Heavy-handed regulations can turn the clock back on Indian e-commerce

July 31, 2021 2:24 PM

While the ambiguous provisions in India's e-commerce regulations have been discussed at length, the policy document is just a start and will see many upgrades.

During the first week of the festive season, online platforms are expected to register 30 per cent year-on-year growth in gross GMV to USD 4.8 billion, it added.During the first week of the festive season, online platforms are expected to register 30 per cent year-on-year growth in gross GMV to USD 4.8 billion, it added.

By Shikhar Sachan

Adam Smith famously wrote of the “invisible hand” as a self-correcting mechanism that keeps free, competitive markets in check and advances the interest of the society as a whole. While Smith was right about free markets generating unprecedented prosperity, he most certainly was wrong about the self-correcting nature of markets. Hence, the need for regulations to restore the balance and ensure markets are healthy. Not just ensuring an equitable future, but understanding the changing consumption patterns and advancing changes that are desirable should be the guiding principles for any regulation. While the ambiguous provisions in the recently released e-commerce regulations have been discussed at length, the policy document is just a start and will see many upgrades.

It is in this context that revisiting certain narratives becomes crucial. What is to become of our humble kirana stores? One needs to see the rise and fall of businesses in the larger context of landscape shifts and not simply as a result of strategic blunders or their competition getting the better of them. Technological advancements and cultural changes are forces that are impossible to overcome. To fundamentally change your business is the only way to survive, and it is one of the toughest things to do. No strategy, no regulation can save an idea whose time is up. Your local movie renting store, photo studios and cable operators no longer exist as they were disrupted. Such shifts are desirable.

The case of kirana stores is unique. Their location advantage, which drove walk-ins and hence sales, has weakened with the advent of online shopping and home delivery services. Stores that are not putting in efforts to boost sales will convert into warehouses. To be honest, they already are warehouses, just storage spaces. The ones that are investing in building relationships with the consumer community, understanding their specific needs, ramping up their deliveries and enabling credit facilities are doing better than they ever have. During the pandemic, when e-commerce players were unreliable, such stores went beyond their call of duty to help their customers. This proves their utility and their ability to use their location advantage. Most kirana stores have been able to take advantage of the landscape shifts.

First, they have partnered with major e-commerce firms to get more sales. Such partnerships mean less margin per sale but more volume and a higher revenue on the whole. Second, they have used new services like Khatabook for digitization, Dunzo for delivery and various others to solve their financial woes. Third, services like ApnaKlub that enable better price discoverability and margins for retail stores. One could argue that this is the ‘invisible hand’ at play. Goliath is being countered by the collective efforts of local, decentralized Davids leveraging on tech built by startups.

There is a question around monopolistic tendencies by the big players, particularly in light of the fact that there is a decrease in new brick-and-mortar businesses and that new establishments are increasingly provided by existing businesses opening new locations. Across India, there is enough competition – multinational firms like Amazon and Walmart; homegrown startups like Flipkart, Snapdeal, Paytm; and now corporate houses like Tata and Reliance are part of the game. Regulations to promote healthy competition between them will be in the interest of all stakeholders. The decrease in new brick-and-mortar businesses is perhaps countered by the increase in online-first businesses, which have been accelerated by e-commerce platforms as they enable nationwide discoverability, sale and delivery of products serving niche audiences.

Opening offline stores would have been riskier for these new entrepreneurs. We are also seeing the rise of the passion and gig economy. Most creators earn as individuals, not as companies, through various creator platforms. When businesses expand, they improve the quality of life of their customers and create quality jobs at all levels for the local community. Such businesses raise the bar for newcomers, and why should that not be the case? Entrepreneurship is not about registering a business, it is about making it work despite astonishing odds. Any narrative that calls for excessive regulations does more harm than good. Growth through legitimate means should be welcome.

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There also appears to be some misunderstanding about how modern-day capital works, especially with the labelling of e-commerce firms as ‘foreign’ or ‘local’ to suit particular interests. Capital is just a small piece in the entire business puzzle. It can change hands any time. Fundamentally, these businesses are as Indian as they could be. The top leadership is Indian, the decision-making rests with Indians, they are building in India, for India and the world, they pay taxes in India, they will IPO in India and will merge with an Indian entity provided that’s the best offer on the table.

Our domestic ecosystem is not developed to support companies with this kind of growth capital. Hence, our reliance on foreign funds. In the coming years, we will see the emergence of domestic funds with the desired risk appetite and competency. Until then, we can’t let our entrepreneurs and ecosystem suffer. We are accustomed to thinking of large companies as opportunistic, killing every small business that comes in the way of their profit maximization plans. But we tend to forget the positive impact they create on our society and economy. Our primary battle should be against crony capitalists – those hand in glove with the government and tax evaders, not businesses abiding by the law of the land. Regulators should never be influenced by the weather of the day but inevitably by the climate of the era.

Providing a safety net for small businesses is desirable as they have no means to understand and respond to the threats they face. How do we train them so they can ride the wave? How can we accelerate digitization? How do we relocate them to other high-paying avenues? Answering these questions, and not excessive regulation, will be in the best interest of the markets and the society.

(The author is co-founder of Habitat and an angel investor. Views expressed are personal.)

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