Facilitating manufacturing through MSMEs

• A significant major contributor to the India growth story is going to be manufacturing.
• Manufacturing by small units, cottage units and MSMEs, if effectively facilitated, will be the game changer.
• For MSMEs to be sustainable and effective, the need of the hour is not just better automation but also more channels for accessing greater markets and opportunities to become a part of the national and global supply chains.
• E-commerce marketplaces are today the best possible enablers for this transformation at minimal cost, innovation and investment.

Need to invest in digital transformation and technology

• China captured the world market through the traditional method of having guilds and business centres.
• Today, digital empowerment is the key differentiator.
• Without that, our MSMEs will not be future ready.
• E-commerce allows products even from hinterlands to get to the national market, thus, providing opportunities to artisans and small sellers from Tier-2/3 towns to sell online to customers beyond their local catchment.
• By investing in supply chains, the e-commerce sector provides opportunities for MSMEs to partner them in supply and delivery networks.
• Start-ups and young brands are also finding opportunities to build national brands and even going global.
• This leads to additional income generation through multiple livelihood opportunities.
• Many offline stores are also adopting e-commerce to leverage these opportunities and the traditional and modern retail models are moving towards more offline and online collaborations.

Challenges in building robust e-commerce sector

1) No GST threshold exemption

• Sellers on e-commerce marketplaces do not get advantage of GST threshold exemption (of Rs 40 lakh) for intra–state supplies.
• Online suppliers have to “compulsorily register” even though their turnover is low.
• Offline sellers enjoy this exemption up to the turnover threshold of Rs. 40 lakh.

2) Principal place of business issue

• Today, the sellers, as in offline, are required to have a physical PPoB which, given the nature of e-commerce, is not practical.
• The government would do well to simplify the “Principal Place of Business” (PPoB) requirement especially for online sellers by making it digital.
• Replace physical PPoB with Place of Communication.
• Eliminating the need for state specific physical PPoB requirement will facilitate sellers to get state-level GST with a single national place of business.

3) Support MSMEs to understand e-commerce

• MSMEs should be provided with handholding support to understand how e-commerce functions.
• The government can collaborate with e-commerce entities to leverage their expertise and scale to create special on-boarding programmes.
• These can be provided by state governments.
• There is need to examine the existing schemes and benefits for MSMEs, which were formulated with an offline, physical market in mind.

4) Build infrastructure

• There is a need to build infrastructure — both physical and digital infrastructure is important for digital transformation.
• The road and telecom network will facilitate access to the consumer and enable the seller from remote areas to enter the larger national market as well as the export market.
• A robust logistic network and warehouse chains created by e-commerce platforms enable similar access and reach.
• The National Logistics Policy should focus on e-commerce sector needs.

5) Skilling policies for e-commerce sector

• Dovetail the skilling policy and programmes with the requirements of the e-commerce sector to meet future demand of the sector.

6) Steps to increase export via e-commerce

• We need to take specific steps to increase exports via e-commerce.
• There is a need to identify products that have potential for the export market, connect e-commerce with export-oriented manufacturing clusters, encourage tie-ups with sector-specific export promotion councils, leverage existing SEZs to create e-commerce export zones.
• India Posts can play a significant role by creating e-commerce specific small parcel solutions at competitive rates, building a parcel tracking system, and partnering with foreign post offices to enable customs clearances.

Way forward

• There is an urgent need to create a consolidated policy framework for e-commerce exports.
• Policies like the upcoming Foreign Trade Policy needs to be fully leveraged.
• The Foreign Trade Policy should identify areas and include e-commerce export specific provisions in the revised policy that comes into effect in April this year.

Consider the question “E-commerce marketplaces can help MSMEs in accessing greater markets and provide opportunities to become a part of the national and global supply chains. In light of this, examine the opportunities provided by e-commerce also mention the challenge the sector faces in India.” 

Conclusion

By facilitating and supporting e-commerce, we can leverage the potential of MSMEs in manufacturing which could help in the economic growth of the country by creating job opportunities.

Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024

Attend Now