The Union Budget 2022 announced several favourable moves for the start-up ecosystem, including standardisation and removing overlapping compliances. The 'One Nation, One Registration' scheme for incorporation, and the tax holiday scheme extended to entities incorporated till March 2023 were some of the other initiatives announced.
These were met with a lot of excitement by the sector, which is understandable since India's retail sector in India is amongst the fastest-growing sectors worldwide. It is expected to reach $2 trillion in value by 2032, according to Boston Consulting Group. A Forrester report added that the online retail market alone is projected to grow at a CAGR of 19.8 per cent to reach $85.5 billion by 2025.
As the ecosystem has matured, the wishlist of players has also gotten lengthier. They have their eyes glued on the Union Budget 2023, and hopes fixed on Finance Minister Nirmala Sitharaman, expecting she will announce initiatives that will help the ecommerce and direct-to-consumer (D2C) segment leapfrog higher.
Promote Local Manufacturing
According to various sources, India has over 800 D2C brands in India, which cater to more than 100 million online shoppers. It is expected to grow to a $100 billion market by 2025, at a CAGR of 25 per cent between 2020 to 2025.
However, many of them are tackling issues like limitations to building their manufacturing units or manufacturing process. This means they depend on other countries to procure products, raw materials, etc. from other nations. There is a need to have designated manufacturing zones which are practical and feasible.
Harini Sivakumar, CEO and Founder of Earth Rhythm, noted that the current manufacturing zones within cities are too cramped and populated or the unit size tends to be limited. Those outside the cities are too distant, hence not feasible.
To reduce this dependency on offshore manufacturing, the government should introduce provisions that support entrepreneurs or start-up businesses in building their homegrown brands and developing the country's overall manufacturing capacity. Subsidised loans would be one way to go in this regard.
"The government should also support D2C brands with their manufacturing units with special manufacturing zones. Sector-specific clusters or parks with modern infrastructure would also help," Sivakumar noted. "These steps would also enable it to support 'Vocal for Local' as a full-fledged concept."
Shipping Out Made Easy
Exports are another great way to promote indigenous manufacturing and simultaneously support other sectors, such as banking and shipping. Unfortunately, India's present export of goods and services is far less when compared to their average contribution to GDP in most developing countries in Asia.
Players in the industry hope the government gives impetus to exports as well through friendly policies in the Union Budget 2023. They are also banking on credit at affordable rates to boost exports.
Shankar Prasad, founder and CEO of beauty D2C brand Plum, notes that export remains a paperwork-heavy exercise, which needs to be simplified. "The compliance burden for even smaller start-ups is quite high. There doesn't seem to be a movement towards simplifying things by using data at an overall level. If some of the compliance requirements are automated, it can help start-ups to focus on growth instead of filling up forms," he quipped.
Undoing The Knots
Focusing on ease of doing business in the digital era, last year's Budget recommended solutions to crucial challenges by announcing the National Skill Qualification Framework (NSQF). These were aligned with the urgent needs of the ecommerce sector, which is now traversing the maturity curve. Hence, ecommerce and D2C start-ups hope that the Union Budget 2023 will make real estate affordable for the sector, along with tax exemptions and easing legal procedures to help them drive sustained growth.
Moreover, India has amongst the most expensive logistics or freight costs globally. According to Sharad Jain, co-founder, Nutrabay, fast-tracking and allocating more funds for infrastructure projects will help logistics companies have faster and deeper connectivity.
"The government should also consider lowering GST on transport since this is the economy's backbone and the move will help significantly lower costs across all industries," he added.
Shan Kadavil, co-founder of FreshToHome, pointed out that enabling faster last-mile connectivity is also fundamental for the growth of the ecommerce and D2C sector. Considering the next boom is expected in cities beyond the metros and tier-2II towns, building agile infrastructure solutions in tier-3 and 4 cities to compete with metros will be a significant strategy.
Moreover, these infrastructure solutions must be future-proofed and be at par with international standards. This is especially true for the fast-growing food retail sector, which deals in perishable produce. Subsidies or fund allocations to build supply chain facilities like warehouses, cold storage, freezers and chillers for full utilisation of resources can help companies in the sector to augment their operations.
"Dedicated policies must be drafted that will ally with the infrastructure solutions to reduce wastage and further reduce the burden on start-ups. The fisheries and seafood industry suffers around 30 per cent loss due to a lack of robust cold supply chain facilities. The fruits and vegetables sector, too is undergoing a similar crisis," Kadavil revealed.
Addressing these concerns will yield bigger profits for food-focused ecommerce and D2C companies. Moreover, the government must strengthen the buyer-seller ecosystem with smooth business models to help local brands cater to the needs of global customers.
Giving Innovation A Leg-Up
According to the Ministry of Commerce and Industry, India is home to 84,021 start-ups across different growth and business cycle stages, and most require funds to scale their operations. Additional initiatives like the Fund of Funds for Start-ups (FFS) and Start-up India Seed Fund Scheme (SISFS) are needed to give a financial fillip to these entities.
Moreover, early-stage start-ups and first-time entrepreneurs need the vision of seasoned investors and entrepreneurs to build a robust business model. Kadavil recommended that the government organise workshops with a cohort of mentors who can nurture multidimensional thinking in early-stage entrepreneurs is essential for the longevity of start-ups.
"The need of the hour is setting up new incubation centres and upskilling centres to foster talent, bridge business relationships, and build new engagement models and avenues for aspiring entrepreneurs.
India needs to promote a climate of change more proactively. While the country is already a hotspot for innovation, the government can do more to ease doing business for growing companies by having a single window for multiple registrations. This can simplify the overall process, allowing start-ups to save time, money and effort.