B2C e-commerce can power 'Make in India'

Indian Prime Minister Narendra Modi's 'Make in India' campaign is among the most ambitious programmes by any Indian government to promote local manufacturing and attract foreign investment. The initiative seeks to converge and integrate it with 'Digital India' and 'Skill India' in order to build engines of growth for the economy. Promoting skill development and entrepreneurship across various sectors, the programme will build India as a manufacturing and export hub of the world.

Manufacturing in India accounts for around 16 per cent of GDP, which is relatively low compared to more than 20 per cent in other emerging economies such as Brazil, China, Indonesia and Malaysia. While technology, product development and skilled labour are the pillars for the 'Make in India' initiative, ancillary businesses such as logistics, packaging, vendor and inventory management, as well as fulfilment solutions, need to be evolved in order to support growth.

We believe e-commerce can help achieve this purpose. Business-to-consumer (B2C) e-commerce can be one of the critical enablers for the 'Make in India' initiative. Manufacturers, especially small and medium enterprises in Tier-2 and Tier-3 cities, can use the distribution and supply chain of e-commerce companies to access both domestic and global markets.

Though many such SMEs or sellers are increasingly using online selling and marketing, there are many who would only like to focus on manufacturing, their core strength. B2C e-commerce, especially inventory-led, will enable them to do so, negating the need to spend money on marketing and distribution.

Foreign investment is a key component driving the 'Make in India' programme. Currently, the business-to-business (B2B) and the marketplace e-commerce models are completely liberalised, allowing the industry to attract both domestic and foreign funds. This is in contrast to the inventory-led B2C model, which is currently completely restricted to foreign capital. To explain the two models briefly: while the marketplace entity provides a platform, along with value-added services for merchants to sell their products directly to consumers, in a B2C or an inventory-led model, the e-commerce company would typically sell the products to the consumers. Almost all the well known ecommerce players today follow the marketplace model.

As a business model, B2C e-commerce will enable e-commerce companies to source in bulk directly from manufacturers, store it in their warehouses and then sell directly to consumers. This will negate the middlemen in the process, minimise risks for the manufacturer in dealing with complex distribution systems, and create competitive pricing for both the manufacturer and the consumer.

An Assocham-PwC white paper indicates that the e-commerce industry could have a cumulative spend of $950 million-$1.9 billion on infrastructure, logistics and warehousing till 2017 to 2020. The warehousing capacity in the country could rise 12 per cent with air cargo, transit routes, railways and other transport segments witnessing a big boost.

In the pursuit of building the manufacturing base, 'Make in India' also aims to enhance skill development and entrepreneurship for the growing base of entrepreneurs and job-seekers in the country. In a short period of time, e-commerce has managed to create job opportunities for both skilled and semi-skilled workers. Entrepreneurial ventures have facilitated the rapid emergence of e-commerce in the country. A large blue-collar workforce is increasingly getting trained and availing new job opportunities presented by the sector. The scope of employment generation in areas such as customer care (BPOs), IT and ITeS, warehousing, logistics and transportation, shipping and administration are significant additional contributions to the economy by the industry.
As the government creates the building blocks to boost manufacturing for 'Make in India', it would also be beneficial to reconsider the current policy regime restricting the growth of B2C e-commerce, especially inventory-led in the country.

A B2C e-commerce company with foreign investment is currently unable to shoulder the responsibility of manufacturers in the distribution of products, and therefore unable to pass them the benefit of increased efficiencies in the supply chain. One of the aspects that regulators may consider as part of the likely policy framework is to require the inventory-led B2C e-commerce players to create back-end infrastructure in the country and enable creation of additional manufacturing capacity.

Attracting FDI under the 'Make in India' programme is only one of the enablers. The main intent is to create a framework to channel even domestic investments into manufacturing, especially in the SME sector. SMEs have great ideas, but may not have the resources to take their products to end-consumers. Moreover, the policy framework for FDI in e-commerce can mandate the players to create an enabling environment to facilitate domestic investment in manufacturing and provide for the growth of ancillary business services to support the manufacturing sector. An enabling B2C policy on e-commerce could, thereby, create a huge booster for the 'Make in India' programme of the government.

The author is partner, tax & regulatory services, PwC India