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Budget 2024: E-Commerce Sector Call For Higher Spending On Digital Infrastructure

Industry experts believe that a robust India stack comprising UPI riding on economical and accessible internet, as well as democratising ONDC, could accelerate the online transition of offline retail businesses.

Budget 2024: E-Commerce Sector Call For Higher Spending On Digital Infrastructure
Ecommerce
POSTED ON January 25, 2024 12:56 PM

As more Indian households get comfortable with online shopping on the back of growing internet penetration and their comfort with digitisation, e-commerce industry watchers expect the government to infuse more capital into the sector. This will help strengthen the digital stack that has been driving the revolution in the country, as it gallops towards bringing into fruition the prediction of becoming the third-largest global economy by 2027.    

IMARC Group valued India's e-commerce market at $92.7 billion in 2023, predicting it to reach $259 billion by 2032. Industry watchers, too, are optimistic about the sector’s future courtesy of the robust digital stack comprising online payments through the Unified Payments Interface (UPI), economic and widely accessible Internet, and the revolutionary Open Network for Digital Commerce (ONDC) platform.    

The introduction of these elements has led shoppers to rapidly transition from offline retail to e-commerce over the past few years and they expect that the government will help in the acceleration of the industry with its announcements in the upcoming Budget 2024. Experts anticipate the government to continue investing in the reinforcement of the “India stack” to make the country’s e-commerce ecosystem more inclusive.    

“We expect continued push towards strengthening the digital connectivity infrastructure and building the India stack and ONDC,” says Rajat Wahi, Partner, Deloitte India.    

Rajat Wahi, Partner, Deloitte India
Rajat Wahi, Partner, Deloitte India

Over the past couple of years, India’s open platform, ONDC, has been democratising e-commerce for buyers and small sellers across categories such as grocery, apparel, accessories, electronics, personal care, mobility, financial services, food, and beverage.    

“It (ONDC) will be a game-changer like UPI as many start-ups are working to provide solutions around ONDC. It is a good thought, but the only challenge will be the high cost of implementing this in tier 2-3 cities won’t make it easy for start-ups,” added Anil Joshi, managing partner of Unicorn India Ventures. He added that if the government can help “on that front, it could expedite the implementation”.  

 Anil Joshi, Managing Partner of Unicorn India Ventures
Anil Joshi, Managing Partner of Unicorn India Ventures

The government-backed platform, which is expected to provide a level playing field and encourage more offline retailers to jump on board the e-commerce journey, will challenge other incumbent giants including Amazon and Flipkart, and keep them on their toes by forcing them to lower the commission they charge their sellers.    

Need To Drive Consumption  

Industry watchers also stressed the need for the government to focus on initiatives that bring up consumer consumption, which had remained soft for a large part of 2023.    

During the pandemic lull, the central bank kept interest rates low to accommodate economic growth pushing shoppers to go on a ‘revenge-buying’ spree. With skyrocketing demand, prices too followed suit leading to record high inflations and shrinking disposable income for consumers.    

“There were a lot of (funding) deals in the first half of 2023. However, in the second half of 2023, many e-commerce brands saw some inventory build-up as consumption continues to be soft,” said Deloitte’s Wahi.     

Retail inflation was at a record high in 2023 with the Consumer Price Index (CPI) shooting up to 7.44 per cent in July, accompanied by high food inflation. Currently, although the retail inflation for December 2023 stood at 5.69 per cent, it remains close to the upper tolerance limit of 6 per cent set by the Union government.    

With inflation impacting disposable income and interest rates going up, rural and urban consumption has remained soft. Food price inflation too has been biting into consumption.    

Wahi expected the government to address the lower consumption in less affluent areas for a more equitable economic recovery. For this, he suggested that the government—through Budget 2024—could continue driving Make in India by pushing for more schemes like PLI. The government in 2021 announced PLI schemes for 14 sectors with an outlay of Rs 1.97 lakh crore.    

Government can bring in more PLI in those sectors that can drive more employment such as leather and footwear, carpet, handicraft, jewellery—leading to money in the hands of consumers, said Wahi.    

Others agreed. “Initiatives like the PLI scheme have been instrumental in boosting 'Make in India' efforts, and we believe the upcoming budget holds the utmost importance in further shaping India's electronic manufacturing space,” said Amit Khatri, co-founder of Noise, a smartwatch and wearable company.    

E-commerce start-ups also asked for the government’s involvement in nurturing the investment landscape to help elevate the number of startups in the country. Unicorn Meesho’s CFO Dhiresh Bansal is rooting for an “all-encompassing strategy” for ease of doing business.    

Dhiresh Bansal, CFO, Meesho
Dhiresh Bansal, CFO, Meesho

“Simplifying the processes associated with tax compliance and lowering tax rates, especially during the initial operational years, will ease the financial strain on startups, cultivating a more advantageous business environment,” Bansal said. 

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