Growth of e-commerce is a boon for millions of MSMEs

As India strides towards becoming the world's third-largest economy by FY28, the economy is undergoing significant transformation. Startups and large enterprises are driving innovation, while micro, small and medium enterprises (MSMEs) are embracing digitisation. MSMEs are increasingly adopting digital way of doing business as it helps them enhance market access and improve cost-efficiency in their operations and transactions.

E-commerce has played a critical role for MSMEs, allowing even small artisans to reach customers globally. Industry data shows the e-commerce market is set to grow at a robust annual growth rate in the coming four years (2024 to 2029), and MSMEs will be the key beneficiaries of this expansion.

While broad-based digitisation and e-commerce growth have positively impacted MSMEs that have adapted to technology, the proportion of MSMEs leveraging e-commerce remains low compared to the overall manufacturing base in India.

Given the robust growth of e-commerce both nationally and globally, it is crucial to focus on how MSMEs can capitalise on this trend.

The impact of e-commerce in opening markets, enhancing supply chains, and lowering costs is well recognised in policy circles. A NITI Aayog report highlights its benefits, especially for exports, and advocates for greater integration of MSMEs into global supply chains. However, as the Global Trade Research Initiative notes, there is still a long way to go for Indian MSMEs in cross-border e-commerce, with current volumes of e-commerce exports by Indian enterprises estimated at around $2 billion only.

The Economic Survey of India for FY24 also delved deep into the multifaceted benefits of e-commerce on the economy, emphasising its role in deepening personal credit growth, enhancing MSMEs' export realisations, and driving employment generation across the nation.

With strong evidence of e-commerce's value to the country and MSMEs, viewing the sector's growth with caution seems misplaced. Rather than being deterred by economic shifts, we should focus on harnessing e-commerce's potential to uplift MSMEs. Casting aspersions on the sector, despite government agencies and industry bodies’ data showing its benefits, undermines the interests of millions of MSMEs set to gain from its continued expansion.

A negative perception of e-commerce jeopardises the interests of MSMEs by deterring policymakers from addressing the sector constructively. This impedes efforts to resolve operational, market-related, and regulatory gaps, hindering the effective integration of MSMEs into the e-commerce ecosystem. Despite the government's stated focus on digitising the economy and supporting MSMEs, the challenges they face in selling online tell a different story.

In today’s digitally driven economy, we must ensure that MSMEs are not left behind to foster strong domestic and international growth in our national e-commerce capabilities. To achieve this vision of a vibrant e-commerce ecosystem, we should prioritise capacity-building initiatives for MSMEs that focus on digital payments and utilise ministry infrastructure. Furthermore, it is essential to identify and eliminate restrictive regulatory compliance, as these barriers often impede MSMEs' participation in online commerce.

For instance, last year, the government waived mandatory Goods and Services Tax (GST) registration for e-commerce sellers with annual revenue up to ?40 lakh, seemingly aiming to create parity between online and offline retail. However, this waiver is limited to MSMEs selling online within a single state or Union Territory. Since the primary purpose of e-commerce is to dissolve geographical boundaries, this restriction introduces an unnecessary layer of complexity. Although the intentions behind the change may be well-founded, MSMEs face persistent challenges when selling online, particularly when expanding beyond their home state. They must obtain GST registration for each state they sell in, and the newly implemented biometric authentication requirement complicates this further, necessitating that an MSME’s director travel to multiple locations to secure these registrations.

The government’s emphasis on unification tools highlights a stark contrast to the fragmented approach of requiring state-by-state GST registrations. If technology has proven capable of integrating financial systems and digital identities nationwide, why should GST compliance remain fragmented? A more logical intervention would be to establish a ‘Single Home State GST Registration’ that is valid across all states, with certain parameters and exceptions. This model could simplify compliance, reduce the administrative burden, and better align with the government’s broader digital objectives.

E-commerce export compliances is another area which poses significant time and cost burdens for MSMEs, who must navigate quality accreditations, import duties, and customs disputes.

While major economies have developed robust ecosystems for SMEs to thrive in the global e-commerce market, our regulations need more nuanced interventions. The e-commerce sector, still in its nascent stage, holds great potential. To foster innovation, we must create an enabling environment rather than impose stringent regulations, as excessive oversight could stifle the creativity and growth necessary for advancing the sector.

The e-commerce sector relies on the collaboration of both domestic and foreign players. The government must establish a supportive policy environment that encourages investment and reduces uncertainty, fostering a competitive landscape and ensuring equitable opportunities for all participants.

E-commerce is a catalyst that has the potential to significantly elevate MSMEs while expanding our trade landscape. To fully harness this potential, the government must prioritise targeted capacity-building programmes that equip MSMEs with the skills necessary to navigate digital payments and comply effectively with regulations. Simplifying the regulatory framework is essential; reducing compliance burdens, particularly by waiving GST registration limits for interstate sales, will alleviate obstacles for our small businesses. On top of that, streamlining compliance processes into a unified framework will ease operational complexities, allowing MSMEs to focus on growth. Similarly, by incentivising digital adoption and promoting initiatives that facilitate cross-border e-commerce, we can enhance the global market presence of our MSMEs.

This article is authored by Sudhakar Singh, Member of Parliament, RJD, Buxar, Bihar.