MSMEs contributing almost 30% to the country’s GDP, will play a very critical role in India’s journey towards achieving PMs objective of becoming a USD 5 trillion digital economy by 2025. The COVID-19 crisis has disproportionately impacted the MSME ecosystem, with the nationwide lockdowns in 2020 leading to a 46% decline in business volume of Indian MSMEs. 4 out of 10 MSMEs changed their business models in response to pandemic induced disruptions and transitioned to online platforms for continuity of business operations.
Only around 10% of India’s small businesses sell online. One of the reasons for this low digital penetration are the complex GST compliance requirements needed to make the transition from offline to online selling platforms. Presently, it is mandatory for online businesses to register under GST regardless of turnover. However, for offline sellers, it only applies to businesses with a turnover of over Rs 40 lakhs. This creates an unequal playing field between offline and online retail. Post the pandemic, smaller players and artisans are trying to sell their goods online but are finding GST compliances onerous. GST and other heavy compliance requirements for online sellers have discouraged small businesses from becoming a part of the digital economy.
According to market intelligence and secondary research, it is estimated that about five crore MSMEs are unable to sell online due to complex and mandatory GST requirements. MSMEs operating through online platforms are burdened with cumbersome and time-consuming periodical compliances like registration and filing monthly returns, which further dissuades them from registering under GSTN. Under the current framework, many small businesses may not be able to transition from conventional sales to e-commerce platforms because their GST registration under the composition scheme may not be adequate. This poses a hurdle in small business owners’ efforts to access the large customer base that e-commerce platforms offer.
To drive further discussion around this, the Federation of Indian Micro and Small and Medium Enterprises (FISME), has shared inputs for creating online offline parity in GST. Mr Anil Bhardwaj, Secretary General, Federation of Indian Micro Small & Medium Enterprises (FISME), stated that, “Digitally-enabled MSMEs have the potential to grow twice as fast as their offline counterparts. There is a dire need to educate and encourage MSMEs to sell online, and spread awareness of the growth opportunities available through e-commerce platforms. It is crucial that efforts be made to simplify the GST system, rationalise rates, and harmonise GST thresholds between offline and online sellers.”
Efforts need to be made to simplify the GST system, rationalise rates, and harmonise GST thresholds between offline and online sellers. The revival of MSMEs can be supported by the adoption of e-commerce, and educating smaller businesses about the benefits of selling online.