E-commerce hubs align with India's manufacturing aspirations

The Budget 2024 proposals announced by Finance Minister Nirmala Sitharaman on July 23 brought a slew of changes in terms of the e-commerce sector. Most significantly, the plan to establish dedicated e-commerce export hubs to boost online trade, while aiming to create a streamlined regulatory and logistics environment to support the booming e-commerce sector.

The move promises to revolutionise the Direct-to-Consumer (D2C) landscape, empower MSMEs and traditional artisans to compete internationally.

“It will open opportunities for Indian players to boost their reach globally while enhancing the ease of doing business and accessing new markets,” says Amit Khatri, co-Founder, Noise. 

A game-changer for D2C players

One of the most compelling advantages of these hubs is the potential to drastically reduce supply chain timelines. "Right now, for any D2C player, you spend two to three days from the time an order comes in to the time the order gets onto a flight for the destination country," explains Akshay Ghulati, co-founder of Shiprocket. With the introduction of export hubs, he says the two to three days could become literally hours and “that makes you directly competitive with the local US merchant”. This rapid turnaround is expected to significantly enhance the competitiveness of Indian sellers in the global market.

“India has long been an attractive consumer market for international brands, supported by our collaborative and business-friendly policies that enable seamless operations. The export hubs are an efficient step in unlocking similar avenues for homegrown companies, allowing a global stage for their innovation and entrepreneurial mindset, and strengthening India’s position in manufacturing,” says Khatri.

Setting up of e-commerce export hubs in a PPP model is a move directly aligned with India's aspirations to become a global manufacturing powerhouse.

“It is a very important part of that goal,” says Ghulati. He points out that for India to truly become a global powerhouse, it must not only ramp up manufacturing but also ensure efficient global distribution. “This e-commerce hub is going to be one of the biggest enabling factors to be able to ship stuff out of India globally,” he notes.

The road ahead

As details of the initiative are yet to be fully disclosed, the industry awaits further clarity on the implementation and operational mechanisms of these hubs. However, the initial outlook is promising. By significantly reducing shipping times and enhancing global competitiveness, these e-commerce export hubs could be the catalyst India needs to cement its status as a global manufacturing and export leader.

While India might be late to the game compared to countries like China, Ghulati sees this as an advantage. “We have all the learnings from the last 10 years, so hopefully we won't make the same mistakes,” he adds. The current geopolitical climate also favours India’s aspirations, as global economies are increasingly looking to diversify their supply chains.

While India's e-commerce exports currently stand at a modest $2 billion, a stark contrast to China's $350 billion, industry experts remain optimistic. Projections suggest that India's e-commerce exports could skyrocket to $350 billion by 2030, highlighting India’s potential for growth.

TDS slashed

Additionally, FM also announced that the tax deducted at source (TDS) for e-commerce operators will be slashed to 0.1% from the current 1% which industry experts have deemed as a “much-needed change to enhance liquidity”.

The initiative aims to offer much-needed support to sellers on platforms like Flipkart, Amazon, Swiggy, and Zomato, easing their working capital needs and enhancing their operational efficiency.

“Previously, small businesses had to wait a year to claim their refunds. This change will now lead to improved working capital efficiency, creating more parity between online and offline. We are excited to see the positive impact this will have on the nation’s economic growth,” explains Dhiresh Bansal, chief financial officer at Meesho.

Section 194-O of the Income Tax Act, 1961, mandates e-commerce operators to deduct income tax from the gross amount of sales of goods or services facilitated through their digital platforms. This TDS reduction is poised to lighten the financial load on sellers, potentially spurring growth in the sector.

“The reduction of TDS from 1% to 0.1% for e-commerce operators will substantially support the industry's expansion. These new measures will not only strengthen the valued investment of Indian households in diamonds but also add to their emotional significance,” says Amit Pratihari, MD, De Beers Forevermark.

The Directorate General of Foreign Trade (DGFT) is already partnering with the Reserve Bank of India and other ministries to implement measures that will enhance e-commerce exports.