It is often said that small businesses are the heartbeat of a neighborhood, the spine of a local economy and the spirit of a town. But how can small businesses flourish in this era of online selling and digital economy? As the number of smartphone users rapidly increases, the experience of consuming has gone digital. It is estimated that India will have 900 million active internet users by 2025. This a huge potential for businesses who wish to tap into this digital market and it is imperative that small, micro and medium businesses join the bandwagon early.

MSMEs – the Backbone of India

There are over 63 million MSMEs in India which contribute nearly 30% to the GDP of India. The MSME sector employed 111 million workers as per a study conducted by the Ministry of Statistics & PI in 2015 –  2016. According to a study conducted by MSME body Federation of Indian Micro and Small & Medium Enterprises (FISME), only around 10% of India’s small businesses sell online.

To sell more, businesses need to be where their consumers are – online and on social media. However, going online has proved to be a significant challenge for many small businesses. Liquidity crunch along with complicated GST compliance laws are a major deterrent to many MSMEs wishing to go online. 

MSMEs account for approximately 40% of India’s total exports where e-commerce is a deciding factor for being successful in the long run. It is important to note that India crossed US$400 billion in exports during the financial year 2021-22 to establish its share in global trade.

Despite many hurdles of investments, supply chain management, international payments, uncertain demand, marketing and more, India was able to achieve this historic figure. In addition to this, e-commerce pushes the boundaries of exports and help the businesses address these challenges and gain access to a larger base of customers. Online selling and e-commerce have also proved to be a game-changer during the pandemic reducing the need for intermediaries such as export trading and management companies.

Complex GST Compliance Laws

While many small businesses are now open to selling on digital platforms, complicated rules related to GST and other compliance norms remain a hindrance for them for transitioning offline to online. Compulsory GST registration for selling goods online is a substantial impediment for MSMEs.

Recently, a survey released by traders’ body Confederation of All India Traders (CAIT) showed that among the respondents 66% said that GST registration is a major obstruction while 72% respondents think that e-commerce is a significant channel for business. GST registration is compulsory for businesses that wish to sell products online. On the other hand, offline businesses up to ₹40 lakh annual turnover are exempted from GST. 

As per the survey, 94% respondents said e-commerce companies (such as Amazon, Flipkart among others) are hampering their business by their monopolistic terms and flouting policies. 89% also believe that e-commerce policy and rules are necessary for a fair e-commerce business while 92% are of the opinion that the current FDI policy in retail needs necessary amendments. 

Conclusion

FISME has also urged the government to simplify the GST system, rationalize rates, and harmonize GST thresholds between offline and online sellers. As of now, online businesses have to register under the GST system regardless of their turnover. On the other hand, for offline sellers, this rule applies to businesses with a turnover of over ₹40 lakhs. This leads to an unequal playing field between offline and online sellers and has demotivated small MSMEs from becoming a part of the digital economy.

It is estimated that around 5 crore MSMEs do not find it easy to sell online due to complex and necessary GST requirements whereas those operating through digital platforms are weighed down with complicated and time-consuming periodical compliances like registration and filing monthly returns. This discourages the MSMEs from registering under the Goods and Services Taxation Network.

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