By Anil Bhardwaj
E-commerce exports from India have gained considerable traction in recent years, with lakhs of MSMEs showcasing and selling ‘Make in India’ products to hundreds of thousands of customers worldwide. The rapid growth of this sector, characterised by its high-volume, low-value shipments, marks a significant evolution in India’s export landscape, which large-scale B2B shipments have traditionally dominated.
The sector’s potential is substantial with the Foreign Trade Policy 2023 estimating that e-commerce exports from India could reach $200-$300 billion by 2030. This growth would contribute nearly 30% to India’s $1 trillion goods export target.
Recognizing this potential, the Government of India has introduced several schemes and initiatives to empower this sector. Most recently, the Union Budget 2024 announced plans to establish E-Commerce Export Hubs (ECEHs) to simplify various logistical and compliance challenges for MSME exporters. These hubs are expected to address logistical and compliance challenges, offering streamlined export clearance, warehousing, and customs processing under one roof. As India aspires to expand its global footprint, particularly with the added advantage of a favourable exchange rate, it is crucial to create a level playing field for e-commerce exporters and thereby further boost its adoption.
Access to credit
B2B exporters in India benefit from a range of financing options due to their priority status with banks. They can secure purchase order (PO)–backed financing options, including working capital, term loans, and export credits at favourable interest rates ranging from 7% to 10%.
In contrast, e-commerce exporters face limited options as they operate on an overseas warehouse model where they deploy inventory without purchase orders. This makes them ineligible for low-interest PO-backed financing, and they are forced to rely on revenue-based financing with significantly higher interest rates of 12-15%. Moreover, public sector banks do not offer revenue-based financing, further constraining the financial resources available to e-commerce exporters.
To alleviate these challenges, loans for e-commerce exporters should be included in priority sector lending (PSL) where specific industries are given credit at lower interest rates. This will help level the playing field with B2B exports, reduce the barrier to entry for MSMEs dedicated to e-commerce exports and provide an impetus to this sunrise sector.
Export incentives
E-commerce exporters using express delivery services are frequently excluded from incentives available to traditional exporters, such as Duty Drawbacks and the Remission of Duties and Taxes on Exported Products (RoDTEP). Existing incentive structures, which were designed for bulk shipments and conventional trade practices, are not suitable for the agile, small-scale operations that characterize e-commerce exports. The absence of this support makes it challenging for e-commerce exporters to sustain profitability and accelerate their expansion.
Moreover, e-commerce exports are not included under the Market Access Initiative (MAI) scheme which offers financial support for export promotion activities targeting specific countries, and products and focuses on event participation. This limitation prevents e-commerce exporters from accessing crucial resources and funding that could drive their growth. To address this, the MAI scheme should be expanded to cover the unique needs of e-commerce exports, including support for digital marketing and brand development.
High payment reconciliation costs
E-commerce export adoption is also being held back by several banking and payment-related challenges. Under the current RBI guidelines, banks charge between INR 1,500-2,000 per shipping bill for Export Data Processing and Monitoring Systems (EDPMS) fee, a process which the RBI introduced for Indian banks to record exporters’ transactions with them online. This steep fee is a significant burden for small exporters selling small ticket items. To encourage greater participation from MSMEs in this sector, the RBI should reconsider the high EDPMS closure fees for low-value shipments and if possible, get rid of it altogether to provide a fillip to this sector and encourage greater participation from our sellers.
Another significant challenge for e-commerce exporters is the 25% limit on differences between the amount received and the value declared in the shipping bill when closing the entry on the EDPMS portal. This cap does not account for the platform fees that e-commerce exporters incur, along with costs related to unsold stock, discounts, and price variations.
In a bid to rationalize these regulations, RBI’s draft FEMA regulation 2024 proposes granting Authorized Dealer (AD) banks the authority to approve variations beyond the 25% threshold. While this could be an enabling step for e-commerce exports, questions remain about whether AD banks have the necessary expertise and resources to implement it effectively. To ensure successful implementation, bank staff will need to be given extensive training and guidance so they can adequately support e-commerce exporters.
Driven by their ability to deliver high-demand, customized products, and achieve increased profit margins per export unit, India’s exporters are set to make a significant impact in global markets. The government has already taken steps to support e-commerce exports and address key export barriers. By further levelling the playing field for e-commerce exporters and resolving challenges in these three critical areas, India can move closer to unlocking the potential of its e-commerce export sector, ensuring that the digital age of trade is as robust as its predecessor.
Anil Bhardwaj is Secretary General at the Federation of Indian Micro and Small & Medium Enterprises (FISME). Views expressed are personal. Reproducing this content without permission is prohibited.