India needs exponential export growth if it aspires to become a developed nation by 2047. The moot question is where that export growth is going to come from. E-commerce, which has enormous growth potential and is widely recognised to be the wave of the future, can be a large part of the answer.
Some numbers put this in perspective. India has $4-5 billion in e-commerce exports, amounting to about 1% of its total merchandise exports. China’s e-commerce exports are 50 times India’s, amounting to 6.4% of its total merchandise exports. Clearly, India needs to capture a significant share of the burgeoning e-commerce opportunity if it is to grow its exports.
The government wants to boost e-commerce exports to $200-$300 billion by 2030. In August, it came up with a plan for e-commerce export hubs. More recently, it extended some existing export incentives to e-commerce exports through the courier medium. Changes in the regulatory framework for e-commerce, however, are also needed if India is to hit its ambitious targets of expanding e-commerce exports 50-fold or more in six years.
A recent report by Assocham and Ernst & Young, Enabling E-Commerce Exports from India, explores what these changes could be. Another report by Niti Aayog and Foundation for Economic Development, Boosting Exports from MSMEs, also has useful suggestions on how e-commerce exports can be unlocked. Most of these changes relate to Reserve Bank of India’s (RBI) Master Direction No 16/2015-16 dated 1.1.2016 on Export of Goods and Services issued to Banks under Foreign Exchange Management Act, 1999. Some indicative changes:
Remove the 25% variance cap on payments: RBI requires that foreign exchange received by sellers should not vary more than 25% from the stated value. However, exporters face variations between declared and realised values due to discounts, returns, and platform fees. China has no such cap. The 25% variation clause needs to be removed and flexibility provided to sellers to decide the commercial aspects of selling through e-commerce.
Allow more time for payment realisation and repatriation: The seller is mandated to receive export proceeds within nine months of the export shipment. This is not always feasible for exports on e-commerce platforms, making the guidelines practically impossible to follow. China does not mandate a specific time for payment realisation and repatriation. India should follow suit, or at the very least extend the time limit to 18 months.
Implement an aggregate model of reconciliation: E-commerce exports require individual consignment-wise shipping bill and payment reconciliation, ramping up the reconciliation workload. China allows for bulk payment reconciliation over a month. An aggregate model for the declaration of shipping goods and payment reconciliation should be adopted — whether done monthly/ quarterly/ annually.
Redefine the responsibility of the seller and e-commerce operator: China’s e-commerce law clearly defines roles for the platform and seller. It requires sellers to register in the marketplace and acquire relevant licences, largely relieving the compliance and logistics burden which is handled by the e-commerce operator. India does not demarcate these roles, requiring the seller to participate in every stage of the complex export and payment processes. It should only mandate the seller to obtain company and product licenses, create marketplace account and list products, while other compliances are undertaken by the e-commerce operator. This may require amendment in the definition of exporter in the FEMA Act/Regulations and other export-related Acts/Rules.
Reduce the cost burden of payment reconciliation: Bank charges for payment reconciliation are as high as ₹1,500-3,000 per consignment. This is a significant burden on small sellers. These charges should be waived, reimbursed or levied as a small percentage of the consignment value.
Raise consignment limit for courier mode: The consignment limit for exporting e-commerce goods via courier mode as opposed to the much slower cargo mode is currently $12,000, which is insufficient. To be competitive with China, this should be raised to $50,000.
Create custom supervision codes for e-commerce exports: To improve data collection and operational efficiency, have separate custom supervision codes for e-commerce exports on the pattern of China along with rapid clearance guidelines.
Reduce custom clearance time for e-commerce exports: It takes about three to four hours for customs clearance following submission of details on the Express Cargo Clearance portal for export shipments. India should follow China’s practice of issuing the approval within a minute of the declaration submission because of having a special supervision code for e-commerce exports.
Facilitate re-imports: Customs officials often misidentify re-imports of exported goods as new imports, forcing e-commerce sellers to pay import duties. There should be clear guidelines for re-import transactions. They could, for instance, allow duty-free re-import of up to $600 akin to the limit prescribed in baggage rules. For higher-value consignments, a protocol should be formulated for recognising returns as re-imports akin to what has been prescribed for gems and jewellery.
Allow international order-backed purchase and sale model: In China, sellers are allowed to collaborate with e-commerce marketplaces to export goods even if sellers aren’t registered exporters. Enable similar functionality here to help MSMEs test demand for their products abroad before becoming full-fledged exporters.
While some quick results can be achieved by changes proposed in the RBI Master Direction to Banks and changes in FEMA Act/Regulation and other regulations, real achievement can be made by enacting a comprehensive E-Commerce Act on the pattern of China.
Such measures in concert should suffice to transform India into a truly global hub of e-commerce, generating employment on a large scale and enabling MSMEs across the country to showcase Indian talent not only as a country of artisans and specialised products such as textiles and handlooms, but also of advanced technology products.
Alok Chaturvedi is director general, Export for EOUs and SEZs and a former IAS officer. Swagato Ganguly is senior fellow, The Convergence Foundation.The views expressed are personal
