Decoding the Draft Policy for E- Commerce - Telangana

2.3 million MSMEs could lose their livelihoods because of the draft rules

New draft e-commerce rules can disrupt an investment of about Rs.11,487 cr in Telangana: Industry experts

83% sellers in Telangana are of the opinion that the rules require further deliberation

E-commerce paved the way for local and small businesses in Telangana when over 80% of the MSMEs in the state were bearing the negative impact of constant lockdowns and more than 25% were on the verge of losing significant revenues. While the state employs approximately 2.3 million MSMEs, out of which 56% are in rural areas and 44% in urban areas, e-commerce has been the only pillar for them to rely on as the space has not only helped consumers during the pandemic but also helped the small and medium businesses to sustain. If the draft e-commerce rules are implemented in its present form, MSMEs in Telangana will be robbed off of their last resort of recovery and the state will incur losses of approximately Rs. 11,487 crore. According to a recent poll conducted by the India SME Forum 83% sellers in Telangana are of the opinion that the draft e-commerce rules need to be reconsidered.

The e-commerce marketplace, led by technological advancements, have allowed MSMEs to register online with simple compliance procedures and in a cost effective manner. Constant innovations, world class logistics, warehouse facilities, and transport infrastructure fostered by these platforms continue to improve the overall shopping experience of the consumers while also creating ancillary jobs such as delivery boys, supporting marketing agents and fintech companies, and helping the community at large. Shri. S Vijay Venkatesh, Co - Founder, Syscon Cronus, highlighted, “MSMEs won't be able to tap the market without technology and e-commerce. The monopolies have to be strongly addressed, and startups should be given opportunities

The rules seek to ban flash sales, and promotions and advertisements by sellers. As the bulk of consumers in India are from the middle class, these promotions provide a significant boost to sales in India. 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).

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.”

Shri. K. Srinivas, Zonal General Manager, South - 2, NSIC, Gol, said, “MSMEs are new to the digital sector. We need to first create this awareness among MSMEs. From the government perspective, they should procure a set percentage of products from MSMEs and women-run enterprises even via e-commerce. We should have a model where MSMEs can be distinguished from large-scale enterprises.”

Shri. Vivan Sharan, Visiting Fellow, Observer Research Foundation, said, “Industrial policy has failed because it has targeted sectors. It's based on which sector should win, and with regard to the draft rules, offline retailers seem to be winning. It would be more effective if it was targeted towards characteristics like quality, for instance. If we want to support small retailers through a consumer policy, then we should at least achieve that and leverage large firms instead of shooing them away.

Shri. Ravi Budama, Founder & CEO, StartUp Yo, feels,We cannot stop innovation in technology. We should encourage MSMEs to learn about technology adoption. We should also encourage hyperlocal technologies so that though it is e-commerce, local sellers can also benefit.”

Shri. Sandeep Devarapalli, Co-Founder, Hackstrap, stated, “The said policy is applicable to products of all kinds under e-commerce. This will make it very difficult for any new company who is trying to digitise their business. The government should have a graded approach that gives businesses room to grow while strengthening the business environment in India.

Smt. K. Rama Devi, President, A - LEAP, said, “E-commerce companies like Amazon and Flipkart are competing for MSME attention. It's a product of healthy competition. The interventions seem to have become a policeman for the e-commerce sector.

Shri. Nitin Wali, Digital Evangelist, highlighted, “India's e-commerce market has grown especially since the pandemic. Brick and mortar stores whose livelihoods were destroyed found a new medium to survive. Going online is easy and relevant, with the internet becoming more democratized. There's a possibility of disruption of this fledgling online industry when we look at the rules. They will discourage entrepreneurs. We should think of ways in which we can make it easier for new businesses to come online.

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.

  • 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.


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