E-commerce exports from India are facing significant hindrances in the form of high processing fees and reluctance to process forex received through alternative channels, according to a comprehensive report by the Global Trade Research Initiative (GTRI). The report underscores the urgent need for a change in mindset to unlock the sector’s potential, with a goal of propelling India’s e-commerce exports to USD 350 billion by 2030.
The GTRI report emphasizes that to drive this transformative change, both the Reserve Bank of India (RBI) and banks must shift their perspective on handling small-value exports differently from larger ones. This shift is imperative to streamline processes while safeguarding against misuse. The report cautions that without this fundamental shift, any reform initiatives undertaken by the RBI and banks will fall short of their intended impact.
Small e-commerce enterprises, in particular, grapple with several challenges stemming from banks’ inefficiency in handling low-value transactions. These challenges include the reluctance to process forex through alternate channels, steep processing fees, improper purpose code allocation, and limitations within the RBI’s Export Data Processing and Monitoring System (EDPMS).
The report highlights that while banks readily process forex received through conventional bank transfers, they exhibit reluctance in handling forex obtained through foreign currency cheques, online payment gateways like PayPal, credit card transactions, Western Union transfers, and cash payments made when a buyer physically selects items at a retail shop. This reluctance to process payments through alternative channels often leads to delays in crediting forex to the recipient’s account, affecting cash flow and disrupting business operations.
Furthermore, the report reveals that banks impose multiple charges at various stages of exporting, including fees for submitting shipping bills, intermediary bank charges during forex transfers, and penalties for pending bills in the EDPMS. Importantly, many of these charges are uniform, regardless of the transaction’s value. The cumulative effect is that bank charges can escalate to an exorbitant 50-60% of the shipment’s value, rendering e-commerce exports commercially unviable.
Moreover, banks’ frequent assignment of incorrect purpose codes, such as P0103 meant for advance payments, exacerbates issues related to reconciliation, EDPMS pendency, and the issuance of notices and fines to exporters. The report notes that while the RBI issues notices to exporters for EDPMS defaults, it does not provide them direct access to view their records, causing unnecessary delays and complications.
The report proposes a comprehensive action plan to address these challenges, including the creation of a unified platform for e-commerce and small-value shipments, standardization of bank charges, the establishment of time limits for banks to fulfill small export-related requests from the RBI, and the exemption of shipments valued up to USD 1,000 from monitoring until the unified platform is fully operational.
The report also calls for an extension of the EDPMS closure timeline from nine to 24 months and a redesign of courier shipping bills to accurately reflect payment terms. Finally, it advocates for the integration of various stakeholders, including the RBI, banks, Customs, Directorate General of Foreign Trade (DGFT), India Post, courier companies, and exporters, into a single window platform to facilitate seamless online transactions and automate the EDPMS reconciliation process.
GTRI co-founder Ajay Srivastava stressed that processing fees and multiple charges disproportionately affect small businesses, proposing a shift toward a one-time fee for each shipment to alleviate the financial burden. The report further suggests government subsidies to ease these financial constraints on small exporters and recommends an increase in the export realization variation limit from 25% to 100%.
In sum, the GTRI report underscores the critical need for a comprehensive overhaul of the banking infrastructure and mindset to propel India’s e-commerce exports to their full potential.
By PTI