E-commerce Business Models — UPSC Mains Model Answer

In dropshipping, the seller lists products, sets prices, and collects payment, while a third-party supplier fulfils and ships orders directly to the customer. The seller's margin is the spread between the supplier's wholesale price and the retail price charged. This eliminates warehousing costs and reduces working-capital requirements significantly.

The model lowers barriers to entry for micro and small entrepreneurs, enabling participation in digital commerce without large upfront investment. It supports the broader objective of formalising small traders into the digital economy, aligning with initiatives promoting MSME digitisation and financial inclusion.

Because the seller does not physically handle goods, quality control is difficult to enforce. Disputes over delivery timelines, product authenticity, and returns create ambiguity about liability — whether it rests with the platform, the seller, or the supplier. India's Consumer Protection (E-Commerce) Rules mandate clear disclosure of seller identity and grievance mechanisms, but enforcement in dropshipping chains remains complex.

GST compliance becomes layered when the supplier, seller, and customer are in different states or countries. Cross-border dropshipping involving overseas suppliers raises customs duty, import valuation, and data-localisation concerns that existing frameworks are still adapting to address.