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Pre-budget Expectations of Startups in E-commerce sector

Pre-budget Expectations of Startups in E-commerce sector
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You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

The e-commerce industry in India has managed to gain substantial growth over the past couple of years owing to a rapid increase in internet user penetration, and greater demand for easy access to goods & services among consumers from all walks of life. Be it a market for fashion, apparel, or consumer durables, the possibilities are endless when it comes to e-commerce. According to a report by Statista, the biggest growth drivers of the e-commerce market in India in 2017 will be the 59.6 million users within the age group of 25-34 years, i.e. the millennial population. The report also highlighted that user penetration in e-commerce is expected to reach 30.4 per cent by 2021 from the current 16.8 per cent.

Another market report published by Indian Brand Equity Foundation (IBEF), suggests that India is projected to become the fastest growing e-commerce market in the world. While the Business to Business (B2B) e-commerce space is estimated to be worth USD 700 billion by 2020, the online retail space is expected to be at par with physical retail stores within the next five years. Furthermore, the report also stated that e-commerce in India is estimated to generate more than USD 120 billion in sales within the next 3 years.

The sector is further touted to be worth USD 220 billion in terms of gross merchandise value (GMV). It is also expected to have over 530 million active shoppers by 2025 due to various factors like faster speeds on reliable telecom networks, faster adoption of online services, and better variety as well as convenience.

In addition, the host of opportunities present within this space has also proved to be a major advantage for upcoming entrepreneurs, encouraging them to grow their businesses across a wider spectrum, and gain greater market presence online.

Indian E-commerce startups in 2016 – A brief insight

The growth of India’s startup ecosystem, despite being mostly positive, has not been consistent. While 2016 began as the year of startups, it took no time for industry experts to realise that something was amiss within this space that contributed to the failure of many new ventures, especially those in e-commerce in the months that followed.

Key factors like miscalculated decisions, lack of financial credits, and improper utilisation of funds, among others were attributed to the failure of most startups. However, the most important factor that led to the instability of new ventures was attributed to the lack of comprehensive government-led policies that could help such companies grow. Despite having the full support of PM NarendraModi, who launched the ‘Startup India’ initiative with an aim to build a strong eco-system for nurturing innovation and startups in the country, this sector still seems to suffer due to multiple taxes and little to no provision for businesses that operate on a small scale.

Now, with the upcoming Union budget report to be announced soon, many industry experts across India have come forward with certain expectations that can determine the future of e-commerce startups in 2017.

Union Budget Report 2017 – What can e-commerce players expect?

While the 2016 Union Budget covered certain benefits for startups, such as reduced taxes at 29 per cent for companies with a turnover less than INR 5 Crores, and complete exemption from taxes for a duration of 3 years on profits earned during first 5 years, it still had a downside. Enterprises that were exempted from these taxes would still have to pay the Minimum Alternate Tax or MAT, which could account for up to 20 per cent of the company’s overall profits. In short, the budget proved to be inconclusive in terms of benefitting the overall startup ecosystem. Going by this fact, most industry experts are expecting better tax benefits for startups and SMEs that can further aid their growth.

Among the host of predictions made for the 2017 union budget, one common aspect across all industries seems to be the implementation of the revised Goods & Services Tax (GST), which can help in creating a uniform taxation system that benefits small companies in the long run.

Conclusion

While startups in the e-commerce sector still await implementation of policies and tax reforms announced in the previous union budget, all one needs to do at the moment, is await the announcement of the upcoming budget report. Although the new 2017 is expected to be more inclusive in terms of helping startups and SMEs further grow their business, we wish to see that concrete steps are being taken to ensure the same, especially for e-commerce based businesses.
 
Edition: June 2017

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