E-commerce sector expresses optimism on export hubs and TDS cuts

The Union Budget presented yesterday gave a boost to the e-commerce sector. In her budget speech, Finance Minister Nirmala Sitharaman said the government will set up e-commerce export hubs under public-private partnership.

The finance minister said, “These centres, within a seamless regulatory and logistical framework, will facilitate the provision of trade and export related services under one roof.”

Apart from facilitating export clearance, these centres may also have facilities such as testing, packaging, customs clearance and warehousing, as per reports. In March last year, the government’s Foreign Trade Policy had also recommended setting up e-commerce export centres.

Director General of Foreign Trade Santosh Kumar Sarangi had said in March last year, as reported by The Hindu, “We will also frame a policy for e-commerce export hubs, which will aim to help e-commerce aggregators undertake all activities, right from warehousing to customs clearance and processing of returned orders.”

To promote cross-border trade in the digital economy, the Reserve Bank of India and the Directorate General of Foreign Trade (DGFT), an arm of the Ministry of Commerce, are working to promote e-commerce export hubs. In December last year, the DGFT had mentioned that it was working with the RBI and other ministries to promote exports through the e-commerce medium.

“We are also working with the Revenue Department to develop or designate e-commerce export zones where export clearance will be easier and faster,” Sarangi told PTI.

India’s e-commerce exports have the potential to touch $400 billion by 2030, Sarangi said at the FICCI conference. India’s e-commerce exports are expected to be worth $4-5 billion.

Meanwhile, Commerce Secretary Sunil Barth said the country would have a regulatory framework to promote exports through e-commerce by September. Moreover, economic think tank GTRI highlighted that India’s e-commerce exports have the potential to touch $350 billion by 2030.

Read: We want to create an e-commerce platform that is easily accessible and affordable: Himanshu Chakrawarti

“The government’s move to set up e-commerce export hubs that will enable SMEs to export local products is a huge step towards driving growth through innovation and leveraging new trends to drive SME growth,” said Ratna Mehta, Managing Partner, Fundalogical Ventures.

While e-commerce export hubs are a very lucrative area for the country, it does have its challenges, says Badri Narayanan Gopalakrishnan, member and former head, Trade, Commerce, and Strategic Economic Dialogue, NITI Aayog. He wrote in a blog for Amazon, “To start with, SMEs adopting e-commerce exports often face lack of credit availability. Then comes the need to automate processes related to logistics, payments and compliance to eliminate redundancies.”

Moreover, small sellers often face significant challenges while exporting due to extensive documentation and complex compliance requirements. These cumbersome processes impose additional costs on small and medium sellers, wrote Shriram Subramanian, founder and managing director of InGovern Research Services, in an article for Outlook India.

TDS Reduction

Another key announcement by the Finance Minister in the budget was the reduction of tax deducted at source (TDS) for operators from 1% to 0.1%. The reduced rate will be applicable from October 1, 2024.

In her Budget speech, Sitharaman said, “The first steps in the Finance Bill are being taken by simplifying the tax regime for charities, TDS rate structure, reassessment and search provisions and taxation of capital gains.”

In simple terms, TDS is applicable while making payments like rent, salary, professional fees and others. The entire e-commerce sector has encouraged this movement.

Reduction in TDS rates for e-commerce operators is a key change that will improve liquidity, said Dhiresh Bansal, CFO at Meesho. Earlier, small businesses had to wait for a year to claim refunds. This change will increase working capital efficiency and create more parity between online and offline businesses, said Dhiresh Bansal, CFO at Meesho.

Following the announcement of the TDS cut, the Open Network for Digital Commerce (ONDC) said in a statement that “reducing TDS for e-commerce entities will improve cash flow for small businesses by encouraging them to digitally transform.”

This budget has given a focus on SMEs and e-commerce sector. Moreover, the government has increased its focus on digitalization. In her speech, the finance minister said, “Public investment in digital infrastructure and private sector innovation have helped in improving access of all citizens, especially the common man, to market resources, education, health and services. We will accelerate the adoption of technology towards digitalization of the economy.” While the e-commerce sector as a whole is optimistic, the question remains how these measures will strengthen the sector.