By Ram Mohan Naidu

India is at the forefront of digital transformation, driven by rapid technology adoption among MSMEs and innovative solutions from the domestic startup ecosystem. Supportive policies and targeted schemes like Digital India, Startup India, Skill India, and Digital MSME have fostered business growth. Currently, 63 million MSMEs operate in the country, but only 16 million are registered with the Ministry of MSME’s Udyam portal.

A key catalyst for MSMEs is adopting digitization methods, such as online selling and digital payments. E-commerce acts as an enabler, granting MSMEs access to a wide customer base nationwide. When used effectively, e-commerce can significantly scale small MSME businesses. However, a Red Seer report reveals that only 2%-3% of retail MSMEs currently sell online, with a projected increase to 5%-6% by 2027, a relatively small number. A support system is essential for MSMEs’ growth and scalability, relying on favourable policymaking to enhance ease of doing business and private sector opportunities for expansion.

Currently, there are multiple challenges faced by MSMEs when they opt for e-commerce as a route to sell their products. For instance, the compliance burden associated with the GST norms is immense. As a welcome move, mandatory GST registrations have been removed, however, such sellers cannot engage in the interstate supply of goods. This essentially makes the exercise of waiving mandatory GST registration futile. Further, the requirement for MSMEs to establish a fully functional principal place of business in every state to supply goods places a significant burden on small sellers seeking to supply goods to customers in other states.

The Parliamentary Committee Report on Promotion and Regulation of E-commerce recommended allowing small sellers to register e-commerce operator warehouses across states based on a single principal place of business in the parent state. The government should remove these restrictions to ensure a free flow of goods and services nationwide without compliance obstacles, as they create cost inefficiencies and hinder MSMEs’ competitiveness and scalability.

Similarly, exports through e-commerce is another area where the government can consider reducing compliances to support MSMEs and accelerate exports. Export-led growth of a country also enhances the competitiveness of domestic industries as they have to compete on the global level. Currently, exports through e-commerce constitute USD 2 billion which is less than 0.5% of the total exports from India. Global e-commerce exports are expected to touch USD 2 trillion by 2025.

India now is shifting its focus on e-commerce exports which is evident by the fact that the Foreign Trade Policy 2023 has a specific chapter dedicated to it. E-commerce presents a huge market opportunity for domestic MSMEs to cater to customers outside the country, however, there is a need for supportive policymaking to actualise this opportunity. Ease of compliance in terms of RBI procedures on cross-border payments, streamlining the custom clearance process, and issuing standard operating procedures for product returns are some of the solutions that the government can look at to boost the confidence of MSMEs to export. Further, e-commerce exporters may be allowed to claim GST refunds and export incentives to make the export product globally more competitive.

There is no doubt that MSMEs have grown tremendously in the post-pandemic world, however, they still require hand-holding. While the government is making effort through enabling policies, it is also the responsibility of the private sector to help the MSMEs. For instance, the online marketplaces should handhold the MSMEs to sell on their platform thereby giving them exposure to the online retail market. Multiple e-commerce marketplaces have taken such effort and there is a need to encourage them through easing restrictions.

MSME is a key pillar for the growth of the economy, and with e-commerce, it has the potential to grow at a fast rate. However, we must not shy away from creating a support system for them in any manner. E-commerce gives these MSMEs a pass to sell their products to consumers across the country and world and regulations and lack of intent should not become a barrier for them.

Ram Mohan Naidu is a Member of Parliament, Lok Sabha. Views expressed are the author’s own.

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