Lower taxes and clear regulatory policy – what India’s ecommerce industry wants from Budget 2020

The emerging players of the Indian ecommerce industry are hopeful for an impetus in the form of tax exemption and online-offline parity ahead of the Union Budget 2020

27th Jan 2020
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Uncertainties surrounding a comprehensive tax and regulatory framework, introduction of the Personal Data Protection Bill, new FDI norms, and GST compliance might have ruled the better half of 2019, but this year, the emerging players of the Indian ecommerce industry are hopeful for an impetus in the form of tax exemption and online-offline parity ahead of the Union Budget 2020.

 

Nirmala Sitharaman


On February 1, Union Finance Minister Nirmala Sitharaman will present Union Budget 2020 in the Parliament. This announcement will be the second time – and a crucial one – for the finance minister as she lays out the fiscal roadmap for the year ahead, amid concerns of an economic slowdown, rising retail inflation, and a consistent dip in demand and consumption.


Being at the helm of the Budget, Sitharaman will have to tackle a slew of woes troubling the Indian economy, which despite enjoying a competitive edge over its neighbouring countries for the longest time, has witnessed a consistent sign of downturn in the recent past.


In the July-September quarter of FY19-20, India’s gross domestic product (GDP) plummeted to 4.5 percent, a fall from the impressive 9.4 percent GDP growth that was witnessed in the first quarter of 2016-17.


While the signs of a wear and tear are imminent, hopes are still intact that India can bounce back to the ideal 8 to 10 percent growth trajectory. A financial recovery, which would ideally be reliant on the growth and profitability of the high-potential markets – the Indian ecommerce being at the top of this list.




What ails the ecommerce sector?

By 2026, the ecommerce industry in India – touted to be one of the fastest-growing industries – is expected to grow to a whopping $200 billion market size. That the sector holds immense potential – despite a mayhem brought in by the uncertainties of a comprehensive policy – is evident, and with the Budget right around the corner, the anticipation from Sitharaman’s announcements for structure, clarity, and simplified policies is at an all-time high.


Today, the Indian ecommerce market has become the battleground for leading global players like Amazon and Walmart. While Amazon has got a direct presence in India, Walmart made its India entry with the acquisition of Flipkart. At the time, India’s largest conglomerate – Reliance Industries –announced its foray into the ecommerce sector, setting the stage for a high intensity battle.


Besides these larger players, there are a sizeable number of specialised companies, especially in the social commerce segment, which have carved out their niche in this growing industry.


YourStory, in a bid to shed light on the industry and its dynamics, spoke to the emerging players in the Indian ecommerce community. In the process, some of the challenges that emerged to be ailing the sector were worrying but not unexpected.


Budget 2020


“Lack of clarity on the final regulatory situation and therefore the implications on changes needed for businesses is one of the factors troubling this sector. Most of the initiatives are on hold,” says Ayushi Gudwani, Founder of FableStreet, a fashion e-tailer that specialises in workwear for Indian women.

An MBA graduate from IIM Calcutta, Ayushi incepted the tech-enabled premium workwear brand in 2016 to establish women’s workwear as an independent category. It has been almost three years since then, and the homegrown ecommerce startup claims to have served over 30,000 customers till date, with an average order value of about Rs 4,500.


Recently, the startup also raised Rs 21 crore in a Series A fundraise led by Fireside Ventures, indicating intentions for market expansion including offline presence, adding product categories.


As a business looking to scale its market presence, Ayushi emphasises that the quality of service in the ecommerce and the delivery sector do not match up to international levels. In this regard, as she puts its best, Indian ecommerce has a long way to go. 


Similar thoughts are echoed by Devesh Chhabria, the Co-founder of Superhero Toystore. Emphasising on the influential role of e-tail in the digitally connected India, he suggests the quality of services and standards regarding the delivery of the product is an area that prompts room for improvement.


“Also, a host of Indian ecommerce players lay focus on discounting as a proposition and disregard value as a proposition completely,” Devesh adds.


Budget 2020 – the silver lining for Indian ecommerce?

On one hand, there are a host of emerging players catering to the online shoppers in India – a demographic that will reach 220 million by 2025, and on the other hand, there are two key stakeholders of this market – Flipkart and Amazon. Together, these two have not only expanded the scope of this industry but also shaped India’s trade relations with its global counterparts.


With these factors in mind, the one thing that’s currently a priority for every ecommerce startup in the country is the new ecommerce policy, a framework that has been teased aplenty but is yet to be put into effect.


“We hope that the upcoming Budget will offer ecommerce players a comprehensive tax and regulatory policy aimed at facilitating its growth in the country. In line with the governments’ ‘Make in India’ initiative, there must be incentives given to homegrown ecommerce dependent companies to help us compete with the services offered at a global level, enabling us to innovate and grow our businesses,” says Ramakant Sharma, Co-founder and COO of Livspace.


The platform serves as a one-stop destination for home décor and also as a community of hundreds of designers.


In the past year, the Indian ecommerce has also been plagued by sluggish growth, driven by an overall dip in consumer demand and consumption. Similarly, exports as a sector has also been neglected, a problem area that has only been intensified by the lack of simplification on the goods and services tax (GST).


“From a Startup perspective,” shares Ayushi, “I would like the Budget to focus on spurring investment and simplifying taxation and regulations, considering most entrepreneurs, who are already hard-pressed for time to raise funds and scale their businesses, have to spend a considerable amount of time and energy sorting out tax issues and coping with frequent regulatory changes.”


In order to encourage entrepreneurship and risk-taking, especially among women, she adds that the regulations for setting startup ventures need to be made easier. Similarly, tax exemption needs to be introduced in special cases, according to Ronak Sarda, Founder of Cover It Up, to boost ecommerce startups.



Ecommerce and India’s $5 trillion dream

“Challenging” but “realisable” – these were the terms used by the finance minister to describe Prime Minister Narendra Modi’s vision of making India a $5 trillion economy by 2024-25. Even in the face of the economy losing steam, Sitharaman has maintained there are reforms in store, which can help realise this dream in the next five years.


"We are well and truly on our way to becoming a $5 trillion economy by 2024-25. A five trillion-dollar economy will make India a global economic powerhouse, moving us from the seventh to third position in terms of current dollar exchange rate,” she said, addressing Columbia University's School of International and Public Affairs, in October last year.


In this mission, the Indian ecommerce sector, propelled by the increasing internet and smartphone penetration and the ongoing digital transformation, could play a substantial role. Given the many woes of the sector are remedied, reforms are introduced, and a comprehensive regulatory policy is put in motion.


“Most small entrepreneurs have various entry barriers in adopting digital and growing their businesses, one of them being the compliance around GST,” says Vidit Aatrey, Co-founder and CEO of Meesho, highlighting one of the key concerns around GST registration.


“While there is a minimum threshold available to offline businesses, this is not available to online businesses,” he says, adding, “Bringing this parity will encourage several micro and small entrepreneurs to go online and contribute to India’s dream of a $5 trillion economy.” 


(Edited by Megha Reddy)


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