The Union Budget announced yesterday is a boost to the e-commerce sector. Finance Minister Nirmala Sitharaman in her budget speech said the government will set up e-commerce export hubs through public-private partnerships.
“These hubs will facilitate trade and export-related services in a centralized manner under a seamless regulatory and logistical framework,” the finance minister said.
According to reports, in addition to facilitating export customs clearance, these hubs may also have facilities for inspection, packaging, customs clearance, warehousing etc. In March last year, the government's foreign trade policy also recommended the establishment of e-commerce export hubs.
“We will also come up with a policy for e-commerce export hubs designed to enable e-commerce aggregators to take care of everything from inventory management to customs clearance and handling of returns,” Santosh Kumar Sarangi, director general of foreign trade, said in March last year, according to The Hindu.
To boost cross-border trade in the digital economy, the Central Bank of India and the Directorate General of Foreign Trade (DGFT) under the Ministry of Commerce are working to promote e-commerce export hubs. In December last year, the DGFT said it was working with the Reserve Bank of India (RBI) and other ministries to promote exports via e-commerce.
“We are also working with the Revenue Department on developing or designating e-commerce export zones where export clearance will be easy and quick,” Sarangi told PTI.
Sarangi said at the FICCI conference that India's e-commerce exports could reach $400 billion by 2030. India's e-commerce exports are projected to be worth $4-5 billion.
Meanwhile, Commerce Secretary Sunil Basu said India will have the regulatory framework in place to boost e-commerce exports by September, and economic think tank GTRI has highlighted that India's e-commerce exports could reach $350 billion by 2030.
Read: Want to create an easily accessible and affordable e-commerce platform: Himanshu Chakrawarti
“The government's move to set up e-commerce export hubs to enable MSMEs to export their local products is a major step in the direction of promoting growth through innovation and facilitating the growth of MSMEs based on new age trends,” said Ratna Mehta, managing partner, Fundamental Ventures.
An e-commerce export hub would be a hugely lucrative sector for India, but it also comes with some challenges, according to Badri Narayanan Gopalakrishnan, fellow and former head of trade, commerce and strategic economic dialogue at NITI Aayog. “Firstly, small and medium-sized businesses embarking on e-commerce exports often face issues with not being able to access credit,” he wrote in an Amazon blog. “Furthermore, processes related to logistics, payments and compliance need to be automated to eliminate redundancies.”
Moreover, small sellers often face significant challenges in exporting due to extensive paperwork and complex compliance requirements. These cumbersome processes impose additional costs on small and medium-sized sellers, Shriram Subramanian, founder and MD, InGovern Research Services, said in an Outlook India article.
Reduction in TDS
Another key announcement made by the Finance Minister in the Budget was the reduction in Tax Deducted at Source (TDS) on businesses from 1% to 0.1%. The reduced rate will be applicable from October 1, 2024.
“The Finance Bill will initiate tax regime for charities, withholding tax rate structure, revaluation and review provisions and simplification of capital gains tax,” Sitharaman said in her budget speech.
In simple terms, this means that withholding will be applied to payments such as rent, salaries, professional fees, etc. The entire e-commerce industry is encouraging this move.
The reduction in withholding tax rates for e-commerce businesses is an important change that will improve liquidity, said Dilesh Bansal, chief financial officer at Meesho. Previously, small businesses had to wait a year to claim refunds. Dilesh Bansal, Meesho's chief financial officer, said the change will improve working capital efficiency and create greater parity between online and offline businesses.
After the TDS cut was announced, the Open Network for Digital Commerce (ONDC) in a statement said, “Cutting TDS on e-commerce businesses will improve cash flow for MSMEs and drive their digital transformation.”
The budget places emphasis on small and medium enterprises and the e-commerce sector. Moreover, the government is placing increased emphasis on digitalization. In his speech, the Finance Minister said, “Public investments in digital infrastructure and innovation by the private sector have helped improve access to market resources, education, health and services for all our citizens, especially the general public. We will intensify technology adoption towards the digitalization of our economy.” While the overall e-commerce sector is optimistic, it remains to be seen how these measures will strengthen the sector.
