The article states that India's export ecosystem is at a turning point, where more than six crore MSMEs are using e-commerce exports to access global markets. A new warehouse-based export model could turn small sellers into domestic suppliers, reducing their control over pricing and reducing profits. The article stresses the need to strike a balance with policies based on self-reliance, value addition and digital empowerment.
India's MSMEs reach global market through e-commerce exports
Warehouse model can make small sellers suppliers
Need to focus on digital empowerment and self-reliance
Ajay Sahay. India today stands at a turning point in its export ecosystem. The country's more than six crore micro, small and medium enterprises (MSMEs) form the cornerstone of the world's largest artisan, craftsman and small entrepreneur community. These small entrepreneurs, handloom weavers and handicraft artists have found a new and effective route to reach global markets through e-commerce exports.
International online platforms have enabled small sellers from India to reach consumers in more than 200 countries across the world without having any overseas office. The digital marketplace and India's creative, cost-effective production system have expanded opportunities for small Indian sellers in global trade. Over the past decade, the e-commerce based direct-to-consumer model has significantly empowered India's small producers.
In this model, products are shipped directly from India as soon as orders are received from foreign customers, thereby reducing entry costs and enabling even home-based entrepreneurs to start international businesses. Global demand for India's handicrafts, textiles, jewellery, natural and traditional products is increasing. This model has become a source of income and recognition, especially for small enterprises, even as they face challenges related to customs, payment settlement and tax.
Now a new change is going to affect this entire ecosystem. Large global e-commerce players want India to allow a warehouse-based export model, in which Indian sellers would store goods in the marketplace's domestic warehouse and the marketplace itself would export the products and sell them abroad.
The said change will change the role of Indian sellers. They will no longer be exporters, but will remain mere domestic suppliers. As an exporter, the marketplace will have complete control over pricing, inventory, overseas delivery and forex receipts. Although this model is already being adopted in countries like China, Vietnam and Malaysia, its deep and long-term effects in the Indian context are worrying.
The warehouse model may remove control over pricing from small sellers, as the marketplace can put pressure on prices by knowing the cost structure of all suppliers. This would make short sellers “price-takers” and their dividends could be significantly reduced. The marketplace can retain the entire retail margin earned in the overseas market, while the Indian seller will receive only the wholesale rate, which is a small part of the final selling price.
The impact of this model is also that there may be a real decline in India's export value. Today when an Indian seller directly sells a carpet worth Rs 2,000 abroad, the entire Rs 2,000 is recorded in India's forex, but in the warehouse model the same carpet will be purchased by the market place for Rs 1,100–1,200 and the same amount will be recorded as India's export price.
This will not only reduce India's official export prices, but in many cases will also allow marketplaces to book profits abroad through their overseas subsidiaries, thereby reducing India's tax base. As the market place buys on a large scale at lower rates, the profits of millions of artisans may diminish. Many entrepreneurs may compromise on quality due to loss of profits, which will harm India's global brand reputation. When exports are in the name of market place, the identity and uniqueness of Indian products may be lost.
India's business and MSME policy has long been based on self-reliance, value addition and digital empowerment. Initiatives like One District One Product, Make in India, Digital India, Skill India and Foreign Trade Policy are working towards connecting small entrepreneurs directly to the global market.
In such a situation, the warehouse model is contrary to the purpose of which is the democratization of digital markets. It is necessary for India to strike a balance in policy-making, but not at the cost of losing the autonomy and identity of small exporters. If India wants, it can develop neutral e-commerce export hub under PPP model, which will help in aggregating the products of MSMEs and exporting them, but the exporters should remain the same.
The warehouse model appears convenient on the surface, but it could weaken India's grassroots export infrastructure and turn millions of entrepreneurs into mere suppliers. India's e-commerce export journey so far has been a story of digital inclusion, women empowerment and creative entrepreneurship. It should be our priority to ensure that this does not become a story of digital dependency going forward.
What India needs is a robust and value-sharing digital export ecosystem, not a foreign platform-dominated warehouse model. Protecting small exporters is not a sign of protectionism, but the economic foresight required for a self-reliant, inclusive and value-centric export future.
In the digital age, physical business infrastructure along with data, platform-control is also important. India should ensure that the autonomy of small producers is protected, price transparency is maintained, and profits from exports are recorded in India itself.
(The author is Director General and Chief Executive Officer, FIEO)
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