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Why MSME Must Be At The Centre Of India's Ecommerce Policy Development

Since MSMEs are the backbone of India's economic growth, these policies should not be one-sided. Instead, what is required is a well-conceived and inclusive ecosystem of regulatory approaches

Why MSME Must Be At The Centre Of India's Ecommerce Policy Development
POSTED ON May 02, 2023 12:16 PM

Recent media reports suggest that the Indian government has revived its two-year proposal to protect customers against "unfair" practices by e-commerce marketplace leaders by modifying existing consumer protection rules. The administration plans to bar these firms from selling their private labels on their platforms, make them liable for fraud committed by a seller, and prohibit them from having their logistics chain for supply-chain management. 

These steps have been taken to safeguard the interests of the MSME sector, propelling this ecommerce momentum in the country. The Ministry of Consumer Affairs (MCA) had previously consulted MSMEs for their suggestions on ecommerce rules. However, further involvement of these smaller stakeholders has required if the government contemplates internal severe considerations. 

While the perception is that e-commerce is about the platform entities and the consumers, the role of MSMEs is equally essential since it contributes significantly to the proportion of the seller base and sales. Moreover, around two-fifth of MSMEs in India indulge in online sales, making it imperative to effectuate the conversation. 

Consultation with these stakeholders and incorporation of their opinion should be an utmost priority in this process. More than just encompassing voices, they fuel the entire ecosystem of the economy—whether the supply chain, service industry, merchants, or other operational activities. Thus, the success or failure of any policy implementation will be driven by participation, innovativeness, and scope for expansion of the MSMEs.

Giving MSMEs A Voice

More substantively, the media reports suggest that physical and e-commerce must be equated. However, this argument overlooks the fact that the provision of e-marketplaces is a technological breakthrough that has greatly benefited everyone, especially MSMEs, by providing them with better resources for growth. 

These marketplaces have evolved for better service delivery by studying what consumers want and adopting best practices from the data available and global best practices. Both cannot be fundamentally seen through the same lens of effectiveness and operations. 

Basing the regulations on the presumption that such digital marketplaces may seek to undermine consumer interests and kill competition is also an overstretch. Additionally, e-commerce currently represents less than 6 per cent of total retail sales in India. 

While the importance of marketplaces is stated, it is also important to highlight that more than half of the SMEs in the country selling online have their e-commerce platforms. Any stringent compliance put forward will thus have direct implications on the smaller platforms as well. There is, therefore, a need for a liberal regulatory approach to the process rather than any restrictive pathways.

Relative Importance

The 'related parties' criterion is getting serious reconsideration; it seems like a misplaced thought and has little value to the discussion. Notably, 'related parties' or 'arm's length' business models are permitted for nearly everything else. 

Furthermore, consumer protection seems to have been incorrectly linked with the 'related parties' criterion and requires thoughtful recalibration. The MCA is correct in its intent to ensure that every player has an opportunity to participate effectively, and the broader set of guidelines overseeing that own or self-products are not unfairly pushed forward will be key.  

The third aspect concerns logistics. One of the reasons why MSMEs have succeeded in online marketplaces has been the ease and convenience of how the platforms run their logistical services. It has resulted in lower logistics and related operations costs, translating to affordable prices for consumers purchasing MSME products. 

However, there appears to be a lack of awareness of what logistics truly means. People must understand that it is not just the deposit factor but also the returns that logistics services facilitate. It is about the cost of doing business that logistics successfully eases out with. 

If the government's goal is to support alternate players, the focus should be on implementing practical measures and not resorting to any potential options of shutting down. Such contradictory steps would lead to a policy deadlock, jeopardizing the growth of MSMEs, which have relied on the ease of logistics services.

Focus On Consumer Centricity 

The guiding force of success for e-commerce entities has not been its marketplace innovation but its concentration on consumers. It heralded the practice where consumers could return goods if it did not live up to the promised standards, which compelled the entire industry to develop and sell quality goods. 

It is essential to implement effective measures that ensure that all goods produced domestically meet high-quality standards for consumption. E-commerce can be a valuable tool in achieving these standards by building consumer trust. 

MSMEs often sell their goods directly to consumers without the involvement of intermediaries, which reduces the risk of fraudulent activities that could affect the quality and authenticity of products. Digital marketplaces are thus making it easier for MSMEs to engage in B2C commerce while maintaining high-quality standards for consumers. 

For instance, if an MSME is attempting to source and sell genuine Darjeeling tea, various B2B levels increase costs. It also raises doubts about its authenticity by the time it reaches consumers. E-commerce players can serve as a viable 'direct' alternative.

It is also important to note that there is a limited availability of databases that focus on consumer viability and MSME accessibility in relation to e-commerce operations in India. Given that India holds the G20 Presidency this year, there is an opportunity for a collaborative effort to establish a Framework or Guiding Principles for collecting data on crucial aspects of e-commerce adoption. This will address the current information gap and aid in informed decision-making on the subject in the future.

Policymaking And MSMEs Are Inseparable

Since MSMEs are the backbone of India's economic growth, these policies should not be one-sided. Instead, what is required is a well-conceived and inclusive ecosystem of regulatory approaches. 

This necessitates ongoing engagement with all stakeholders, including MSMEs, suppliers, platform entities, and consumers. Such engagement will enable the tailoring of regulations to the unique needs of each sector.

The government must formulate policies that enable MSMEs to be competitive regarding market access and credit availability. Digital marketplaces can contribute to a more equitable market by offering a level playing field for small businesses to compete against larger enterprises.

If the speculative points are implemented, it could impede the success of investments in the sector. The advent of e-commerce, supported by these investments, has facilitated MSMEs in accessing a larger consumer base and provided hassle-free payment mechanisms. Hence, we must adopt a progressive outlook towards these achievements.

- Vinod Kumar currently serves as the President of the India SME Forum.  

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