The COVID-19 pandemic and the ensuing disruptions have transformed both individuals and businesses in unimaginable ways. The need to maintain social distancing has resulted in digitization emerging the hero. During the lockdown, digitization played a key role in ensuring day to day activities of individuals and businesses did not come to a halt. In a short span of time, households and industries adapted to the “new normal” by adopting technology that has enabled work from home and contact-less services.
As economic activity picks up after the lockdown, it is critical to remain invested in digitization to leverage the full potential of this ‘hero’. In other words, both the Government and businesses must look at technology as the bedrock of growth. This approach will prove to be an enabler to solve the next most critical challenge arising from the pandemic – our slowing economy.
A key element in reviving the economy is boosting consumption. Experts believe and numbers indicate that private consumption will play an integral role in reviving the economy. Given the current scenario, it is imperative to focus on e-commerce and technological interventions that can help boost demand.
During the lockdown, e-commerce played an integral role in keeping the consumption economy running by providing access to goods at a click of a button. This went a long way in supporting individuals and businesses to follow social distancing norms and yet manage groceries, supplies, and work from home essentials, among other things. Thanks to this, the demand engine kept running, keeping sellers and manufacturers afloat.
For businesses and MSMEs, it is imperative to use this transition to e-commerce as a primer for catering to economies of scale. Some businesses, especially MSMEs, are increasingly viewing e-commerce as a conduit to reach a wide swathe of customers across geographies. Riding the e-commerce wave helps them do this without the need to invest in their own sales, business development and logistics.
It is now critical that a strategic approach factoring in e-commerce is undertaken to ensure the widespread adoption. This will enable players across value chains from manufacturers to sellers to tap into a pan India consumer base. The government, in the past few months, has made strategic efforts towards this and has announced its intention to support MSMEs.
In addition to the Finance Minister’s announcement of a slew of incentives to help ease the financial burden and increase liquidity, the recent past has also seen the government partner with private e-commerce companies to help revive local art, handicrafts, and handlooms. As a result of these initiatives, several MSMEs are getting an opportunity to be showcased and sold online; they are also able to tap latent demand. However, there is more that needs to be done to create a facilitative environment to enable this transition.
To truly realize the potential of the e-commerce wave, minor bottle necks need to be removed. For example, the Tax Deducted at Source (TDS) requirement levied on the manufacturer selling on online platforms and the Tax Collected at Source levied on e-commerce platforms is likely to result in restricting working capital further. This is likely to add to the existing financial crunch faced by MSMEs who operate on minimal margins. Such an additional burden may also discourage MSMEs from participating in e-commerce transactions and deter many from embracing this transition.
The recent consumer protection rules, which are much-needed steps in the right direction, safeguard the interests of consumers and buyers. However, there is a need to look into them to prevent the rules from becoming a burden for sellers. One such provision necessitates the appointment of a grievance officer by sellers selling goods through an e-commerce marketplace entity and ensuring that consumer complaints are addressed within stipulated timelines.
A provision like this is difficult for small businesses to execute, especially at a time where resources are limited, and finances are crunched. Small businesses are the most vulnerable, and these range from artisans to small manufacturers who may not be in a position to comply. More importantly, e-commerce entities are in any case mandated to appoint a nodal person of contact to address grievances and this should be able to address issues that may come up.
Another such provision is the mandatory requirement to assign country of origin tags to all listed products on e-commerce. While the intent of the government to ensure transparency and boost consumer awareness is welcomed, such a provision is tough to implement and comply with. Assigning such liability is difficult in a scenario where there are blurred lines of distinction between the country of manufacture of the final product and the country of origin for the product.
The right time to act
With MSMEs pinning hopes for a revival of demand during the festive season, the time is ripe for the government to address these hurdles to enable a boost in consumption and discretionary consumer spend. The upcoming festive season will be an inflection point for us to revive demand. Various reports suggest that e-commerce companies are gearing up by onboarding kiranas and increasing their employee base in anticipation of high demand during the season.
Increasing consumption is the starting point; it will lead to more demand; demand will pave the way for more investments, which will, in turn, lead to higher employment. This will enable more spending power and put the money back into the economy. Now is the right time to act.
Lloyd Mathias is a Business Strategist and an early stage Investor.