BackMSMEs riding an e-commerce wave generate export optimism
India's e-commerce sector has been a key driver of the country's sustained high growth, with a predicted compounded growth of 13.9% between 2023 and 2027. The Foreign Trade Policy (FTP) 2023 offers a range of trade facilitation measures to e-commerce exporters, including extending all scheme benefits to e-commerce exports and increasing the value limit of exports through courier services. The government wants MSMEs to account for 60% of India's total exports, which can be achieved by onboarding them onto online platforms.
![An educational wooden toy factory in mayapuri [file photo]. (Hindustan Times Media Mint Delhi India)](https://www.livemint.com/lm-img/img/2023/06/14/600x338/An-educational-wooden-toy-factory-in-mayapuri--fil_1686766737739.jpg "An educational wooden toy factory in mayapuri [file photo]. (Hindustan Times Media Mint Delhi India)")
PremiumThe global economy is going through an economic slowdown following a series of interconnected events like the covid pandemic, Russia’s invasion of Ukraine, high inflation, geopolitical tension and disruption of supply chains. Growth in global goods trade is seen slowing to 1.7% in 2023 from 2.7% in 2022, according to the World Trade Organization (WTO).
India seems to be doing well in this uncertain situation. It is one of the fastest growing economies in the world, predicted to expand around 6% in 2023-24, while the global economy grows around 2.8%. In 2022-23, India exported goods and services worth $766 billion. It plans to hit its export aim of $2 trillion well before its 2030 deadline.
A key driver of India’s sustained high growth has been the e-commerce sector. In 2022, India was ranked the fourth-largest e-commerce market, with a predicted compounded growth of 13.9% between 2023 and 2027. In 2021, more than 348 million users transacted online and nearly 140 million shopped online. According to Invest India, India’s cross-border trade in e-commerce will reach an annual gross merchandise value of $350 billion by 2030. E-commerce is proving to be a saviour amid supply-chain disruptions by providing livelihood to sellers and enabling consumers across the world to buy products at competitive prices.
Realizing the benefits of linking exporters to e-commerce platforms, the Foreign Trade Policy (FTP) 2023 has a dedicated chapter to facilitate e-commerce exports. It offers a range of trade facilitation measures to e-commerce exporters, including extending all scheme benefits to e-commerce exports and increasing the value limit of exports through courier services from ₹5 lakh to ₹10 lakh per consignment. The FTP also announced special outreach and training activities for micro, small and medium enterprises (MSME) engaged in e-commerce exports. MSMEs accounted for almost half of India’s total exports in 2020-21, and are increasingly using e-commerce platforms to widen their reach locally and abroad. With online marketplaces such as Amazon and Snapdeal, MSMEs have been able to sell their products to customers across the world. Going online has helped MSMEs cater to a larger customer base, thereby increasing their revenues and profits. The government wants their share of exports to rise to 60%, which can be achieved by onboarding them onto online platforms.
The positive impact of the Digital India initiative, especially the digital penetration it enabled in Tier 2 and 3 cities, will likely also be a game changer, along with the government focus on the digital inclusion of MSMEs. Digitalization has led to the growth of technology startups. India has become the third largest startup ecosystem in the world after the US and China, with over 80 startup unicorns in the services sector.
Online retail opportunities have encouraged the emergence of a large number of entrepreneurs. Several e-commerce companies have been assisting sellers on their platforms with counsel, training and incubation support. Sellers on such platforms also receive assistance with functions such as cataloguing, marketing, branding, account management, consumer and business insights, logistics and warehousing. With access to significant customer data like orders placed, time spent browsing a particular page and purchases made over a period, businesses have been able to modify their marketing and product development strategies. The combination of e-commerce and digital penetration has made marketing and advertising affordable for local small players, thus lowering their overall cost of operations.
The growth of e-commerce has been amplified by initiatives such as Make in India and the production-linked incentive (PLI) scheme that aim to make India a global manufacturing hub. Even more encouraging is the fact that e-commerce platforms are investing heavily in developing logistics and storage capacity. With continued efforts by the government to increase logistical efficiency and reduce costs through the PM GatiShakti National Master Plan and the National Logistics Policy, India is becoming an attractive investment destination for international businesses. The FTP 2023 further sets the stage to facilitate exports through e-commerce and enhance global reach. For example, Indian companies on Amazon surpassed $5 billion in cumulative exports between 2015 and 2022. This can increase manifold if a few pending issues are sorted out. The value limit on exports though courier, for example, must be entirely removed.
In the present adverse global environment, government policies have been moving in the right direction, supporting inclusive growth and exports. The Prime Minister has described this decade in India as a “techade", as we see digital adoption rise and encompass domestic and global trade networks. More and more businesses will join digital platforms and MSMEs need training to be able to use these to their advantage. In this area, there is significant scope for public-private partnerships and alliances across companies. These can support India’s journey towards high and inclusive growth in an uncertain global situation.
Arpita Mukherjee is a professor at the Indian Council for Research on International Economic Relations (ICRIER).
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