E-commerce plan is badly conceived, best to scrap it

Prove unfair discounting by Amazon/Flipkart, a ban on bulk purchase illogical, special rights for founders retrograde.

E-commerce plan is badly conceived, best to scrap it
E-commerce plan is badly conceived, best to scrap it

Given how Flipkart has been around for more than 10 years now and Amazon for at least five, the government’s e-commerce policy is almost an afterthought. And, since e-tailing seems to be coming along nicely—India now has some 30-35 million online shoppers—and the payments piece, too, is gaining momentum, there is no real need for a full-fledged policy except one to ensure the safeguards are all in place. Instead of doing this, however, the draft e-commerce policy introduces some ideas that are not only retrograde, but even run counter to established fair play and equity. Existing brick and mortar retailers, for instance, are right in saying FDI into e-commerce players has been given a back-door entry. The way to set this right is by allowing 100% FDI in multi-brand retail. Instead, the government is looking to tighten controls over the e-commerce space under the guise of accelerating the pace of the digital economy “by providing a facilitative eco-system for spurring digital innovation”.

At the heart of the draft policy is an agenda that seeks to protect home-grown entrepreneurs. However, too much control will only put paid to whatever initiatives the local businessmen have taken; let’s face it, without the capital, all of which is coming from overseas, no entrepreneur can build a business. So, if the Companies Act is amended to let Indian founders retain control even if they have a small shareholding, it won’t work, apart from it being antithetical to corporate democracy—shareholder rights are proportionate to their equity share. Why would a Walmart pay top dollar and invest billions in Flipkart if it can’t call the shots? The new policy smacks of hypocrisy because this has happened while the government looked the other way when e-commerce players blatantly breached the rules that disallow FDI in an enterprise that engages in B2C sales, pretending to be mere marketplaces when they are, in effect, the sellers. By this logic, even Walmart should be allowed to set up front-end stores in India because it is mostly selling brands made by third-party manufacturers. Multi-brand retail should be thrown open to 100% FDI; the paranoia that small stores will be killed is overdone with little evidence so far that this is happening even with organised retailing having taken off.

If the government is concerned about the steep discounts offered by foreign e-tailers and feels this is unfair price-distortion, it needs to prove this unfair discounting and then act upon it. Trying to fix this by asking related-party sellers like a Cloudtail or a WS Retail to not buy in bulk is unfair since bulk purchases are at the heart of any retail operation, whether offline or online. It is also more than a bit hypocritical for the government to argue that Flipkart/Amazon’s deep discounting is predatory while RJio’s massive discounts are kosher. In the absence of being able to prove that the discounts are unfair, the government has to accept that online shopping has taken off simply because the prices are so attractive, and what the government perceives as price distortions are actually a reflection of the effective demand for a product at a particular price. Price controls will only choke demand, hurt sales and manufacturing and create fewer employment opportunities. Retail is a sector that can generate thousands of jobs across levels. The government’s role is only to ensure that data privacy and data storage rules are respected and that the e-tailers pay their taxes, among others. Critically, it must keep a very close watch on the payments space to make sure consumers are protected against frauds. Any other kind of interference will only backfire. The main reason why India’s IT industry has flourished—and the local boys have become the big stars—is because the government left it alone. There is a lesson here for the government.

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First published on: 02-08-2018 at 01:58 IST