Indian Ecommerce Policy: Can it help small and medium businesses?

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Indian government released the draft ecommerce policy on Monday July 30, which seems to favour Indian entrepreneurs over foreign ecommerce giants. The policy aims to restrict uncompetitive practices and oligopolistic market structure by barring group companies of ecommerce players from directly or indirectly influencing sale prices. It also refers to a national regulator for ecommerce, mandatory data localisation and tax sops for data centres, among others, which may help the domestic businesses to grow. The policy comes at a time when there are several initiatives by India and its trading partners such as the ASEAN on digital connectivity and ecommerce projects.

India is among the largest fastest growing e-commerce markets. The Indian ecommerce market is expected to reach $64 billion by 2020 and $200 billion by 2026 from $38.5 billion in 2017. The number of Internet users stood at 481 million in December 2017 and according to the Confederation of Indian Industry (CII) estimates the number of online shoppers in India is expected to reach around 220 million by 2020. Over the years, a number of Indian startups have emerged in areas such as e-retailing (Flipkart, Snapdeal), credit lending (Faircent), food delivery services (Swiggy, Fresh to Home, ID Fresh Food), and logistics management services (FarEye, Unbxd). However, in spite of having a growing domestic market, Indian ecommerce companies have been facing stiff competition from the global giants, who despite the restrictions on foreign direct investment in retail and e-commerce seems to be taking over the market.      

The ecommerce business requires huge investments and it depends on innovative business models, data and information. Predatory pricing can lead to huge revenue losses, which has been faced by some of the early ecommerce startups in India. Further, marketplace based model alone does not ensure global access. Buyers require supply chain traceability. They also want certification such as Fair Trade certification. Thus, the Indian supplier of the products has to meet the requirements specified by their sourcing agents/buyers. In a globalised world, consumers will chose the platform that will offer the best services at competitive prices. Brand owner will not select the products unless they meet their country requirements and the requirements specified by their companies.

The core issue faced by Indian businesses in accessing ecommerce platform is lack of knowledge. They do not have knowledge on requirements and even if they have it, the cost of certification and processes to meet such requirements may be high. In case of food products, APEDA, under the Ministry of Commerce and Industry has set up a mandatory traceability system called Trace net for selected product exports, including grapes, peanuts and organic produce. Yet this system is based on information provided by the farmers, manufacturers, exporters, etc, and there has been issue with spurious products. Thus, the traceability system has to be backed by technology such as blockchain and a better risk management process. There is need for ministries and export promotion councils to invest in such technologies.

Ecommerce platform for trade promotion and marketing requires initial investment and support from the government. The estimated cost of creating an ecommerce platform where individual and businesses can get trade-related, market-related information along with a traceability system will cost around Rs 8 crore over 2 years. While this platform can be self-sustainable in 4-5 years, fee–based services, transaction fee-based revenue, advertisements, etc, very few venture capitalists will be willing to fund such a platform for Indian artisans or craftsmen in remote areas. This is because it will require backend logistics and connectivity. While some Indian startups are interested and have innovative business models to link artisans and craftsman to the global supply chain, it is difficult for them to raise the funding for such platforms. Due to this, some of them have sold their ideas or initial proof of concept to global players. The Department of Post can partner with such players to address the logistics concerns and central government can fund the initial cost of establishing such platforms.

Today, even a number of government bodies do not have resources to develop digital platforms and promote technology to improve efficiency and productivity of their sector. For example, a digital platform can help the Economic Research Unit, Joint Plant Committee, under the Ministry of Steel to integrate the coal production, demand and supply information; help to mitigate the demand and supply gaps; monitor the logistics and supply chain, and identify the need for government intervention and investment requirements. If government ministries and departments partner with private players to create such platforms, with initial funding from the government, it will help both government and businesses.   

-The article has been co-authored by Prof Souvik Dutta and Shouvik K. Majumdar, Director, Vantedge Global Solutions.