As Modi said about the private sector, appreciate what Amazon/Walmart have done & allow FDI in multi-brand retail
Whether it was his speech in Parliament lauding the private sector’s role in nation-building or the praise for India’s vaccine development or the mobile phones being made under the PLI scheme, prime minister Narendra Modi has repeatedly shown his willingness to ditch dogma and to embrace anything that helps the country. Perhaps it is time to extend this to the rapidly growing e-tail sector instead of, as the commerce and industry minister is threatening to do, further tighten the screws on foreign investors by issuing various ‘clarifications’ to the law.
The Covishield being manufactured by Serum Institute, by way of example, is hardly “Indian” as it has been developed by Oxford-AstraZeneca, but that didn’t stop Modi from tweeting about Canadian prime minister Justin Trudeau speaking to him about “supplies of Covid vaccines sought by Canada”. And while the phones that Apple assembles here – like the SE, XR and 11 now, and the 5, 6s and 7 in the past – have mostly imported components right now, Modi realizes that while this will create lakhs of jobs, over time, indigenization levels will also rise, apart from the big boost Apple and Samsung assembly operations will give India’s exports.
So, instead of focusing on whether WalMart and Amazon are foreign players, why not focus on the tens of thousands of jobs their e-tail operations are creating, on the lakhs of SMEs to whom they have provided pan-Indian market access, and the impact of the $8-10 billion they have brought in – apart from the $16 billion WalMart paid to buy Flipkart – to create warehousing and delivery facilities across the country?
On the face of things, the reason for putting various curbs on foreign e-tailers is to prevent them from killing off millions of small kirana stores with their deep discounting and other strategies to lower prices and offer better deals to consumers; indeed, the clarifications that the commerce and industry ministry will be coming out with are essentially aimed at stopping this since the view is that the existing rules are being flouted. While it is not clear whether Flipkart-Walmart and Amazon’s operations will hit the kiranas – the latter have managed to hold their own quite well so far – as in the case of the farm laws, much of what is being talked of are half-truths and fear-mongering.
The most common – mentioned in Press Note 2 of 2018 – says ecommerce entities “providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field”. Apart from the fact that deep discounts on prices benefits consumers, there are several problems with the government issuing any clarification around this. First, it is not clear there are deep discounts being offered, let alone these being ‘influenced’ by the etailers. The price of the iPhone12, for instance, is roughly the same whether in offline or online stores. Very often, when prices appear much lower in some online marketplaces, those are for models with different specifications. It would be instructive if the government, or the Competition Commission or some such body, put out these comparisons.
Also, if restrictions are to be put on discounts, the government will have to define what the appropriate level of discount is. And is this discount, say 25%, to be applied on each product at any point in time or across a larger time period; many traditional retailers offer 60-70% discounts on various items at different points in time, say during clearance sales; indeed, some ‘loss-leaders’ have significant discounts for longer periods to draw in customers. And how do you calculate discounts on items that are not mass-produced with an MRP listed by the manufacturer?
More worrying, these rules on not influencing prices do not apply to either brick and mortar stores or to Indian online players! So, assuming online players do discount items so heavily as to kill off kirana stores, the policy suggests that it is alright for a Reliance Retail or a DMart or a Future Retail to fund big discounts but not a Flipkart-WalMart or an Amazon!
While this seems unfair, the logic behind it appears to be that foreign etailers have very deep pockets as compared to local players; so their ability to carry on a discount war for longer is higher. While the bruising price war that RJio carried on in the telecom market makes it clear the assumption isn’t a reasonable one, what happens when an Indian firm gets large foreign investments at the level of the parent? How is the government ensuring that the foreign equity infused at the level of the parent is not going to fund big discounts by the retail arm of the firm?
Another rule in Press Note 2 pertains to what are called store labels. There are two clauses here. The first one is number iv – in Clause 188.8.131.52.4 of the Press Note – which says that if a vendor buys more than 25% of its purchases from the marketplace or any of its group entities, it “will be deemed to be controlled” by the marketplace. And the very next clause says that if the marketplace or its group firms has equity in a vendor – or controls its inventory as per clause iv – it cannot sell on the marketplace. So, if a foreign e-tailer like an Amazon or a Flipkart-Walmart wants to create a store label to offer attractive deals for customers, it cannot invest in a supplier to do this, nor can it supply raw material to a contract manufacturer to do so. Yet, the same facility is available to any brick-and-mortar player or to an Indian e-tailer.
The BJP, it is true, has traditionally been opposed to FDI in multi-brand retail and the rules in Press Note 2 essentially flow from this; were FDI to be allowed, there would be no need for Press Note 2. But, under Modi, especially now, the party is showing that pragmatism is more important; if that is the case in other areas, why not apply the same logic to e-tail? Also, when the billions of dollars were being brought in by big foreign retailers, what did the government think was going on, that these firms were bringing in all this money just to set up trading platforms – like the government’s GEM e-marketplace – so that they could earn a commission from suppliers, including SMEs, who sold their product on them as well as from the delivery charges from retail customers? Some honest introspection, and a sense of fair play, will guide the government on what it needs to do.