Imagine an artisan in rural India focusing on perfecting his craft and effortlessly connecting with customers overseas, while the system handles everything from product listing to payment settlement. please try.
This is the transformative potential of e-commerce exports, enabling micro, small and medium enterprises (MSMEs) and entrepreneurs to participate in global markets, and Prime Minister Narendra Modi's 'Voice for the Local, Local for the World'. ” is consistent with our vision.
However, realizing this vision requires a robust framework that addresses the unique challenges and opportunities of digital trade.
E-commerce export businesses typically involve high-frequency, low-value transactions, which pose different challenges compared to regular exports. However, the rules for international trade were created at a time when maritime trade was stagnant.
Follow the product journey path in three stages to discover problems and consider solutions. The first stage is the order-to-shipment process, as shown below.
India has one of the highest mobile penetration rates and one of the lowest data costs in the world. This will make it easier for local artisans and small and medium-sized enterprises to connect with the world.
Retailing your products online, either on a customized website or on third-party marketplaces like Amazon or eBay, solves the first big puzzle most small exporters face: where to get orders for their products. will be done.
In the coming years, ONDC may expand internationally and offer a cheaper alternative to listing products online. The main challenge for new exporters is understanding how to introduce, catalog and list their products online.
The government's recent initiative on permitting account aggregators is a positive step. FinTech companies are now leveraging aggregated banking details, order history, and API-based data from GSTN and IT departments to assess credit worthiness.
This will allow them to enter the small ticket lending market without collateral from e-commerce and small exporters. By pooling large datasets from interconnected systems, these FinTech companies can make loans themselves or act as credit rating providers for large banks to assess the creditworthiness of MSMEs. , can revolutionize the lending sector.
The second stage of the journey, including shipping and documentation, is shown below.
Many e-commerce exporters lack awareness about regulatory compliance, partner government agency (PGA) certifications such as organic sourcing and handicraft certification, and destination regulatory compliance.
Therefore, with no alternatives at all, most beginners end up relying on expensive fulfillment models operated by international market players, hitting their bottom line.
Additionally, to protect against various risks, while regular exporters often purchase export insurance through the ECGC when shipping their goods, e-commerce exporters typically do not qualify for export credit insurance through these organizations. It has not.
To address compliance knowledge gaps, the government is undertaking various initiatives in collaboration with partner agencies and departments such as Directorate General of Foreign Trade, Department of Indian Posts, CBIC, Department of MSME, State Governments, as well as private sector stakeholders. It was started. banks, logistics service providers, e-commerce markets, etc.
The program focuses on rural export planning and support/education to bridge knowledge gaps and has gained momentum in recent months. The Minister of Commerce recently published a handbook for beginners and MSMEs in e-commerce exports to further support these efforts.
Additionally, an information and workflow portal named 'Trade eConnect' platform has been developed to assist MSMEs in entering international trade.
Coming to the final stage of the post-shipment process, we summarize the differences below.
Regular exporters have access to trade finance instruments such as post-shipment credits, factoring services, and bill discounts. E-commerce exporters have none of these.
The solution to this problem lies with emerging fintech companies that are also expanding into the trade finance space. The Factoring Regulation Amendment Act passed by the government in 2021 played a key role in spurring this trend.
One notable issue is compliance under the Foreign Exchange Management Act (FEMA) and bank fees associated with these compliances. Each export transaction is reported to the Reserve Bank of India (RBI) through the online customs ICEGate system.
This information is stored on RBI's EDPMS (Export Data Processing Monitoring System) servers and must be matched against remittances received in the exporter's bank account.
Once the remittance from abroad reaches the bank account, the exporter will need to contact the bank and submit the necessary export documents to the bank, and the bank will need to verify the details and match the outstanding amount in EDPMS with the receipt. there is. Failure to do so within the stipulated period may result in penalties under FEMA and the threat of action by the Enforcement Directorate.
Banks typically charge between Rs 300 and Rs 700 (or more) per transaction as a fee for this service. While this is a small fee for large exporters with transactions in the thousands of dollars, it is impractical for small e-commerce exporters with transactions in the tens of dollars.
DGFT's initiative to come up with a free self-certification based e-BRC generation process is a revolutionary step towards simplifying the e-BRC generation process.
However, counterfeit EDPMS remains a pain for e-commerce exporters and the RBI is working to simplify this. Another solution could be to exempt transactions up to statutory compliance limits, such as the period until export proceeds are realized. This issue is being actively considered by the government.
Additionally, the government has clearly stated its intention to extend all export-related benefits and refunds normally available to exporters to e-commerce exporters. This was done by making necessary amendments to the Indian Foreign Trade Policy during last year's revision (FTP-2023). This provision is being rolled out in stages through the required activation in the online system for e-commerce exporters.
This brings us to the final part of the discussion on what more can be done to promote e-commerce exports.
The first step in any policy intervention is to ensure good data. There is no reliable data on e-commerce exports. The documentation is the same for all types of cross-border trade. One solution is to introduce specific customs purpose codes for e-commerce, as is done in China. Exports made under these codes are counted as e-commerce exports.
Another potential solution is to introduce an identifier into existing export documents, such as shipping invoices, that identifies exports as e-commerce exports. These may be on a self-declaration basis to begin with, and incentives such as faster customs clearance and easier GST refund mechanisms may be introduced to encourage correct declarations.
Another important intervention is to allow aggregators to create e-commerce export hubs (bonded areas on export-oriented unit schemes to facilitate cross-border e-commerce), allowing aggregators to create space for retail e-commerce. It may be possible to allow people to rent out. players.
Such zones could also facilitate returns and minor alterations and repackaging of products, making them a good attraction for e-commerce sectors such as custom apparel, where return rates are typically higher.
Another important advance is being made by the Ministry of Posts and Telecommunications and the Central Board of Indirect Taxes and Customs (CBIC) through the Dak Niriyat Kendra (DNK) initiative, which allows small exporters to submit their 'Export Postal Bills' electronically. and then present the parcel to DNK for export.
The Post Office currently operates more than 1,000 DNKs in a hub-and-spoke model to supply overseas post offices. The distribution of currently operating DNKs by state is shown below. This shows the reach of India Post and its potential to connect rural India to the world.
Today, we stand on the threshold of a new era for Indian trade. The digital environment opens vast avenues for rural artisans and small and medium-sized enterprises to operate across borders on a scale never seen before in human history.
Embracing this digital wave will require regulatory agility and foresight in policy-making to ensure that India takes full advantage of its unique strengths in connectivity and human capital.
This path, if followed wisely, will not only achieve the ambitious export targets set for it, but also pave the way for India to emerge as a global e-commerce powerhouse within the next few years, achieving each goal. This will help realize the vision of the Prime Minister. It is an export base for India.