E Commerce in Bharat, a tide lifting many boats


Bharat, with an estimated population of 1.2 billion, had more than 900 million mobile subscribers in 2014. Of these, about 150 million were smartphone subscribers. As more and more people get connected to high-speed Internet, mostly via smartphones, it is estimated that there will be more than 400 million smartphone subscribers in Bharat by 2018. Bharat has already gained the attention of the world’s leading Internet companies. Bharat is Facebook’s second largest market in terms of monthly active users, the largest market for WhatsApp, the fastest growing market for Twitter, and so on. The implications on e-commerce are even more significant. The e-commerce market in Bharat, which is expected to cross $25 billion in 2015, has attracted billions of dollars in venture capital funding, giving rise to a second e-commerce boom in the country. Unlike the dot-com boom at the turn of the century, that was driven almost wholly on the illusory metrics of “page-views”, with little to no real revenue behind those “clicks”, the story this time is different. The e-commerce boom in Bharat is a tide that is lifting many boats.

Bright, young minds have returned to Bharat in the recent past, bringing technology expertise gained from working for the best and biggest technology companies in the world. These people bring with them years of having worked and created successful products and solutions for their multi-national employers. Lured partly by sky-high salaries that e-commerce companies are offering to lure these smart people back to their motherland, partly by the promise of creating the next big and world-class company out of Bharat, serving the consumer of Bharat, these technologists are bringing back not only their skills, but also their experience of what it takes to build globally successful companies. These people will end up mentoring several other youngsters, both within and outside. The benefits are multi-faceted. The “brain-drain” that had afflicted Bharat for decades may finally be seeing an end – a slow end perhaps, but the light seems to be visible at the end of the tunnel.

Second, the explosive growth in e-commerce in Bharat has spurred the creation of ancillary segments that did not exist till a few years ago. Terms like “hyper-local” are used to describe these business models. E-commerce companies have been hiring delivery personnel – who complete the final, “last mile” of the delivery chain, pushing up salaries from basic, minimum levels. For example, Delhivery, an “express logistics services” company based out of Delhi NCR, has increased its delivery fleet strength to over 10,000 (article in Economic Times, May 19, 2015). These delivery persons can earn up to Rs 15,000 a month, and sometimes even more. Just as the BPO wave in Bharat a decade ago led to the explosive mushrooming of tax services in cities like Bengaluru, so has the e-commerce boom created a market for young people who otherwise may have been completely shut off from the employment market. A new class of young, urban youth is entering the workforce.

The success of e-commerce is premised in no small measure on the quality of the logistics and supply-chain of the company. It is one thing to get a million page-views on a web site, and quite another to fulfill ten thousand, fifty thousand, or even a hundred thousand orders a day. Along with Internet speeds, customer expectations have also accelerated. Customers are no longer willing to accept week-long delays in their online order to be delivered. They now expect orders to be fulfilled and delivered in a couple of days – sometimes even within hours! Meeting these expectations requires that e-commerce companies invest in cutting-edge supply-chain and logistics software solutions that not only determine the precise sequence in which orders should be routed within a warehouse – from picking to packing and loading – but also predict demand of items with great accuracy. This helps cut down on idle inventory, saves on warehouse storage and pilferage costs, and helps avoid the dreaded “out-of-stock” messages for customers. Equally importantly, physical infrastructure is being created in the process. Massive warehouses are sprouting up in Bharat – some larger than a quarter million square feet – to meet this demand. Most are located on the outskirts of large towns like Mumbai, Bengaluru, Hyderabad, Delhi. Construction companies are raising the bar on their competencies, offering designs and construction of warehouses that match international standards. Transportation companies are scrambling to upgrade their fleets, equipping their drivers with handheld devices, and the trucks with smart sensors and GPS receivers. Entire industries in Bharat are undergoing a generational technological change as a result.

The e-commerce boom is therefore driving a quantum leap not witnessed before in Bharat’s domestic logistics industry, estimated at a little under $200 billion. Of this, third-party and fourth-party logistics companies are creating a modern, viable backbone for the shipping and tracking of goods across the length and breadth of the nation, and getting funded. Start-ups in this space have been funded to the tune of more than $300 million in 2015, according to data from VCCEdge. All this is happening today, on the ground, even without taking into account the effect that the Bharat’s government’s Smart Cities Mission will have. These smart cities will have a pervasive technological underpinning as one of their foundational pillars, from e-governance and e-enabling citizen services, to smart transportation, to homes equipped with smart meters, to pervasive broadband connectivity. All this will further lower the barriers to pervasive e-commerce.

It is important, however, to temper this euphoria with a healthy dose of a reality-check. It is a matter of some satisfaction that in the list of the world’s largest startups based on market valuations, Bharat features Flipkart, SnapDeal, Ola Cabs, InMobi, and Zomato. Not one of them however has crossed a billion dollars in annual revenue, yet. In the list of the world’s largest e-commerce companies in 2015, China has three – JingDong Mall, Tencent, and Alibaba – in the top 10. Bharat has none. While JingDong had annual revenues of $17 billion, Flipkart – Bharat’s largest – had not yet crossed $1 billion. There are undeniable signs of a bubble in the Bharat’s e-commerce market. The deflation of the bubble will cause undeniable pain, and much pessimism from many quarters.

This time around, however, the e-commerce sector in Bharat is driving more than just the e-tail sector growth. It is proving to be the catalyst for entire sectors in Bharat’s economy, and becoming a symbiotic part of the economy as a whole. From the beginning of recorded time to sometime in the eighteenth century, Bharat’s economy was the largest in the world and a driver of world economic growth. Bharat’s entrepreneur, always enterprising, rarely appreciated in a slowly-fading era of socialist mindsets, is now unshackled and riding the e-commerce wave to help drive a reversion to the historical mean.

– By Abhinav Agarwal

Goods and Services Tax (GST)


Goods and Service Tax

Biggest tax reform in Bharat since independence

Goods and Service Tax (GST) is a comprehensive tax levy on manufacture, sale and consumption of goods and services – it is one of the biggest taxation reforms in Bharat and all set to integrate State economies to boost overall growth. It will simplify and harmonize the indirect tax regime in the country. It will broaden the tax base, and result in better tax compliance due to a robust IT infrastructure. Due to the seamless transfer of input tax credit from one state to another in the chain of value addition, there is an in-built mechanism in the design of GST that would incentivize tax compliance by traders. It is thus expected that introduction of GST will foster a common and seamless market in Bharat and contribute significantly to the growth of the economy.

The proposed GST has been designed keeping in mind the federal structure enshrined in the Constitution and will have the following important features:

  • A new Article 246A is proposed which will confer simultaneous power to Union and State legislatures to legislate on GST.
  • Central taxes like Central Excise Duty, Additional Excise Duties, Service Tax, Additional Customs Duty (CVD) and Special Additional Duty of Customs (SAD), etc. will be subsumed in GST.
  • At the State level, taxes like VAT/Sales Tax, Central Sales Tax, Entertainment Tax, Octroi and Entry Tax, Purchase Tax and Luxury Tax, etc. would be subsumed in GST.
  • All goods and services, except alcoholic liquor for human consumption and petroleum will be brought under the purview of GST. The present taxes levied by the States and the Centre on petroleum and petroleum products, i.e., Sales Tax/VAT, CST and Excise duty only, will continue to be levied.
  • Both Centre and States will simultaneously levy GST across the value chain. Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State.
  • The Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supply of goods and services. There will be seamless flow of input tax credit from one State to another. Proceeds of IGST will be apportioned among the States.
  • GST is a destination-based tax. All SGST on the final product will ordinarily accrue to the consuming State.
  • GST rates will be uniform across the country. However, to give some fiscal autonomy to the States and Centre, there will a provision of a narrow tax band over and above the floor rates of CGST and SGST.
  • It is proposed to levy a non-vatable additional tax of not more than 1% on supply of goods in the course of inter-State trade or commerce. This tax will be for a period not exceeding 2 years, or further such period as recommended by the GST Council. This additional tax on supply of goods shall be assigned to the States from where such supplies originate.
  • Creation of a Goods & Services Tax Council – It will be a joint forum of the Centre and the States. This Council would function under the Chairmanship of the Union Finance Minister and will have Ministers in charge of Finance/Taxation or a Minister nominated by each of the States & UTs with Legislatures, as members.
    The Council will make recommendations to the Union and the States on important issues like tax rates, exemptions, threshold limits, dispute resolution modalities etc.
  • It is proposed to do away with the concept of ‘declared goods of special importance’ under the Constitution.
  • Centre will compensate States for loss of revenue arising on account of implementation of the GST for a period up to five years. A provision in this regard has been made in the Amendment Bill (The compensation will be on a tapering basis, i.e., 100% for first three years, 75% in the fourth year and 50% in the fifth year).
  • The proposed amendments in the Constitution will confer powers both to the Parliament and State legislatures to make laws for levying GST on the supply of goods and services in the same transaction.

Advantages

  • Help in increasing GDP – According to estimates by the National Council of Applied Economic Research, the implementation of GST can enhance India’s GDP by 0.9-1.7% as the current system of multiple taxes was leading to distortion in allocation of resources as well as production inefficiencies.
  • GST will remove the cascading effect since currently both state VAT and CENVAT are levied on goods at point of sale and production stages, respectively.
  • Increased tax compliance
  • Major step towards uniform taxation regime as followed in many developed countries like Canada, German

Criticisms

  • States fear loss of revenue: As GST is a destination based tax, producing states are demanding better compensation.
  • An additional, non-creditable tax of 1% on the inter-state movement of goods will lead to a net 3%-7% additional tax on manufacturing activity. Imports would get a fillip as they would not be subjected to the additional tax, dealing a blow to the government’s ‘Make in India’ program.
  • GST excludes potable alcohol, tobacco and petroleum products. Taken together, they account for a large chunk of the indirect tax base in the country. Unfortunately, this exclusion is largely triggered by some of the states’ myopic desire to preserve their revenue streams.
  • Exclusion of real estate from the GST would cause more problems. It would mean that credit would not be available for the inputs used in construction of factories, offices and civil structures.
  • Concern regarding rates of GST- It will be decided by GST council. It is said to have a revenue neutral rate such that no loss in pre and post GST revenues. It is believed that GST rate will be somewhere around 22% -26%.

On the whole, GST is an important reform for Bharat and should be passed by Rajya Sabha at the earliest. A lot will also depend on the IT infrastructure & monitoring mechanisms post implementation.

East Africa – Gateway of Opportunities


East of Africa can be a gateway to huge investment opportunities. This region comprises mainly of
EA

  • Kenya
  • Tanzania
  • Uganda
  • Ethiopia

All these countries provide varied business opportunities ranging from agriculture to industrial sector. But business comes at a risk which an entrepreneur has to overcome to grow and expand. This region also faces certain challenges in form of weak civil laws, poor infrastructure, political instability and a harsh climate.

Bilateral trade already exists between Bharat and East Africa but the past decade has seen a burst of activity and initiatives – many of them private sector led – that have injected renewed vitality into Bharat and East Africa’s historical bond. Bharat has also launched DFTP( duty free trade preference) scheme under which duty free access is provided to exports from LDC’s( least developed countries) African countries.

There has been overall growth in bilateral trade between East Africa & Bharat, as can be seen in the table below –

 S. No. Trade 2013-14 (in USD million) 2014-15 (in USD million) Growth
1 EXPORT 9,975.47 10,950.00 9.8%
2 IMPORT 1,034.02 1,343.00 30%

Kenya                                                                                                                                                                  

Kenya seated in the centre of East Africa, surrounded by Ethiopia to the North, Uganda on the West, Tanzania on the South and having a coastline along the Indian ocean, provides an amiable business environment. Service sector and agriculture are the main economic drivers of the Kenyan economy.

Top 5 items of import & export to Kenya (from Bharat) –

 Import Export
Inorganic chemicals Mineral fuels
Carbonate compounds Pharmaceuticals
Edible vegetables, roots and tubers Nuclear reactors, boilers and machinery
Dried leguminous veg. shelled w/n skinned/split Vehicles other than Railways
Coffee, Tea, Mate and Spices Electrical Machinery and Equipments

 

Agriculture                                                                                                                                                        

Agriculture provides largest employment but is largely inefficient. Among agri goods, Kenya exports high value cash crops comprising tea, coffee and horticulture products. All of these also form import items of Bharat. And as level of income and purchasing power of Bharatiyas will rise in future, demand for cash crops, especially fruits & nuts will further increase. Hence agriculture and related activities provide ample opportunity for investment due to the high growth potential.  This could be in the form of owning or leasing tea farms or agriculture fields, and practicing commercial farming. There is abundant availability of cheap workforce but they need to be trained in modern ways of farming. By using a mix of improved seeds, better manure, and trained workforce the per hectare yield can be increased manifold. Good scope also exists for practicing organic farming. By forging partnership with the Kenyan farming community, better ways of organic farming can be evolved.

Service sector

Just like Bharat, Kenya’s growth is also led by the service sector. The last decade has seen a huge expansion in tourism, education, and telecommunication – mainly led by private investment. Bharat has presented a remarkable model of evolving a service sector economy and has become the back office of the entire world. Similar opportunities exist in Kenya, provided some gaps can be closed. The transport sector is weak and fails to provide last mile connectivity. Huge investment is required in roads , railways and other means of mass transport.

Kenya has high literacy level of 85% making it a good market for telecom companies. With more development, there will be a demand of better digital connectivity which can be met by Bharatiya manufacturers only if we act fast to get first mover advantage. Other equipment like optical fibers, routers, set top boxes, cheap mobiles etc could be exported from Bharat.

Industrial sector                                                                                                                                                                              

Industrial activity is concentrated around the three largest urban centres – Nairobi, Mombasa and Kisumu. It is dominated by food-processing industries such as grain milling, beer production, and sugarcane crushing. Another key industry is fabrication of consumer goods, e.g. vehicles from kits. There is a vibrant and fast growing cement production industry, and also an oil refinery that processes imported crude petroleum into petroleum products, mainly for the domestic market.

The food processing industry (FPI) provides a good investment avenue for Bharatiyas as we have low cost and efficient expertise in FPI. Mega food parks or agriculture processing zones can be envisaged on a mega scale. Refineries can be set up for meeting domestic market demand as well for exporting refined oil to other neighboring African countries.

In addition, a substantial and expanding informal sector commonly referred to as Jua Kali engages in small-scale manufacturing of household goods, motor-vehicle parts, and farm implements .Here also Bharat can get involved either by directly investing in small scale industries or through joint ventures with Kenyan partners, or directly exporting to Kenya. Again, time is of the essence as China is also eyeing the same market.

Energy Sector

Bharat can also help in meeting energy needs of Kenya. Kenya is mainly dependent on hydro-power and is looking to expand its energy sector. Scope exists in renewable energy like solar and wind power,   although they require a large one-time investment but are easy to harness, operate and maintain. Investment in renewable sources of energy will also be in line with the Kenyan African 2030 vision of low carbon, climate resilient development pathway.

Health Sector

Kenya is a resource rich country, but fares very badly on basic health indicators. Preventable diseases like malaria, AIDS, pneumonia, diarrhea and malnutrition are the biggest burden, major child-killers, and responsible for much morbidity. Besides this, life expectancy is low while infant and maternal mortality rate is high. Kenya can be a huge market for Bharat’s traditional healthcare systems like Ayurveda and Yoga. Kenya is also naturally blessed with fertile land for medicinal plants farming. Bharat’s Ayurvedic firms can see Kenya as a new and untapped market for Ayurvedic products, and in long run can also produce Ayurvedic  products in Kenya for export to other African nations.

Conclusion                                                                        

The Kenyan Government has undertaken many initiatives, like favorable tax measures including the removal of duty on capital equipment and other raw materials, to create an investor friendly business environment. It is one of the emerging economies of East Africa, and a gateway to the entire region. Active trade and investment will bridge the gap among people and lead to better ties in others spheres as well.

– By Kriti Agrawal