Budget 2024: E-commerce Sector Express Optimism About Export Hubs and TDS Cuts 

The Union Budget that was presented yesterday gave a boost to the e-commerce sector. In her budget speech, Finance Minister Nirmala Sitharaman said that the government will set up e-commerce export hubs in a public-private partnership. 

The Finance Minister said, “These hubs, under a seamless regulatory and logistic framework, will facilitate trade and export-related services under one roof.” 

Along with the facilitation of export clearance, these hubs might also have facilities such as testing, packaging, customs clearance, and warehousing, as per reports. In March last year, the Foreign Trade Policy of the government also recommended the creation of e-commerce export hubs. 

Director General of Foreign Trade Santosh Kumar Sarangi said in March last year, as per The Hindu, “We will also formulate a policy for e-commerce export hubs that will be designed to help e-commerce aggregators undertake everything from stocking to customs clearances and processing of returned orders.” 

In order to promote cross-border trade in the digital economy, the central bank of India and the Directorate General of Foreign Trade (DGFT), which is the arm of the Commerce Ministry, are working to promote e-commerce export hubs. In December last year, the DGFT mentioned that it is working with the RBI and the other ministries to promote exports via e-commerce medium. 

"We are also working with the Department of Revenue for developing or designating e-commerce export zones, where the export clearances are facilitated and done quickly," said Sarangi to PTI. 

E-commerce exports in India have the potential to reach $400 billion by 2030, said Sarangi at a FICCI conference. India's e-commerce exports are projected to be worth $4–$5 billion. 

Meanwhile, Commerce Secretary Sunil Barth said that the country will have a regulatory framework to push exports via e-commerce by September. Additionally, economic think tank GTRI has highlighted that India’s e-commerce exports have the potential to reach $350 billion by 2030. 

Read: We Want To Make An E-Commerce Platform That Is Easily Accessible And Affordable: Himanshu Chakrawarti

“The government's move to set up e-commerce export hubs for enabling MSMEs to export their local products is a huge step in the direction of driving growth through innovation and building on new-age trends to drive MSME growth,” said Ratna Mehta, Managing Partner, Fundalogical Ventures. 

While e-commerce export hubs are a very lucrative area for the country, however, it has some challenges, as per Badri Narayanan Gopalakrishnan, Fellow and Former Head, Trade, Commerce, and Strategic Economic Dialogue, NITI Aayog. He wrote in a blog for Amazon, “To begin with, MSMEs adopting e-commerce exports often face lack of credit availability. Then there is a need to automate processes related to logistics, payments, and compliance to eliminate redundancies.” 

Additionally, small-scale sellers often encounter significant challenges with exports due to the extensive documentation and complex compliance requirements. These cumbersome processes impose extra costs on small to medium-sized sellers, wrote Shriram Subramanian, Founder and MD of InGovern Research Services, in an article for Outlook India. 

Decrease in TDS 

Another key announcement by the Finance Minister in the Budget was the reduction in Tax Deducted at Source (TDS) for operators from 1 per cent to 0.1 per cent. The reduced rate will be applicable from October 1, 2024. 

In her Budget speech, Sitharaman said, “A beginning is being made in the Finance Bill by simplifying the tax regime for charities, TDS rate structure, provisions for reassessment and search provisions, and capital gains taxation.” 

To put it in simple words, a TDS is applicable while making a payment such as rent, salary, professional fees, and others. The e-commerce industry as a whole has encouraged this move. 

Reducing TDS rates on e-commerce operators is a crucial change that will improve liquidity, said Dhiresh Bansal, Chief Financial Officer at Meesho. Previously, small businesses had to wait a year to claim their refunds. This change will enhance working capital efficiency and create more parity between online and offline businesses, according to Dhiresh Bansal, Chief Financial Officer at Meesho. 

After the TDS reduction was announced, Open Network for Digital Commerce, ONDC, said in a statement, “Reducing TDS on e-commerce entities is poised to improve cash flow for small businesses, incentivising their digital transformation.” 

This Budget laid emphasis on MSMEs and the e-commerce sector. Further, the government has been increasing its focus on digitalisation. In her speech, the Finance Minister said, “Public investment in digital infrastructure and innovations by the private sector have helped in improving access of all citizens, particularly the common people, to market resources, education, health, and services. We will step up adoption of technology towards digitalisation of the economy.” While the e-commerce sector as a whole is optimistic, it remains to be seen how these measures will enhance the sector.