Unleashing India’s export potential through digital-led growth

Viswanath Pingali/D Daniel Sokol | Updated on June 16, 2021

Increased use of B2C e-commerce exports will allow MSMEs to better compete with products and services offered by foreign competitors

One of the few takeaways of the global pandemic is that it has highlighted the importance of increased digitisation and e-commerce as means to improve economic well-being and to create opportunities for Indian micro small and medium enterprises (MSMEs). With the government of India looking at an exports-led recovery, India’s proposed Foreign Trade Policy (FTP) 2021-26 suggests a number of important steps to empowering SMEs. Yet, the government can further strengthen the FTP with a renewed focus on B2C e-commerce exports.

E-commerce has already demonstrated immense potential in enabling exporters to reach foreign customers more effectively by taking advantage of existing operational and supply chain efficiencies offered by e-commerce platforms. As more consumer facing Indian businesses go through a process of digitisation, India can reap significant financial benefits and create more robust export-driven growth.

Increased use of B2C e-commerce exports will allow Indian MSMEs to better compete with products and services offered by foreign competitors. To do so, the Indian government needs to create a knowledge infrastructure to better utilise e-commerce for export led growth. Estimates of MSME exports of goods and services suggest a current market of roughly $300 billion. This number can increase with a stronger focus on e-commerce development.

Some of the e-commerce platforms in India like Amazon and Flipkart have started several initiatives to help local entrepreneurs reach the rest of the world with their unique products. Jackinthebox, for example, is a toys brand from Mumbai. Set up in 2015, they have been focussed on B2C exports through e-commerce, and today sell to customers in 15 countries including the US, Canada, Germany, and the Middle East. They are counted amongst the top craft toy brands in the world.

Archana Garodia Gupta’s company, Touchstone, which specialises in the Indian costume jewellery market, is another example of an enterprise that has scaled up to reach international markets using the platforms created by some of the major e-commerce players. These two companies are examples of many other MSMEs which are able to reach international markets, not only introducing the Indian heritage to the rest of the world, but also providing the local artisans much needed economic support.

Create incentives

The government needs to support “Made in India” for exports. This means that the government needs to create incentives to aid in the development of e-commerce and the development of logistics capabilities specific to e-commerce exports to create the necessary infrastructure. This means encouraging MSMEs to sell online, simplifying exporter/port registration and other compliances, and creating the sort of partnerships between MSMEs and established industry players to help MSMEs grow their online business profiles.

Relatedly, there need to be tax incentives to build storage warehouses and data centres across India to better optimise the e-commerce supply chain and to create tax incentives for manufacturing products that can scaled up by utilising e-commerce platforms.

A few things come out of these examples: The role of digital markets in enabling the Indian entrepreneur is unquestionable. Further, for the Indian entrepreneur to be able to make use of these platforms, some amount of training is also essential. Therefore, as academics focussed on competition and innovation, we believe that effective growth begins with right orientation.

In this context, we suggest that management institutes in India, along with other critical governmental and private sector stakeholders, make e-commerce a more important part of training. While training is merely the first step, India must develop an appropriate legal and regulatory environment to facilitate e-commerce export driven growth. Effective rules serve to provide greater legal certainty and minimise unnecessary bureaucratic red tape.

Digital markets have a huge role to play in sustaining these initiatives like ‘Make in India’ by the government. Some recent research also shows that policy uncertainty hurts foreign firms significantly more than the Indian firms. Therefore, for the digital markets to reach full potential, it is imperative that there are clear policy guidelines that emphasises parity and transparency to enable investment by foreign firms in India.

This in turn will allow Indian entrepreneurs to become further empowered as important stakeholders in the global economy. One can only hope that in the near future, such clarity is forthcoming. Further, the Indian government should base such policy guidance upon principles that leverage the value creation of e-commerce platforms to help MSMEs.

Pingali is Professor at IIMA, and Sokol is Professor at the University of Florida

Published on June 16, 2021

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