MSMEs riding the e-commerce wave generate export optimism

India seems to be doing well in this uncertain situation. It is one of the fastest growing economies in the world, projected to grow at around 6% in 2023-24, while the global economy grows at around 2.8%. In 2022-23, India exports goods and services worth $766 billion. It plans to meet its export target of $2 trillion before the 2030 deadline.

A major driver of India’s sustained high growth has been the e-commerce sector. In 2022, India was ranked as the fourth largest e-commerce market, with an estimated compound growth of 13.9% between 2023 and 2027. In 2021, over 348 million users transacted online and nearly 140 million made online purchases. According to Invest India, India’s cross-border trade in e-commerce will reach an annual gross merchandise value of $350 billion by 2030. world to buy products at competitive prices.

Realizing the benefits of linking exporters with e-commerce platforms, the Foreign Trade Policy (FTP) 2023 has a dedicated chapter to facilitate e-commerce exports. It provides a series of trade facilitation measures to e-commerce exporters, including extension of all scheme benefits to e-commerce exports and increase in value limit of exports through courier services. 5 lakhs onwards 10 lakh per consignment. FTP also announced special outreach and training activities for Micro, Small and Medium Enterprises (MSMEs) engaged in e-commerce exports. MSMEs accounted for nearly half of India’s total exports in 2020-21, and are increasingly using e-commerce platforms to broaden their reach both locally and abroad. With online marketplaces like Amazon and Snapdeal, MSMEs have been able to sell their products to customers across the globe. Going online has helped MSMEs to cater to a larger customer base, thereby increasing their revenue and profits. The government wants their share in exports to increase to 60%, which can be achieved by onboarding them to online platforms.

The positive impact of the Digital India initiative, especially the digital penetration it enables in Tier 2 and 3 cities, will be a game changer along with the government’s focus on digital inclusion of MSMEs. Digitization has fueled the growth of technology startups. With over 80 startup unicorns in the services sector, India has become the world’s third largest startup ecosystem after the US and China.

Online retail opportunities have encouraged the emergence of a large number of entrepreneurs. Many e-commerce companies are assisting sellers on their platforms with mentorship, training and incubation support. Sellers on such platforms are also assisted in cataloguing, marketing, branding, account management, consumer and business insights, logistics and warehousing. With access to critical customer data such as 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, thereby reducing their overall cost of operations.

The growth of e-commerce has been fueled by initiatives such as Make in India and the Production Linked Incentive (PLI) scheme, which aims 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 capabilities. With the government’s continuous efforts to increase logistics efficiency and reduce costs through PM Gatishakti National Master Plan and National Logistics Policy, India is becoming an attractive investment destination for international businesses. FTP 2023 sets the stage for facilitating exports through e-commerce and increasing global reach. For example, Indian companies on Amazon crossed $5 billion in cumulative exports between 2015 and 2022. It can increase manifold if some pending issues are resolved. For example, the price cap on exports by courier should be completely removed.

In the current adverse global environment, the Government’s policies are moving in the right direction, supporting inclusive growth and exports. The Prime Minister described this decade in India as a “technology one”, as we see a rise in digital adoption and the incorporation of domestic and global business networks. More and more businesses will join digital platforms and MSMEs need training to be able to use these to their advantage. In this sector, there is significant scope for public-private partnerships and alliances among 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).

Updated: June 14, 2023, 11:49 PM IST