FDI_ECommerce

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HOW ECOMMERCE IS NOT ELECTRONIC

COMMERCE, BUT AN ENABLER OF COMMERCE

The ecommerce sector in India has been in forefront of our economy for the past few years garnering probably the maximum amount of funding and generating employment, efficiency and consumer awareness. The current image of e-Commerce is that of another commercial retail setup, while in reality e-Commerce has become one of the biggest enablers of commerce in India today. E-Commerce is not just being used by the citizens across the country; it is also putting businesses from across the country on the same level. A country with deep rooted small business sensibilities, e-Commerce is changing the rules of the game. Everyone has a chance to remove the shackles associated with business and go fulfil the dreams of industry, society and the nation using the new possibilities. One highly important aspect in which e-Commerce is organizing the industry is the issue of unaccounted money. Unaccounted cash transactions or black money as known more commonly, have been taking place for a long time. With e-Commerce coming into the market, they bring their own efficient and transparent systems. These do not only enable them to optimize their operations, but also remove any scope of unaccounted cash dealings. The new government has also been focussing on this issue for a while now and e-Commerce aims to become of one of the biggest weapons in this fight. A simple point to note is that when a transaction takes place through the ecommerce route it is automatically recorded with a digital footprint. Even in a COD (Cash on delivery) order, since the request for a particular product in done online with the amount being pre-decided on the website the transaction is recorded thereby negating any possibility of untoward cash flow from the merchant to the buyer. Retail traditionally has been one of the biggest unorganized sectors in India with only a few organized players (like Future, Reliance trends, Westside etc) prevalent in the market. However with the advent of the digital age in the sector the online trade has somewhat managed to shift the balance towards organizing retail in India. Real estate similarly has been an even bigger unorganized parallel economy in our country but with the advent of eCommerce this can change whereby the business models can evolve to actual buying and selling online in order to remove any use of


black money. Players in this field have already started disrupting the heavy tendency of real estate operators dealing in cash. Ecommerce would certainly help the unorganized retail and realty sector to boost their sale as well as provide a reach to a larger audience. Since a large amounts of unrecorded transactions which if accounted for would also help to give a clearer and a more realistic GDP value. The last and most important aspect would be the power and the possibilities e-Commerce opens up for the MSME sector. So far, MSMEs have struggled to do business because of a few reasons like:

1. Lack of vision beyond immediate markets 2. No or low brand value 3. Lack of consumer and behavioural research 4. Hesitation to adopt technology

These are quite standard issues faced by MSME in India, How e-Commerce solves is short of a miracle.

1. So far, an MSME has been dealing in his / her geographical area, considering the limitation on business development and on-the-ground marketing. Now, with e-Commerce the same leather manufacturer in Kanpur, Uttar Pradesh can sell his wares not just across the country, but globally. One does not need to spend heavily on setting up shops across the globe, the internet does that for you.

2. So far, India has been predominantly a contract manufacturing / outsourcing hub. We have been focussing on giving our international / branded clients the exact product / services they demand, yet we only manage to earn a fraction of the final good / service being sold to the consumer. This is now changing, with e-Commerce, the MSMEs are being promoted and asked to come online and sell directly to the consumer. This creates the notion of what a brand is, how it should be created and sustained.

3. E-Commerce also allows the MSMEs to focus on how consumers think, they bring in their own consumer focussed business tools suing analytics and demographics to enable the MSME to learn and engage ones customer.

4. India might have invented ZERO, but our last few decades have not been very technologically progressive. Due to a plethora of reasons, India and MSMEs had not been very inclined towards adopting technology and innovations to grow. The e-Commerce players are the one who are investing and creating efficient systems which can help the MSME grow. They are automating the industry to ensure there is no pilferage, efficiency loss yet focus on the key stakeholders.


NEED OF THE HOUR Arguably, Ecommerce has seen one of the biggest ways of entrepreneurship in India ever. The industry has witnessed a tremendous influx of talent from various age groups whereby creating a sort of ripple effect into innovation. What it needs now is a sustainable infrastructure and a clear policy to continue doing business.

TAXATION Policy restriction and lack of clarity has resulted in onerous burdens on VAT related compliances through forms and other administrative measures that consumers, merchants and logistics companies need to bear. Some states also impose entry taxes and additional taxes for cash specific transactions as it relates to Ecommerce. Liberalization of the sector, clarity in policy and allowing Goods and Service Tax (GST) will bring much needed relief to the industry. Ecommerce marketplace is a technology platform which does not engage in any trading activity on its own but rather facilitates the sale and purchase between buyers and sellers. To facilitate the sale and purchase the marketplace also intermediates in providing certain backend services like warehousing, packaging, logistics services and also technological integration with payment gateways and customer care support. The services provided by the marketplace model of Ecommerce have been misinterpreted and have created an ambiguity around VAT implications by various states. Ecommerce marketplaces are being asked by various state VAT departments to become “commission agents” of the multiple sellers, duly registered under VAT in the respective states of their principal place of business. The marketplace relationship with the Sellers is on a principal-to-principal basis and they do not buy or sell on behalf of the sellers, which is the specific requirement to qualify as a 'commission agent' under local VAT laws. Acting as commission agent would mean that E-commerce marketplaces will be required to take stock of the inventory of the sellers, raise invoices on behalf of the sellers, offer prices and sell inventory on behalf of the seller, collect sale proceeds on behalf of the seller and remit local VAT to the state department. This is in total contravention of the marketplace model, which is only as a facilitator of the seller in connecting with the end customer through a technology platform. It will also be in violation of the FDI Policy, which currently restricts FDI in online B2C Ecommerce. A seamless and predictable tax structure would not only benefit the industry, in terms of operational efficiencies, but also encourage other players to join in the digital revolution.


The recent implementation of GST can change the dynamics of the delivery system whereby the warehousing and logistics strategies, of various ecommerce and manufacturing companies, would be made on operational efficiency rather than on how to avoid taxes.

CONTRACT MANUFACTURING The Industry was really pleased by the announcement in the Union Budget 2014 by the Hon’ble Finance Minister, to allow Manufacturers with FDI to directly sell online through eCommerce platforms without any approval. This will greatly help MSMEs to achieve scale and Manufacturers to scale their business by fully utilizing the potential of eCommerce to sell their Manufactured goods. Due to complexity in Manufacturing, the Manufacturers are typically following 2 methods of Manufacturing

1. Manufacturing the goods under the Excise Act and processing excise duty as per existing Excise Act

2. Contract Manufacturing under their supervision and control from units located within India. The Contract Manufacturing units are processing Excise as per existing Excise act.

In order to maximize the potential of Indian Manufacturing Sector, allowing Contract Manufacturing method in the policy will help MSMEs get new business from bigger Manufacturers and brands and the policy will have very good trickledown effect in the manufacturing economy of the country

FOREIGN DIRECT INVESTMENT The Ecommerce industry would urge the government to review the existing Ecommerce policy as it relates to Foreign Direct Investment (FDI) and ease the entry barriers for foreign entities to invest in varied Ecommerce models or entering into partnerships with Indian companies. In the past one year the sector has attracted highest Investment in India, primarily because of the potential it has to transform the way we do business. A clearer policy on FDI in B2C can be beneficial to the industry as a lot of investments can be made in backend infrastructure like logistics, warehousing, skill development etc. The risk capital which flows in can have clauses whereby the returns should be reinvested in certain infrastructure sectors to boost the entire ecosystem.


INFRASTRUCTURE The need to rollout broadband as soon as possible is imperative for the growth of Semi-urban and rural areas. Ecommerce can play a role of catalyst to give a fillip to the infrastructure development in India. This was evident when very recently India post decided to collaborate with ecommerce companies for their delivery and warehousing which in turn brought in huge revenues for the department. • Easier access to air and rail infrastructure: Have dedicated terminal gates for eCommerce shipments • Co-investment to boost infrastructure on the lines of India post Employment generation Ecommerce companies in the past 2-3 years have also helped in creating vast employment be it warehousing, logistics, backend infrastructure, digital marketing etc • MSME Manufacturing getting a boost as they have an easy and highly accessible medium to sell their products throughout the country this in turn leads to employment generation in tier – 1, tier – 2 cities. It can be used as a tool for reverse migration by aligning it with the concept of “developing Smart cities”

CONCLUSION To sum it up I would like to say that Make In India, Skill India and Digital India should not just be programs but essential levers which work together to strengthen our nation. If e-Commerce can be a brilliant enabler for the growth of our nation, and FDI a sustainable route to get there, we must act on it and soon. Anupam Gupta Chairman – IT & Innovation Committee | AIMA MSME Head – Strategy & Operations | Dragonfly Education Head – Business Strategy | NetProphets Cyberworks [email protected]

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FDI_ECommerce

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