011.

In order to bring a harmonized approach in ecommerce ecosystem, a draft of National E- Commerce Policy was released by the Department for Promotion of Industry and Internal Trade (DPIIT) with an objective to enable India to benefit from digitisation by creating a governance framework for various stakeholders and strategies for data localisation, consumer protection and promoting micro, small and medium enterprises (MSMEs) and start-ups. The policy emphasizes on securing data arising in India and treating it as a national asset. It is divided into six segments namely- Data, Infrastructure Development, E-commerce marketplaces, Regulatory issues, Stimulating the domestic digital economy and Export promotion through e-commerce.

Strategies for Export Promotion through e-commerce

E-commerce over the past decade has had significant impact on manufacturers and small retailers. By engaging in exports through e-commerce, companies are able to gain valuable information such as global price sensitivity and improve their operating procedures and efficiency. This impact is visible in the fact that 60-80 percent of e-commerce exporters are able to survive the first year vis-a-vis the survival rate of 30-50 percent in case of traditional MSMEs, according to Invest India.

Taking cognizance of the rising trade deficits, compliance costs and the greater sustainability of exporters tapping the international market through e-commerce, the National e- Commerce Policy highlights various strategies for promoting exports through e-commerce as listed below:

  1. Separate e-commerce Policy under Logistics Policy - Infrastructure development is an important catalyst for greater economic growth. Delivery of physical goods ordered on a digital platform forms a critical part of e-Commerce. Indian domestic manufacturers, sellers, traders, MSMEs or start-ups are moving towards e-commerce to gain greater visibility for their products. Outreach of these Indian entities can be further enhanced by promoting export of their products through e-commerce. In this regard, the proposed National Integrated Logistics Policy must take into account the special needs of the sector. Thus, it is proposed that the e-Commerce must be dealt with separately under the Logistics Policy.
  2. Increase in existing cap of INR 25,000 for courier exports - Lower selling price, coupled with reduced costs associated with marketing and outreach activities over a digital platform contribute to promoting online sales. As shipments in e-commerce exports are of low value, the preferred mode of shipment is via courier services. The extant Courier Imports and Exports (Clearance) Regulations, 1998 indicates that on the export side, these regulations shall not apply when the value of consignment is above Rs. 25,000 and involves foreign exchange transaction. Therefore, consignments valued above Rs. 25,000 are exported through cargo mode. While courier goods are cleared through a fast track mode, examination of parcels is kept to a minimum and clearance is on selective scrutiny of documents, cargo consignments do not enjoy such benefits. This increases the transaction costs and the delivery time for consignments valued above Rs. 25,000 through cargo mode. In this regard, it is proposed to increase the existing limit of INR 25,000 to make Indian e-commerce exports attractive even for high-value shipments through courier mode.
  3. Dispensing RBI requirement of Postal Bill of Exports (PEB) against transaction reference number of consignment number - The Reserve Bank of India allows repatriation of remittances out of exports. This is facilitated by Online Payment Gateway Service Providers (OPGSPs). However, the small businesses who avail the outreach of e-commerce platforms to export their products to international markets, often receive payments via bank transfer. This results in these exporters to approach the banks for realization of bank transfer. They are required to file the PBE and attach invoice(s). Information like URL of website through which products have been sold, stock keeping unit number and payment transaction reference number are also disclosed. Such a lengthy documentation procedure is proposed to be revised. In this regard, it may be contemplated whether production of payment transaction reference number or consignment number could suffice the requirements of PBE.
  4. Implementation of Electronic Data Interchange (EDI) mode at courier terminals - Manufacturers, sellers, traders, MSMEs or start-ups adopt business models to facilitate online sales in order to expand their outreach beyond geographical limitations. MSMEs and other domestic manufacturers are based across the country but shipments via courier for e-commerce exports are accepted by airports in Delhi, Mumbai and Chennai only. Therefore, implementation of EDI mode at courier terminals is proposed to be fast tracked to facilitate quicker and easy dispatch of export consignments.
  5. Reducing transaction cost waiving off collecting fee on applications - Transaction costs for MSMEs and start-ups would contribute to the selling price of their products. High selling price has a detrimental effect on the attractiveness of products in a market. Therefore, the provisions for collecting fee on applications submitted to claim export benefits is proposed to be done away with to reduce the transaction costs for MSMEs and start-ups.
  6. Centralizing EDPMS with RBI for claiming MEIS - Commercial banks impose a charge of INR 100 per shipping bill for Bank Realization Certificate (BRC) processing. If Export Data Processing and Monitoring System(EDPMS) data can be sourced from RBI, then necessity for obtaining BRC for claiming MEIS can be avoided. It is suggested that the DGFT may explore this possibility in consultation with RBI.
  7. Setting up Air Freight Stations (AFS) - Much of the delay and congestion at air cargo complexes handling in India, especially in Delhi, Mumbai and Kolkata can be solved if the cargo processing is done off-the air ports. For this purpose, setting up of AFS off-the air ports is proposed to be encouraged, where all necessary cargo preparation and documentation can be done. Only the ‘flight ready cargo’ will move from the AFS in customs bond and enter the airport premises and get scanned at the airport before boarding the flights.
  8. Negotiating lower costs with International Freight Carriers - Costs for international logistics is presently borne by the exporting entity. The logistic companies providing these services often charge a considerable amount of money, which may be unaffordable for the MSMEs, start-ups and other small Indian manufacturers. This could make it difficult for these entities to continuously and sustainably export their products to the international markets. Private courier companies offer advantages like end-to-end delivery. In this regard, the wide network of India Post is proposed to be leveraged to negotiate lower costs with international freight carriers.

The draft policy when approved will have far-reaching impact on various stakeholders, beyond ecommerce marketplaces, who form a part of the ecosystem. Sellers, logistics providers and MSMEs will be significant beneficiaries of the approved policy.

Click here to view full draft of E Commerce Policy - https://dipp.gov.in/sites/default/files/DraftNational_e-commerce_Policy_23February2019.pdf