GoI classifies small businesses in three classes: micro, small and medium enterprises (MSMEs). The classification of MSMEs depends on the extent of capital investment made and their turnover. While large businesses are cost-efficient as these operate at scale, MSMEs serve the ultimate customers, as they produce customised goods and services and are very close to customers. 

The Economic Census 2013 found 5.85 crore non-agricultural business establishments in operation, employing about 13 crore workers, an average of a little over two workers per enterprise. The 2015-16 National Sample Survey (NSS) reported that there were 6.34 lakh unincorporated non-agricultural MSMEs, with more than 99% of these enterprises (6.30 crore out of 6.34 crore) being micro-enterprises. More than 70% of establishments were own-account establishments - that is, without any hired worker. 

It has been more than five years since the last NSS. Even if we assume a modest annual growth of 4%, the number of non-farm industrial and services establishments should be about 8 crore. India's business establishments are overwhelmingly small. 

Industrial-age businesses were dominantly conducted in factories and offices. Digital-age businesses are moving rapidly to conduct businesses in networks and virtual spaces. MSMEs are also increasingly moving towards selling their goods and services through ecommerce networks. 

Flipkart, for instance, reportedly has more than 3.75 lakh sellers (mostly small) on its platform. There are 9.5 million sellers on Amazon platforms globally. The Indian wing of Amazon has more than 1 million on its ecommerce platform. eCommerce platforms are also increasingly reaching customers through digital single on-account sales agents. Meesho has built up a sales force of more than a million dealers in over 700 cities to reach out to final consumers. The distribution and services businesses are fast becoming digital. 

In this backdrop, GoI extends two favours to small businesses while applying goods and services tax (GST) to them. Small businesses selling goods with a turnover of less than ₹40 lakh a year and small businesses selling services with a turnover of less than ₹20 lakh a year are exempt from registering as a dealer under GST. This means these businesses don't have to file any GST returns and pay any GST. (Of course, these entities do not get to set off the GST paid by them on their purchases of raw materials and other services.) This exemption saves small businesses from not only the differential GST tax due on their sales and their purchases, but also from seeking registration and filing numerous returns. 

The second favourable treatment small businesses can opt for is to register under a composition scheme if their turnover exceeds the exemption limit for registration. Small businesses with an aggregate turnover not exceeding ₹1.5 crore a year can opt for the composition scheme (some exclusions do exist) and pay GST at a low rate of 1% (0.5% central GST and 0.5% state GST). This applies to small manufacturing businesses and all traders, other than restaurants not serving alcohol, for which the tax rate is 5%. 

The GST law discriminates against small businesses who sell through ecommerce platforms on both these accounts. The CGST law defines 'electronic commerce' as the supply of goods or services over digital or electronic network. Therefore, whether the product is physical or digital, when sold over a digital network, it acquires the character of 'ecommerce'. 

GST rules mandate compulsory registration for small businesses and sellers who sell goods and services through any ecommerce operator, even when they do not exceed the turnover limits of ₹40 lakh or ₹20 lakh, as the case may be, including for making their first sale on an ecommerce platform. eCommerce sellers who opt for a composition scheme are prohibited from selling through ecommerce operators like Amazon and Flipkart. 

eCommerce operators provide access to a wider market for small enterprises, and are also cost-efficient. Denying the benefits of exemption from registration and composition schemes to small enterprises who want to use modern and efficient digital platforms to sell their goods and services is downright discriminatory. This discrimination needs to be done away with. 

GoI, as a policy, is encouraging a digital economy. It needs to recognise that the transition to ecommerce is the future of trade and commerce. To encourage millions of small manufacturers, traders and other service providers to adopt ecommerce, both for goods and services, GoI should adopt liberal policies for MSMEs. 

This will require discriminatory practices of mandatory registration under GST for small sellers selling through ecommerce and denial of the composition scheme to small businesses selling through ecommerce entities to be abolished. Let millions of small digital businesses bloom.