PROMOTING CROSS BORDER E-COMMERCE FOR INDIAN MSME SECTOR

MSMEs industry in India is on an unprecedented growth trajectory. Over 63 Mn MSMEs are responsible
for contributing 28.77% to the Indian GDP (2015-16) according to the 2017-18 report of the Ministry of
MSME.

The past decade has witnessed an exponential rise in adoption of smartphones, internet connectivity and e-
commerce. This has subsequently opened-up the entire country as a market to smaller retailers and
manufacturers.

Earlier a small leather apparel manufacturer in Dharavi was limited to the local intermediaries who would
take a significant margin on the products being sold. Through online channels and e-commerce portals, the
same manufacturer is now able to access a national market with higher margins. Additionally, MSMEs
using e-commerce have reported up to 60% reduction in marketing and distribution costs along with a 27%
higher revenue growth. Such growth via digital channels has encouraged more MSME companies to be
brought into the organised sector and boost the formal economy. The Indian e-commerce industry is
projected to surpass the US to become the second largest e-commerce market in the world by 2034.

The sizeable impact of e-commerce on India’s MSME sector supplemented by financing and technology
adoption has a ripple effect on associated industries and the Indian economy as a whole.

To the Round 2 shortlisted teams of the YES Bank Transformation Series 2018: Invest India and YES BANK
are eager to hear your perspectives and solutions on how MSMEs can build momentum on growth and
capture opportunities presented by global markets - B2C cross-border trade (CBT) e-commerce in India is
estimated to reach $ 2 bn by 2020 from $ 500 mn in 2016.

The focus should now be to take the next step and promote Cross Border E-commerce to expand the
customer base of these enterprises. However, there are several challenges faced by MSMEs such as risks
associated with operating in a global marketplace, complicated shipping and exports procedures, which
serve as deterrents for this sector which has very high potential.

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 I. Risks and Challenges - Cross Border Ecommerce

 Difference on national rules on data management, consumer protection and availability of online
information
 Cumbersome procedures and policies to enable the return and refund of the products, without the
exporter having to incur import duties on the returned shipment
 Infrastructure: Most of the customs procedures are manual processes. By switching over to the
customs electronic data interchange (EDI) platform, it would enable the procedure to take place in a
smoother and faster manner.
 Limits on Courier Shipments: As per current regulations, there is a limit of $ 375.3 on shipments
that can be transported through couriers which also involve foreign exchange. Increase in this limit
would enable higher value products to be exported as well.
 Exchange rate losses and banking regulations

II. Key Government of India Initiatives

E-commerce Policy

As of August 2018, the government is working on the second draft of e-commerce policy,
incorporating inputs from various industry stakeholders.

BharatNet Project

As per Union Budget of 2018-19, government has allocated Rs 8,000 crore (US$ 1.24 billion) to
BharatNet Project, to provide broadband services to 150,000 gram panchayats.

Skill India

In tandem to the ‘Make in India’ initiative, ‘Skill India’ is set to boost manpower and
vocation training with a special focus on SME sector.

Increased FDI Limit

In order to increase the participation of foreign players in the e-commerce field, the
Government of India hiked the limit of foreign direct investment (FDI) in the E-commerce
marketplace model for up to 100% (in B2B models).

Make in India

Make in India is set to promote indigenous manufacturing, cut imports and boost exports of
products and services – the campaign aims to largely support the SME community in India.

Digital India

An umbrella program to improve accessibility of internet and create an inclusive growth

story. The successful implementation of the program is expected to boost India’s GDP by
approx 20-30% by the end of 2025, providing a boost to the digitization efforts of India’s SME
sector.

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III. Benefits

 By engaging in cross border e-commerce, MSME will be able to access a larger pool of global
consumers. Through traditional export, companies typically focus their efforts on limited
geographies; cross border e-commerce allows companies to attract customers from even remote
locations. Additionally, where in traditional export, the sector is dominated by few export
houses, whereas, there is typically no such situation in CBT e-commerce.

 Companies are able to gain information on global price sensitivity and improve operating
procedures and efficiency - approx. 60-80% of e-commerce exporters are able to survive the 1st
year viz-a-viz the survival rate of 30-50% in case of traditional MSMEs.

 CBT will assist in reducing the cost of transactions, eliminate payments issues through
electronic payments systems and contribute to creating a brand value and increased profit
margins.

IV. Your Challenge:

S. No Problem Statement Weightage (100)

What can be done to encourage more B2C exports from India in the
1 MSME space? Recommend efforts that can address existing 50
infrastructure, logistics, policy and technology.

Suggest key marketing initiatives to promote India as a leading MSME

2 30
export sector

How can India MSMEs be educated on how to leverage global

3 20
opportunities?

Sources and References:

1. Annual Report 2017-18, Ministry of Micro, Small and Medium Enterprises

2. Next Step in Trade: Cross Border E-Commerce (Invest India, May 2018)
3. Impact of e-commerce on SMEs in India (KPMG)
4. National Report on E-Commerce Development in India (UN Industrial Development Organization)

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About Invest India

Invest India is the National Investment Promotion and Facilitation Agency of the Government of India,
mandated to facilitate investments into India. It operates under the aegis of Ministry of Commerce and
Industry, Government of India, and serves as the preferred point of reference for investors considering a
location, industry or partner in India. Our team of domain and functional experts provide sector-and state-
specific inputs, and hand-holding support to investors through the entire investment cycle, from pre-
investment to decision-making, to after-care and grievance-redressal. Additionally, all facilitation and
hand-holding support to investors under the Make in India program is being provided by Invest India. All
the services provided by Invest India are pro-bono.

Work we are doing in this space:

 Given our mandate to facilitate all international investments into India, the sector team has been
actively working with International E-commerce & Retail investors, most of which work with the
MSME segment. Our objective is, therefore, to promote this segment, encourage better policies and
empower more sellers to sell their goods both locally and globally.

 The Retail & E-Commerce team has also been working on a national level e-commerce survey to
understand the key ease of doing business challenges faced by companies in the e-commerce sector.
One of the focus areas of the final submission (which will be made to DIPP and other relevant
ministries) will be on how the MSME segment can be promoted and exports from India can be
encouraged.

 Startup India which also sits within Invest India is mandated to build a strong ecosystem that is
conducive for the growth of startup businesses. The team supports and works with many
entrepreneurs which also fall within this segment.

Further details may be obtained on our website - www.investindia.gov.in.

Finale Case Study | YES BANK Transformation Series 2018