Budget 2024: Ecommerce Startups Want Boost In Logistics Infra, Tax Benefits For MSMEs

The year 2023 couldn’t have been more challenging for the world’s third-largest startup ecosystem, which saw funding levels slip to a 7-year-low of $10 Bn amidst spoilt investor appetite. The number of deals, too, declined significantly and stood at 897 deals compared to over 1,500 in 2022.

Amid this, Indian ecommerce startups experienced a 32% YoY decline in funding, falling from $3.8 Bn raised in 2022 to $2.6 Bn in 2023. Deal count declined 33.6% to around 190 from more than 288 a year ago. All in all, the funding in the ecommerce arena returned to 2019 levels.

However, despite the downtrend, the ecommerce space bagged the top spot with regard to funding deals and secured the second spot in terms of the funding amount, according to Inc42’s Indian Startup Funding Report 2023.

But, the 2023 chapter is now over, and it is probably time to focus on what’s ahead of us. With just a day left before the Union Finance Minister, Nirmala Sitharaman, presents the Union Budget 2024-25 on February 1, let’s bring forth what industry stalwarts want from the Government of India to keep this burgeoning sector ever-shining. 

However, before we proceed to spell out industry expectations, it is crucial to note that this would be just a vote-on-account budget, and interim budget if you will, and not a full budget. 

Tax Benefits & Strategic Reforms For MSMEs 

Micro, small and medium enterprises (MSMEs), which accounted for almost half of India’s total exports in 2020-21, are increasingly using ecommerce platforms to widen their reach not only locally but also internationally. With online marketplaces such as Amazon, Flipkart, Meesho and others, MSMEs have been able to sell their products to customers across the world. 

Ashish Gupta, the head of legal and government relations at eBay said, “We’re looking forward to a budget that streamlines business operations, promotes innovation in digital payments, and strengthens the logistics infrastructure, all while keeping a focus on supporting MSMEs through tax benefits and regulatory ease. 

“Building on the success of the previous year’s impactful foreign trade policy, we are optimistic about a budget that will position India prominently in the global ecommerce exports arena. Envisioning the budget as a catalyst, we aim for export-oriented policies to propel India’s ecommerce onto the global stage, fostering sustainable growth and international competitiveness,” Gupta added. 

Last year, an additional loan guarantee of INR 2 Lakh Cr was arranged for MSMEs. The government also proposed to extend income tax benefits to startups incorporated till March this year.

Echoing similar sentiments, Zameer Malik, the CEO of D2C brand Kulsum’s Kaya Kalp, wants the government to allocate more funds for the ‘Raising and Accelerating MSME Performance’ (RAMP) scheme. 

“This would help MSMEs upgrade their technology, adopt digital solutions, improve quality standards and access new markets. Measures to promote ecommerce among MSMEs such as simplifying the regulatory framework, providing tax benefits, and creating infrastructure for logistics and digital payments will be welcome. This would help MSMEs reach a wider customer base, reduce operational costs, and enhance customer experience,” Malik said.

He also expects the budget to support the implementation of the ONDC initiative, which can help MSMEs access multiple ecommerce platforms without any entry barriers and benefit from the standardisation of data and processes. 

Incentives For Tech Boost And Larger Participation Of Rural Merchants 

With technology at the centre of operations for many retail and ecommerce companies, almost all founders of new-age tech startups that we spoke with expect the government to offer incentives for boosting technological advancements (including cyber security enhancement) and promoting the integration of Al- and ML-driven tools.

According to Naveen Malpani, partner, Grant Thornton Bharat, the budget should also focus on offering targeted incentives for encouraging more participation of rural merchants in ecommerce via financial assistance or simplified regulations. This will not only benefit rural entrepreneurs but also expand ecommerce access to underserved communities.

Additionally, robust infrastructure development is essential for efficient logistics, enabling faster imports and improved customer satisfaction.

More Focus On Strengthening The Supply Chain Ecosystem

The rise of ecommerce in India has boosted supply and logistics businesses utilising data science for shipment tracking. The surge in online shopping, driven by the demand for quick delivery, has prompted ecommerce firms to expedite customer reach. 

To address the growing need for essential goods, wholesalers and offline retailers are investing in logistics, and express delivery services from some ecommerce providers are fuelling demand for third-party logistics, benefiting the overall logistics market.

According to Mordor Intelligence, India’s ecommerce logistics market is expected to become a $7.24 Bn opportunity by 2029. Meanwhile, a report by Research and Markets suggests that the country’s warehousing market is projected to reach INR 2.87 Lakh Cr by 2027. However, much has yet to be done to unlock the full potential of this crucial industry.

Industry experts believe that a focus on more key government initiatives like PM Gati Shakti and the National Logistics Policy will provide a conducive environment for India’s MSMEs and other sectors to flourish, thereby helping the ecommerce industry.

Acknowledging the fact that India’s warehouse and logistics sector is thriving on the back of increased government expenditure on ports, roads and digitisation, Abhijit Verma, the founder and MD of Avinya Industrial & Logistics Parks is of the view that the country’s next aim should be to improve its global logistics ranking.

“We anticipate strong growth in the construction of transportation infrastructure, particularly in major freight routes, logistics parks, and roads, railways, airports and highway connectivity,” added Verma.

Finally, industry experts anticipate that the government can also look into introducing tax benefits or incentives for businesses that upgrade their warehouse facilities and implement environmentally friendly practices.

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