Policy Harmonization Will Help Our MSMEs Create Jobs

Context: India’s needs legal and regulatory reforms to equip e-commerce platforms to hand-hold MSMEs, imparting skills, monitoring quality and guiding production aimed at different markets.

Challenges before MSME sector in leveraging opportunities of e-commerce expansion

• GST framework biased against e-commerce adoption: Many benefits are not extended to online sellers.
  • GST threshold is Rs 40 lakh in revenue, but some states like Kerala and Telangana have reduced the limit to Rs 20 lakh, thus putting MSMEs in these regions at a disadvantage.
  • A reduced GST of 1% on turnover applies to offline sellers that are selling their wares within a city or state if their top line is under ?1.5 crore, but no such provision is available for online sellers.
  • There is a new 1% tax-deducted-at-source levy on e-com transactions, over and above GST’s 1% tax-collected-at-source, raising the tax burden on e-business.
• Heavy compliance burden and contradictory legal provisions in Income Tax Act, various other tax and labour laws, FDI norms, legal metrology rules and Drugs and Cosmetics Act of 1940.
• Concerns over India’s draft foreign trade policy, which is inadequately geared for an online export thrust that would offer MSMEs a significant opportunity.
• Restrictive e-commerce FDI rules: 2018 e-commerce rules stopped online platforms from offering products made by entities in which they had a significant direct stake.
• This has stalled back-end investments that would have ensured the standardization of quality and packaging, apart from other such market enablers.

Way Forward

• Appropriately setting the labour laws:
  • With globalization, it is important to understand the universally accepted rights of workers, the protection offered to them in terms of safety, health and working conditions, and social security provisions in case of accident, death or retirement.
  • With increasing automation in our manufacturing and service sectors, many MSME units are likely to have less than 500 employees. 
  • Part-time work will be the new normal, which has not been coherently addressed in our labour codes.
  • The industrial relations code also needs to be harmonized with those and in a way that protects the rights of workers and eases the adaptation of MSMEs to automation-rich business realities.
• Sustaining growth: Trade India, a B2B e-com portal for small businesses, was registering around 4,000 businesses every day during the festive season and reported robust business growth.
  • Our challenge is to sustain and encourage such growth, for which the entire ecosystem needs to be shorn of policy discrepancies so that MSMEs that achieve their potential, not just in the domestic arena but globally too.