Context: The Ministry of Commerce and Industry has initiated consultations with industry stakeholders (Amazon, Flipkart, MSMEs, retailers) to explore ways of boosting e-commerce exports, especially under the E-Commerce Export Hubs (ECEHs) model announced in the Union Budget.
Relevance of the topic:
Prelims: State of E-Commerce in India.
Mains: E-commerce in India- state, potential, issues, government policies.
In the backdrop of the US imposing 50% tariffs on Indian products, the Indian government is pushing to strengthen e-commerce exports as an alternative route to sustain export growth. A major debate has emerged on whether FDI should be permitted in the inventory-based model of e-commerce, which MSMEs support but retailers oppose.
What is E-Commerce?
- E-Commerce (Electronic Commerce) refers to the buying and selling of goods and services using digital platforms and electronic networks, particularly the internet.
- It enables Business-to-Business (B2B), Business-to-Consumer (B2C), and even Consumer-to-Consumer (C2C) transactions across domestic and international markets.
Models of E-Commerce in India:
- Marketplace Model:
- E-commerce companies act as facilitators between buyers and sellers.
- 100% FDI is permitted under the automatic route in this model.
- Example: Amazon, Flipkart (platforms connecting sellers to buyers).
- Inventory-Based Model:
- E-commerce entities own inventory of goods and sell directly to consumers.
- FDI is not permitted in this model.
- Example: Reliance Digital’s online stores.
Current State of E-Commerce in India:
- India’s e-commerce industry is dominated by MSMEs and small businesses exporting goods valued between $25 and $1,000.
- Popular export products: handicrafts, art, books, ready-made garments, gems and jewellery.
- India’s total e-commerce exports currently stand at only $5 billion, which is far below China’s $300 billion.
- According to GTRI (Global Trade Research Initiative), India’s e-commerce exports have the potential to reach $350 billion by 2030.
Challenges in India’s E-Commerce Exports:
- Policy and Regulation: Current rules are a patchwork framed for regular B2B exporters, creating a high compliance burden on small firms. No separate e-commerce export policy exists yet.
- FDI Restrictions: FDI permitted only in the marketplace model, not in the inventory model → limits global competitiveness.
- Logistics and Infrastructure: Poor logistics integration, high shipping costs, and lack of streamlined customs processes hamper efficiency. India's logistics costs remain high: 10-12% of GDP as compared to 8-10 % global benchmark.
- MSME Burden: Small exporters face difficulties in customs clearance, returns, and international payments.
- Global Competition: India’s e-commerce exports, at just $5 billion, lag far behind global leaders such as China ($300 billion) and rapidly growing players like Vietnam and South Korea.
Government’s Current Push
- E-Commerce Export Hubs (ECEHs) announced in the Union Budget to promote small exporters.
E-Commerce Export Hubs (ECEHs):
- E-Commerce Export Hubs (ECEHs) initiative aims to establish dedicated zones for facilitating cross-border e-commerce exports from India.
- These hubs are designed to support SMEs, Artisans, and small businesses by mitigating the cost and time associated with logistics, regulations, and returns processing.
- Each ECEH will offer integrated services at a single location including customs clearance, quality certification, packaging, off-port warehousing, and support for re-imports of returns or rejected goods.
- ECEHs are envisioned as part of a broader push under the Foreign Trade Policy (FTP) 2023 which includes digital trade facilitation, outreach (like Niryat Bandhu scheme), and infrastructure like Dak Ghar Niryat Kendras (DNKs), and improved courier export limits.
- Economic Survey further underscores that ECEHs will connect MSMEs, Artisans, and One District One Product (ODOP) initiatives with global markets, thus enhancing logistics efficiency and economic inclusion in Tier 2 and Tier 3 cities.
- DPIIT has begun consultations with stakeholders to explore reforms.
- MSMEs are advocating for allowing FDI in inventory-led models to ease compliance and boost competitiveness.
- Retailers, however, oppose inventory-based FDI, fearing it could hurt small traders and lead to monopolisation by global giants.
Way Forward
- Dedicated E-Commerce Export Policy: Frame a unified policy addressing customs, returns, payments, and compliance burdens specific to digital trade.
- FDI and Regulatory Reforms: Revisit FDI norms in the inventory-led model with safeguards for MSMEs and small retailers.
- Integrated Logistics Infrastructure: Operationalise E-Commerce Export Hubs (ECEHs) with end-to-end facilities for warehousing, packaging, and streamlined customs clearance.
- Digital Empowerment of MSMEs: Provide targeted skilling, digital onboarding, branding, and fintech solutions to integrate small exporters into global e-marketplaces.
- Global Trade Engagement: Leverage FTAs and WTO negotiations to secure favourable digital trade rules and expand market access.
The GTRI estimate of $350 billion e-commerce exports by 2030 highlights the immense untapped potential of India’s digital trade. Achieving this target will require a dedicated e-commerce export policy, supportive FDI frameworks, robust logistics infrastructure, and effective integration of MSMEs into global value chains.