Harnessing India's e-commerce potential for the next export growth surge

India’s e-commerce exports are modest compared to several competitor countries.

By Jahanwi Singh and Neha Raman 

e-Commerce is emerging as a low-cost method for businesses to build market presence and venture into international markets while reducing dependence on intermediaries. As India looks to achieve the $2 trillion target for exports by 2030, e-commerce can be a crucial mechanism for expanding markets for domestic manufacturers, especially MSMEs.

Currently, India’s e-commerce exports are modest compared to several competitor countries. According to Exim Bank’s estimates, India’s e-commerce exports were around $15.8 billion in 2023, accounting for about 2% of India’s total exports (goods and services combined). This is significantly lower than countries like Malaysia and Thailand, which have a higher share of e-commerce exports in total exports at 8% and 5%, respectively.

Recognising e-Commerce exports as a promising route for nudging India’s exports growth, the Government of India (GOI) has brought out several initiatives. For instance, in order to improve the cost competitiveness of e-commerce exporters, the GOI recently allowed the extension of the RoDTEP benefits to e-commerce exports including exports through courier and postal routes, which was not available earlier. Likewise, a dedicated chapter was introduced in the Foreign Trade Policy (FTP) 2023 on e-commerce titled “Promoting Cross Border Trade in Digital Economy”. The chapter outlines the intent and roadmap for establishing e-commerce hubs with cutting-edge warehousing facilities for e-commerce aggregators. The GOI reiterated its commitment to set up e-commerce export hubs under PPP mode in the Union Budget 2024-25.

e-Commerce Export Hubs

The model adopted in China can provide a useful template for developing the proposed e-commerce export hubs. In China, pilot e-commerce zones featured reduced regulatory requirements for cross-border e-commerce exporters, including exemptions on value-added tax and consumption tax.

The proposed export hubs could serve as technology-enabled, end-to-end, cross-border e-commerce fulfillment centers, providing facilities such as storage, certification, and testing. To attract firms to establish units in these hubs, expedited processing of export incentives, input tax credit refunds, and duty drawbacks could be considered. These hubs could also have tailored facilities for e-commerce, including returns processing centers and facilities for labeling, packaging, and licensing.

In the pilot phase, the e-commerce export hubs may be developed near airports, where export clearances are quicker and more efficient. Additionally, the GOI could consider establishing dedicated customs clearance lanes for e-commerce exporters at airports closer to e-commerce export hubs, in order to reduce delays caused by congestion at the cargo complex. According to a recent Rajya Sabha Secretariat report, the dwell time for customs clearance for exports through cargo mode ranges from 2 to 4 days, which is significantly longer than the average dwell time of 3-4 hours for exports through courier mode. The report highlights that the higher dwell time is primarily due to congestion at cargo complexes, complex documentary procedures, and manual processes. This lengthens delivery timelines, a crucial competitiveness factor for e-commerce exports. Given the time-sensitive nature of e-commerce exports, dedicated customs clearance lanes could enable expedited clearance for these exports.

Addressing Regulatory Complexities 

There is also a need to address the regulatory complexities in the e-commerce sector in India. Currently, numerous regulations govern e-commerce, involving several government departments and agencies regulating various aspects of e-commerce operations. For example, to safeguard consumers, the Consumer Protection Act, 2019, and the Consumer Protection (e-Commerce) Rules, 2020, deal with the obligations and liabilities of sellers and e-commerce platforms. Meanwhile, the Competition Act, 2000, monitors anti-competitive practices. Additionally, the Sale of Goods Act, 1930; the Foreign Exchange Management Act, 2000; the Payments and Settlement Systems Act, 2007; and the Legal Metrology Act, 2009, among others, also govern various aspects of e-commerce.

This multiplicity of regulations and regulatory bodies increases compliance burdens and affects the ease of doing business. A single, comprehensive e-commerce policy would be crucial for attracting firms to set up units in the e-commerce export hubs. The DPIIT published a draft National e-commerce Policy in 2018-19, but it has not yet been adopted. There is a need to expedite the finalization of the national e-commerce policy. This policy should incorporate both short- and long-term strategies to support the sector's growth and development, in line with domestic priorities and global best practices. Conflicting requirements and ambiguities should also be avoided in the policy.

Further, the distinct nature of e-commerce exports necessitates the development of special financing programmes, separate from the existing export credit products that cater to traditional exports. In e-commerce exports, a seller may forward deploy inventory to an overseas warehouse, and a single shipment may get sold over a period of months, with the seller receiving multiple remittances against one shipping bill, which is not the case under traditional mode of exports. Additionally, payments for e-commerce exports may be routed through e-commerce aggregators rather than traditional banking channels such as SWIFT. Therefore, it is crucial to develop tailored financing programs for e-commerce exporters.

The Government of India expects e-commerce exports to reach nearly $200 billion to $300 billion by 2030. The proposed export hubs, equipped with world-class infrastructure and regulatory facilities, coupled with enabling policies, could help India become a significant player in e-commerce exports and achieve this ambitious target.

(Jahanwi Singh and Neha Raman are economists with India Exim Bank.)

Views are personal and do not represent the stand of this publication.