New Delhi: Amid the economic slowdown and ongoing pandemic for the past eight months, local sellers have found themselves unable to earn adequate revenue from their brick and mortar businesses. With no available vaccine to the novel Covid-19, it is expected that people will choose carefully between crowding markets or shopping online this festive season. This presents an opportunity for offline sellers to access the pan-India market through e-commerce platforms.
This pandemic has shown the importance of online platforms. Delivering door-to-door supply of goods and services, these platforms have not only helped the customers but the suppliers and service providers as well. The online space has helped sellers access the nationwide consumer base and earn revenue. Additionally, this will also help the government to get sellers to embrace technology in their daily operations by accepting digital payments.
Help boost local manufacturing
The handloom sector has been severely affected in the economy with their traditional and contemporary markets being closed. Multiple orders have been cancelled from retailers while various bazaars are not being organised, throwing up a serious crisis in this sector.
There is no doubt that the handloom and handicraft sector has a major role to play in the ‘Vocal for Local’ campaign launched by Prime Minister Narendra Modi and India could leverage this sector to create a brand and export the indigenously developed products. Online platforms could help these artisans get a platform to sell their products nationwide as well as to global consumers.
However, there are certain challenges that prevent these sellers from migrating to online platforms.
Tax disparity between online and offline selling as well as increasing compliances for online sales have been some of the demotivating factors. Additionally, the sellers have been going through a tough phase with a shortfall in working capital and banks increasing their eligibility criteria for loans.
To make matters worse from a demand perspective, the job losses and salary cuts have resulted in reduced buying capacity of citizens, which could impact sales in the upcoming season.
Regulatory challenges discourage small business from selling online
There are multiple barriers that discourage sellers from taking their businesses online. Apart from the compliance burden, the existing disparity in the tax regime for the online retailers sees small retailers hesitate in using online platforms. The Consumer Protection (E-commerce) Rules 2020, also put additional burden on online sellers — such as appointing grievance redressal officers, requiring information about country of origin, importer details etc., which makes it a tedious process for small sellers.
Further, the current tax regime requires online sellers to mandatorily register for Goods and Service Tax in comparison to offline retailers who do not need to do so if their revenue is under Rs 40 lakh per annum.
Additionally, the Finance Act 2020 has also come up with Section 194O wherein e-commerce operators have to deduct 1 per cent TDS (tax deducted at source) from the sellers on the gross amount of the sale. This upfront deduction has a negative impact on retailers with a small working capital.
It is the need of the hour for the government to keep the online and offline marketplace on the same pedestal. This disparity is costing small retailers the opportunity to access online marketplaces.
Encourage small business to leverage digital platforms
The lack of sales due to the pandemic has left sellers with minimal working capital to operate. Traditional banks have tightened the reins with regards to granting loans, resulting in shortage of funds for small sellers.
Sellers have still not recovered from the losses they suffered during the initial days of pandemic and the only option they have is to take loans from the bank. The government has to extend its financial support to these sellers in the form of grants rather than loans. Given the festive season and the uncertainty in the market, the sellers may not take on additional debt, and so a grant will help them get back on their feet.
Online platforms could help these sellers, artisans and weavers access a wide consumer base during the festive season and recoup some of the huge losses they’ve sustained. Online marketplaces are now seen as one of the most reliable and trustworthy platforms to conduct business transactions. These marketplaces have enabled lakhs of businesses to go online, generate multiple direct employment opportunities (through investment in infrastructure, logistics and technology), and support the creation of millions of additional jobs.
What is interesting is that a major proportion of these sellers come from Tier 2 cities and beyond, with a pool that comprises artisans and women entrepreneurs who have seen a marked shift in their capabilities as a result of digitisation of their businesses. These platforms also have in place efficacious measures for protection of the sellers’ rights which is necessary in this digital age. They regularly engage with sellers and implement initiatives to empower businesses to conduct transactions easily. These initiatives include regularly publishing information on privacy policies, grievance redressal mechanisms, and fair and transparent terms and conditions. All of these aid in creating a safe and hassle-free environment for sellers.
There is a need to encourage these sellers to test the online platforms owing to the current circumstances. However, in order to make it happen, there is a need for a smooth transition to the online space. This can only happen by reducing the burden and encouraging sellers to embrace these platforms.
(Kazim Rizvi is the founder of The Dialogue and Ayush Tripathi is a policy research associate at The Dialogue.)