eXport boost for eCommerce

Last week, GoI permitted FDI in inventory-based ecommerce exclusively for exports of goods manufactured in the country. This move could very well transform ecommerce exports from a minuscule share of India's export basket into a substantial one. The decision is timely because exporters using this route are expected to face mounting scrutiny of production methods that could stymie their plans. Indian MSMEs export around $5 bn in handicrafts, apparel and jewellery through ecommerce, while China manages about $300 bn via this route. The potential remains untapped in India because ecommerce exports follow rules drafted for business exports. The compliance required of MSMEs attempting to sell directly to consumers overseas is daunting. Besides, importing destinations such as the EU are imposing additional digital record keeping, involving the entire lifecycle of imported products. The US is considering extra duties on imports from India it suspects of having been made using forced labour.

Routing such exports through ecommerce platforms that can handle regulatory paperwork at both ends is the way forward. These platforms have the scale and technology to meet compliance requirements and the digital documentation increasingly demanded by importing countries. Shein, a Chinese ecommerce brand, holds about a fifth of the worldwide fast fashion market. In contrast, about 12,000 Indian MSMEs managed to export through ecommerce. Their products are typically valued far less than $1,000. Having an explicit ecommerce export policy should help Indian MSMEs compete with rivals in China, South Korea, Japan and Vietnam.

Easing of rules for platforms such as Amazon and Flipkart also addresses their long-standing concern over being denied inventory-based ecommerce in the country. There are extra profits to be made in direct sales from inventory beyond commissions they are allowed to charge for connecting buyers and sellers. The relaxation plugs a gap in their business model in India.