Policy drags e-commerce exports

India had woken up to the huge potential of e-commerce exports from the country when the Centre decided to provide incentives in the Foreign Trade Policy (FTP) 2015-20 to promote export of goods hosted on a website and dispatched through courier or postal mode.

However, exporters have now identified several ‘restrictions’ under the FTP and related norms as ‘challenges’ that are preventing them from maximising the potential of e-commerce exports.

The FTP incentives for e-commerce exports are only for low-value goods -- “falling in the category of handloom products, books and periodicals, leather footwear, toys and customised fashion garments, having free-on-board value up to ₹25,000 per consignment and finalised using the e-commerce platform.” As per the norms, the payment for goods purchased on e-commerce platform shall be done through international credit or debit cards and as per the Reserve Bank of India norms.

According to an assessment by the commerce ministry and the apex body for exporters in the country - the Federation of Indian Export Organisations (FIEO) - there are more than 25,000 Indian exporters, small and medium firms and entrepreneurs present on the American multinational e-commerce company eBay alone, exporting their items directly to the consumers across the world. It is estimated that there are more than two lakh such Indian business-to-bonsumer (B2C) exporters making use of their own websites or other e-commerce platforms and social media sites.

According to FIEO, there is a market opportunity of about $5 billion in the near-term, say in the next 2-3 years, for Indian e-commerce retail exports - provided the concerns of such exporters are addressed expeditiously by the government. Since a survey had pointed out that those selling their items using eBay employ about 6.5 employees on an average, further promotion of Indian e-commerce exports is also expected to lead to greater direct and indirect employment generation.

There is intense competition in the e-commerce exports space, and several countries are actively promoting e-commerce exports. For instance, the U.K. government’s Department for International Trade (DIT) has an ‘E-Exporting Programme’ to help U.K. companies sell their products or services overseas through e-commerce. According to the U.K. government’s website, the programme enables U.K. companies to get expert international trade advice and support through a free meeting with DIT e-commerce advisers. The programme also helps UK companies to develop and implement an international e-commerce strategy, as well as to “set up on e-marketplaces and identify new e-marketplaces around the world to sell through, with the DIT’s ‘Selling online overseas’ tool.” It also enables UK companies to “access better than commercial rates to list on some e-marketplaces, including lower commission fees and ‘try for free’ periods.”

Facing competition

India’s e-commerce retail exporters are also facing major competition from their counterparts in China and South Asia. According to the World Trade Organisation, in 2015, e-commerce in goods and services was worth about $22 trillion globally, and has grown the fastest in emerging economies.

As per India’s FTP 2015-20, the incentives for e-commerce exports are under the Merchandise Export from India Scheme (MEIS). The rewards are in the form of freely transferable duty credit scrips (that gives duty benefits for imports of inputs / import of goods including capital goods / domestic procurement of inputs and goods including capital goods, etc). The FTP, however, states that “if the value of exports using an e-commerce platform is more than ₹25,000 per consignment, then MEIS reward would be limited to free-on-board value of ₹25,000 only.”

It adds that “Such goods can be exported in manual mode through Foreign Post Offices at New Delhi, Mumbai and Chennai. Export of such goods under Courier Regulations shall be allowed manually on pilot basis through airports at Delhi, Mumbai and Chennai as per appropriate amendments in regulations to be made by the Department of Revenue.” The FTP further says that the Department of Revenue shall fast track the implementation of Electronic Data Interchange (EDI) mode at courier terminals.

‘Raise incentives, lower fees’

According to the exporters, though e-commerce is a great medium for them to expand their product lines, the FTP currently limits incentives to just a handful of items, thereby restricting the growth of Indian exporters using the e-commerce mode. They said the list of items for incentives should be expanded to include jewellery, which is among the biggest finished product exports from India, as well as health & beauty items, auto spare parts and musical instruments. Also, in order to promote exports from the country’s micro, small and medium enterprises through e-commerce, the value limit for availing MEIS benefits should be enhanced up to ₹5 lakh from the current level of ₹25,000 per consignment.

In addition, they pointed out that the clearance process under the MEIS scheme is currently manual and not EDI-enabled. Therefore, it is necessary to open EDI-based clearance for e-commerce export categories including leather, apparel, home-décor, ayurveda, organic food, sports goods and fashion jewellery. Besides, they said, through their apex body FIEO, that the application fee was too high for e-commerce exports to avail benefits under MEIS. For instance, if an exporter currently exports four consignments each worth ₹25,000 for a product attracting 2% duty benefit under MEIS, he gets a benefit of ₹2,000 (for a total export of ₹ 1 lakh). But on that amount, he has to pay an application fee of ₹1,000, thereby reducing the actual benefits. “The fee may be reduced substantially or waived off to give encouragement to this new and emerging mode of exports,” the FIEO said.

A major disincentive is that currently, when a buyer sends an item back to e-commerce exporter, import duty is charged. However, in the case of exports other than through the e-commerce route, customs duties are exempted on return of exported goods. Therefore, exporters feel that unless return of goods is exempted from customs tariff, e-commerce retail exports will not take off in India in a big way.

Also, there is no provision for ‘commercial shipment’ in the forms provided by Customs in Foreign Post Office of India Post. The options currently available are only ‘gift’, ‘sample’, ‘documents’, ‘commercial samples’ and ‘others’. Most Customs authorities are reluctant to allow e-commerce exports under the ‘others’-category. The exporters also said presently, the Courier Shipping Bill (CSB-II) did not support commercial small-value, single-item shipment. The Bill only supports gifts or samples, and has no provision for ‘commercial shipments’. Besides, the CSB–II is highly cumbersome as it has multiple fields and requires lots of information to be furnished even for low-value shipments, the FIEO said.

“The exporter is also unable to claim any FTP or tax input related benefits if he wishes to do so,” it said, suggesting that a new CSB form be introduced and notified at the earliest. Another difficulty being faced by e-commerce exporters is that such exports through India Post or via the commercial courier mode are ticked as “samples” or “gifts” and not as ‘Commercial Shipment’. Therefore, such documents are not “recognised” or “acknowledged” by Value Added Tax (VAT) authorities, despite proof of receipt of foreign exchange through bank realisation certificate. This leads to a situation where VAT and service tax are not refunded in such cases of e-commerce exports as there are no Custom-stamped documents in such cases to prove ‘Commercial Shipment’, thereby reducing the competitiveness of Indian products. Also, an irritant is the requirement of multiple copies of invoice, making the export clearance process for a seller via the e-commerce export route difficult, expensive, paper-centric and time-consuming, especially in a technology-enabled environment, according to FIEO.

“Sellers need to sign and attach multiple physical documents and pay a commercial clearance charge of ₹1,000 to ₹1,200 for every shipment,” said Ajay Sahai, Director-General and CEO, FIEO. “A single-product shipment via private courier requires seven copies of invoices (self-declaration), while India Post requires three copies of invoices (self-declaration),” the exporters’ body said.

(This article first appeared in The Hindu dated March 6, 2017)

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