Tina, a housewife, just got an order for supply of two ceremonial dresses at $100 each to a US-based girl. She receives about 20 such orders every day. She is an expert designer but knows nothing about exports. Once she gets the payment from the buyer, she hands over the goods to a courier company with invoice details. All remaining tasks like completing customs and shipping formalities and delivery of goods to the consumer are handled by the courier company.
Welcome to the world of retail exports: the latest opportunity for cross-border business in small value items.
Small businesses to benefit
Small value retail exports are perfect examples of democratisation of the global market. The hierarchies of traditional markets are getting flattened, thanks to developments in internet, e-commerce and online payment systems. This is Globalisation 3.0 where individuals collaborate in bypassing most traditional channels and procedures to do business. As Thomas Friedman described in The World is Flat , Globalisation 1.0 was about countries globalising, and Globalisation 2.0 about large firms globalising.
The promise of being able to “focus on product and customer and outsource everything else” is bringing new people to retail exports. Low risk and low investment make it attractive to housewives, students, small traders, retired army personnel, small craftspersons and manufacturers. Today, Tina is one of more than 50,000 Indian entrepreneurs selling products to global end consumers through Amazon, eBay or their own websites. Most entrepreneurs come from tier II and III cities. It is not Mumbai or Delhi, but cities in Rajasthan from where most retail exports take place.
India’s current favourite retail export products are: specially crafted shoes, carpets with designer motifs, ayurveda products, leather jackets, handicrafts, home furnishings, jewellery, khadi apparels, ethnic-wear, decorative paintings, traditional Jodhpur garments, organic products, musical instruments, sports goods, medical equipment, surgical items and auto components. Each item can become a billion-dollar plus category in a few years if we can ensure fast and hassle free shipment. But that remains a big challenge.
Most small-value items are sent through courier to ensure quick delivery. But Indian Customs’ courier regulation does not support commercial transactions. It only allows export of free samples of and gifts through courier mode using the standard courier shipping bill (CSB-II). No money is allowed to be received from these transactions.
The only option left is following the normal customs procedure, but that is expensive, complex and time-consuming.
Cumbersome procedures
First, for each order, an exporter has to prepare five copies of the invoice, five copies of the packing list and two copies of the airway bill — a total of 12 to be handed over to a courier company. The exporter retains one copy of each document for internal record — making a total of 16. Thus, an exporter selling to 100 buyers a day will need at least to make 1600 copies on a single day, each document to be signed.
Two, examination of documents by a customs officer take three or four days as the entire process is manual. The customs officer scrutinises/assesses each shipping bill, checks examination report, issues the ‘Let Export’ order and endorses the ‘Export General Manifest’ information on each shipping bill. Each shipping bill also undergoes the shipping bill noting procedure.
Three, for goods worth ₹1,000, there is an extra expenditure of ₹2,500. The courier company charges ₹500 as courier charge and ₹1,500 as processing and clearance charge. This includes the expenses of the Custom House agent — ₹275 is spent on payment of VAT at 12.5 per cent and service tax at 15 per cent. An additional ₹225 is spent to meet packing, staff and documentation cost. So the goods worth ₹1,000 cannot be sold below ₹3500, assuming zero profit.
Courier regulation does not allow commercial shipments. The normal customs clearance route is cumbersome, expensive and time-consuming. How does one do business? Many firms, in desperation, export their products as samples or gifts. And as these are not considered commercial exports, the firms cannot claim refund of VAT, available to other exporters.
There are other problems. Free product replacement is almost a norm in this business. Apparel firms on an average receive every sixth product back for replacement. But the customs department treats returned products as imported goods on which customs duty is charged. To promote retail trade, many countries allow duty free entry of such goods. The US exempts all imports up to $800 from customs duty. This reduces the cost borne by importers and expedites delivery of merchandise.
Customs needs to take urgent steps to ensure inexpensive and quick clearances. Four steps will resolve most issues: One, allow commercial shipments up to a value of $10,000 to be shipped through courier and from all ports on a priority basis. The RBI already allows receipt of up to $10,000 for a single transaction through the Online Payment Gateway Service Provider (OPGS).
Two, simplify the format of the courier shipping bill (CSB-II) by allowing filing of details of more than one order in one shipping bill and including import-export code details. It will help courier companies consolidate shipper details into one form instead of submitting many forms for each shipper to the customs.
Three, exporters should be allowed to claim service tax, VAT refund and all benefits under the foreign trade policy using this shipping bill.
Four, make the process online, thereby dispensing with the need for physical document submission.
Consumer preferences
Global trade in customised products is increasing with discerning customers preferring such products for personal or home-use over mass-produced goods.
Retail export serves such customers. India with its rich craft tradition of handmade customised products created by skilled artisans is in a perfect position to take advantage of this trend. Small-value retail export will be a great employment and value creator but the extent of dollars earned and employment created would be determined by the extent to which we ensure fast and inexpensive shipments.
(The writer is from the Indian Trade Service. The views are personal.)