As MSMEs ride the e-commerce wave, they generate export optimism

The global economy is in a slowdown following a series of interconnected events such as the Covid pandemic, the Russian invasion of Ukraine, high inflation, geopolitical tensions and supply chain disruptions. According to the World Trade Organization (WTO), growth in global trade in goods is likely to slow to 1.7% in 2023, from 2.7% in 2022.

India seems to be coping well in this uncertain situation. It is one of the fastest growing economies in the world and is expected to grow at around 6% over the period 2023-2024 while the global economy grows at around 2.8%. In 2022–23, India exported $766 billion worth of goods and services. It plans to reach its $2 trillion export target well ahead of the 2030 deadline.

A key 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 projected overall growth of 13.9% between 2023 and 2027. In 2021, more than 348 million users made online transactions and almost 140 million made online purchases. According to Invest India, India’s cross-border e-commerce trade will reach US$350 billion in gross merchandise value annually by 2030. E-commerce is proving to be a savior amid supply chain disruptions, providing a livelihood for sellers and the ability for consumers to go anywhere in the world to purchase products at competitive prices.

Aware of the benefits of connecting exporters to e-commerce platforms, the Foreign Trade Policy (FTP) 2023 includes a dedicated chapter on facilitating e-commerce exports. It offers e-commerce exporters a range of trade facilitation measures, including extending all system benefits to e-commerce exports and increasing the value limit of exports by courier services 5 lakhs up 10 lakh per shipment. The FTP also announced special outreach and training activities for micro, small and medium-sized enterprises (MSMEs) engaged in e-commerce export. MSMEs accounted for almost half of India’s total exports in 2020-21 and are increasingly using e-commerce platforms to expand their reach both domestically and internationally. Online marketplaces like Amazon and Snapdeal have enabled MSMEs to sell their products to customers around the world. Going online has helped MSMEs serve a larger customer base, thereby increasing their sales and profits. The government wants its share of exports to increase to 60%, which can be achieved by engaging with online platforms.

The positive impacts of the Digital India initiative, particularly the digital penetration it enabled in Tier 2 and Tier 3 cities, are also likely to be game-changers, as is the government’s focus on digital inclusion of MSMEs. Digitization has led to the growth of technology startups. India has emerged as the third largest startup ecosystem in the world after the US and China, with over 80 service sector startup unicorns.

Online retail opportunities have fueled the emergence of a large number of entrepreneurs. Several e-commerce companies support sellers on their platforms with advice, training and start-up support. Sellers on such platforms also receive assistance with functions such as cataloging, marketing, branding, account management, consumer and business insights, logistics, and warehousing. By having access to key customer data such as orders placed, time spent browsing a particular page, and purchases made over a period of time, companies have been able to adjust their marketing and product development strategies. The combination of e-commerce and digital penetration has made marketing and advertising affordable for local small businesses, reducing their total cost of ownership.

E-commerce growth has been fueled by initiatives such as Make in India and the Production-Linked Incentive (PLI) program, which aim to transform India into a global manufacturing hub. Even more encouraging is the fact that e-commerce platforms are investing heavily in expanding logistics and warehousing capabilities. With the government’s continued efforts to increase logistics efficiency and reduce costs through the PM GatiShakti National Master Plan and National Logistics Policy, India is emerging as an attractive investment destination for international companies. The FTP 2023 creates further conditions to facilitate exports through e-commerce and to increase global reach. For example, Indian companies on Amazon generated cumulative exports of more than $5 billion between 2015 and 2022. This value can increase many times over if some open issues are resolved. For example, the value limit for exports by courier must be completely abolished.

In the current difficult global environment, government policies are moving in the right direction, supporting inclusive growth and exports. The Prime Minister has dubbed this decade a “techade” in India as digital adoption grows, encompassing national and global trade networks. More and more companies will join digital platforms and MSMEs need training to use them to their advantage. There is significant potential for public-private partnerships and inter-company alliances in this area. These can support India’s path to high and inclusive growth in an uncertain global situation.

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