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BW Businessworld

The Draft E-Commerce Rules Could Disrupt 6.3 Crore MSMEs Across India

The amendments in the rules seek to ban flash sales, bring logistics providers into e-commerce ambit, put an entry barrier on entering marketplace models and more importantly push consumers to offline markets for purchase.

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India is home to approximately 6.3 crore MSMEs, contributing around 6.11 percent of the manufacturing GDP and 24.63 percent of the GDP from service activities to the country. The sector also commits approximately 33.4 percent to the country’s manufacturing output through national and international trade. The pandemic gave MSMEs an opportunity to leverage e-commerce and online platforms to continue their businesses, enabling them with global infrastructure and digital support to stay afloat during these turbulent times.

The amendments in the rules seek to ban flash sales, bring logistics providers into e-commerce ambit, put an entry barrier on entering marketplace models and more importantly push consumers to offline markets for purchase. As the bulk of consumers in India are from the middle class, these promotions enable them to buy quality products at competitive prices from the safety of their homes and maintain social distancing norms. The rules also propose the appointment of a grievance officer, a chief compliance officer, and a nodal contact person for 24×7 coordination with law enforcement agencies. Moreover, it is mandatory for e-commerce entities to register with the Department for Promotion of Industry and Internal Trade (DPIIT). Around 4288 sellers have signed the petition requesting the government to hold stakeholder consultations and further deliberations before finalizing the proposed changes to the draft policy.

Experts have also raised concerns about how these rules, if implemented, can have an obstructive impact on the economic development of the country with respect to job opportunities, scope for the growth of MSMEs, global investments, and consumer experience. Sharing his opinion on this, Mr. Vinod Kumar, President, India SME Forum, said, “The amendments increase compliance burden on e-commerce entities and make the marketplace inaccessible to small and medium businesses who depend on these entities for sustenance. It is important for the government to revisit these rules and detangle the complexities.”

Dr. J. S. Juneja, Former CMD, NSIC, Vice Chairman, India SME Forum, said, “Regulations should ideally facilitate the markets for both consumers and sellers. The proposed guidelines don’t intend to do that. E-commerce is a means of assisting MSMEs to market their products. As long as MSMEs get a platform to sell, earn and grow from, it’s a productive engagement.”

“No one is fundamentally against regulating the sector. There is a need for it. However, the current guidelines miss their mark by a significant margin and need to be clarified for the industry. In terms of the cost of selling, we need to understand that when you place an excessive amount of compliance on any entity, a part of that burden does trickle down. With regard to the draft rules, a sizable amount of compliance burden will shift to small sellers,” argued Smt. Nirupama Soundararajan, Senior Fellow and Head of Research, Pahle India Foundation.

Shri Ram Rastogi, Digital Payments Strategist feels that, “The Department of Consumer Affairs should consult industry veterans before taking a policy decision. We should put the rules on hold, carry out stakeholder conversations and then come out with comprehensive guidelines. We should try and create an opportunity for those who want to shift and take advantage of the digital framework. It is important that we help the market grow and not kill it.”

Shri Ravi Bansal, Global E-commerce Head, Unyscape, said, “Online retail has empowered the consumer to select from a variety of brands and products. We need to figure out who we want to help with these policies, how we can facilitate and make sure that everyone is benefitting from the ecosystem instead of just a few players. The new norms should benefit the consumer regardless of whether they’re shopping online or offline.”

Shri Ajit Balakrishnan, Founder and CEO Rediffmail Enterprise, said, “Our goal should be to think about how we can make the rules as inclusive as possible. We should approach the government with a cooperative approach. The rules need to be drafted in a way that they don’t cause confusion.”

Key concern areas highlighted by industry experts:

  •  Ambiguous and overreaching measures

The amendments aim to ban discounted sales on e-commerce platforms which allow many small sellers, artisans, weavers, craftsmen, homemakers to sell their goods around festive seasons at attractive prices. These sales are a big source of revenue for small businesses and if the changes are approved, these can hurt consumers as well as local and household sellers. Additionally, ban on these sales foster a demarcation between physical and online retail. Sales in the offline marketplace doesn’t go through the same amount of scrutiny as is placed on online platforms.

  • Cause unnecessary disruption and create entry barriers

Online platforms provide small sellers an opportunity to showcase their local products with a wider set of audience. Issued amendments like mandatory registration with DPIIT will create stringent burdens for online platforms, which may force them to change the way they conduct their business. This will, in turn, impact sellers, who will not be able to use such platforms to their advantage.

  • Compliance burdens can break MSMEs and startup ecosystem

The changes will also affect extended support levied by e-commerce platforms for assurance of smooth business transactions like transport, shipping, delivery, and other support service providers associated with the same. Currently, small sellers are able to avail these support services at competitive prices due to the low-cost business model offered by online platforms. Due to the increased compliance burden of support service providers, small sellers will be unable to avail these services at cost-effective rates.

  • Interference with ease of doing businesses and volatility

The appointment of officers, registration formalities, and submissions of proofs and documents will affect small sellers who conduct business through their own websites. Small businesses don’t have the appropriate means to abide by the norms proposed by the new guidelines which makes the online marketplace inaccessible to them and disrupt the ease of doing business.

The participating sellers and India SME Forum (ISF) were in consensus that the draft rules will cause irrevocable damage to MSMEs. Having withered two waves of a devastating pandemic, MSMEs need all the support they can get from policy makers. The draft rules are not only counterproductive but will be more damaging in the long run than COVID itself since these rules will be permanent. In this regard, the sellers and ISF have agreed to approach the government and make their voices heard before the 21 July deadline.