41 percent of Small Traders, Startups and MSMEs Could Lose Their Livelihoods Because of the Draft Rules

Business Wire India

  • New draft e-commerce rules can render 60 lakh people jobless in Karnataka: Industry experts
  • 89% sellers in Karnataka want further deliberation on the draft rules

Karnataka is home to over 6,556 startups and MSMEs in sectors such as food processing, IT consulting, and business support services most of which collaborate with e-commerce platforms for businesses. The startups including local traders using e-commerce and MSMEs in the state have not only contributed a significant amount of monetary disposition to the country but generated lakhs of jobs.
Recently, the Karnataka government announced the Karnataka Digital Economy Mission as part of its Beyond Bengaluru initiative to build opportunities and create innovative ecosystems for emerging businesses and startups. The initiative aims to bring stakeholders including industrialists, entrepreneurs, small sellers, startups, and thought leaders to make the most of the state’s growing potential. However, the recently issued amendments to draft e-commerce rules will restrict innovation and opportunities for small businesses on these platforms. If the draft e-commerce rules are implemented in its present form, the entire startup sector relying on online platforms will be disrupted as it causes multiple hassles for small businesses.
The amendments in the rules seek to ban flash sales, bring logistics providers into e-commerce ambit, put an entry barrier on entering the marketplace model and more importantly push consumers to offline markets for purchase. As the bulk of consumers in India are from the middle class, these promotions enable them to buy quality products at competitive prices from the safety of their homes and maintain social distancing norms. 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. According to a recent poll conducted by the India SME Forum 89% sellers in Karnataka are of the opinion that the draft e-commerce rules require further deliberation. 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.”

Smt. R Vinoth Priya IAS, Director MSME, Govt of Karnataka said, E-commerce is a boon for the micro units, as they’re low on capital to set up brick and mortar stores. There’s a need for micro units to understand how to continue being a thriving business on online platforms. The government is there to give a supporting hand to MSMEs.

Smt. Akshara Kumar – Founder – Truly Essential feels that, “Online retail is the way forward. However, a nice balance between online and brick and mortar is the way to go for SMEs. Big marketplaces like Amazon give young brands and businesses credibility just by virtue of being listed there. E-commerce has improved product quality and product packaging. It has improved Indian product’s image to the world. They have made products export worthy.

“Once you establish a brand on Amazon, you get credibility and it helps you to establish your own website and move on with the loyal customer base to your own website. Online marketplaces give SMEs a ready customer base where you don’t have to spend additional money on customer acquisition. E-commerce has made everything better. You have more choices, better prices. SMEs have the option to stay away or adopt it and use e-commerce to their advantage,” said Shri Soumyajeet Daas – Co-Founder, Growth Studioz.

Shri. Ravi Bansal, Global E-commerce Head, Unyscapel thinks that, “Amazon and Flipkart have changed the buying behaviour of people. The discussion should not be about small businesses vs Amazon and Flipkart. It should be about MSMEs vs Big Players, be it offline or online. An MSME can’t compete with a Reliance Retail or Croma or Pai Electronics. Why discriminate against Amazon and Flipkart and leave the big offline players as is.

Shri. Ayan Das – Legal Counsel, Dunzo said, “A level playing field should be parity amongst equals. A smaller business should not be under that ambit just by virtue of being an e-commerce player. Adding layers of compliance for smaller sellers would be counter intuitive.

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.
  • Interference with 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.