Oddly, the government first allowed global players to set up shop in India via what is called the ‘marketplace model’ even though FDI is not allowed in multi-brand retail.
The government’s blow-hot-blow-cold policy approach towards global multi-brand e-retailers such as Amazon and Flipkart is perplexing since, apart from the fact that it is supposed to be trying to attract FDI, the same rules don’t seem to apply to local e-retailers, many of whom also have foreign investors, even if not at the level of the retailing subsidiary. It doesn’t help that these changes—the government insists they are merely clarifications of existing rules—come after global retailers have spent billions of dollars ($16bn in the case of Walmart’s Flipkart acquisition) to set up operations here, and have lakhs of employees as well as local suppliers .
Oddly, the government first allowed global players to set up shop in India via what is called the ‘marketplace model’ even though FDI is not allowed in multi-brand retail. But, after billions of dollars came in to set up millions of square feet of warehouses with world-class logistics, the government changed the rules frequently. In what is the latest change, the industry ministry wants these e-retailers to share details of the top five vendors supplying merchandise on their marketplace, the product categories they supply, their share of overall sales, the kind of support provided by the platform to these sellers (that probably means marketing margins and other commercial arrangements), the share of private labels in overall sales on the platform, where these are sourced from, etc.
One could argue that the government is just trying to ensure the rules are being adhered to, but much of this is privileged information, and can quite easily get leaked to the competition. In any case, if the government can prove its rules are being violated, why doesn’t it take action? The information has been sought following complaints by retailer associations like CAIT, which have alleged FDI norms are being flouted; they argue that while FDI is not allowed in multi-brand retail, these marketplaces are surreptitiously funding ‘deep discounting’, which is what is making customer flock to online marketplaces.
Having got the large investment, it would appear the government doesn’t want to antagonise local retailers—also a big voter constituency. So, after it looked the other way when FDI came in by the billions using the fiction called the ‘marketplace’ model, the rules were changed—last December—to ensure that supplies by a vendor on a marketplace were capped at 25% if they had a common FDI parent. The new policy also prohibited e-tailers from exclusive tie-up with suppliers, like a mobile phone manufacturer, for instance. The rules also decreed that marketplaces should not discount prices, only manufacturers or sellers are allowed to do that.
While it is not clear what an appropriate or fair level of discounting is, amazingly, the same rules do not apply to local e-commerce platforms—many of whom also have foreign investment at the parent level—like those of Reliance Retail or Future Group. Also, ‘deep discounting’ has been permitted in other sectors; while incumbent telcos argued that RJio was indulging in predatory pricing by offering free calls and unbelievably low data-rates, even the Competition Commission of India (CCI) refused to act on this. Indeed, while this was justified by arguing that RJio’s market share was too low for it to be indulging in predatory pricing, the same should also apply to online e-retailers who have a market share of 1-2%.
Also, since the government view was that consumers were benefitting from low tariffs, the same logic should hold for online shopping. It is true that foreign e-retailers have access to capital, but they are also investing billions of dollars in India, and thereby creating lakhs of jobs and allowing lakhs of MSMEs to find buyers across the country. If the government wants the huge amounts of FDI flowing into the e-commerce space, which it appears it does, it must stop pandering to every whim of local retailers; local retailers must learn to live with the competition just as steelmakers must stop demanding protection from imported products if the latter are cheaper.