Making a distinction between local and foreign players in the retail sector is bad policy, govt should drop it
Even as the government tries to convince itself that it has not made a U-turn in its e-commerce policy—after WalMart spent $16bn to buy Flipkart!—and tries to come up with a solution to the alleged ‘deep discounting’ by the likes of Amazon and WalMart, it needs to address a more fundamental issue, that of having different rules for Indian and foreign businesses within the same sector.
Right now, the fight is about whether Amazon or WalMart can do ‘deep discounting’; local retailers are protesting against this on grounds that their businesses are being destroyed. But, under the current law, there is nothing to prevent a Future Retail or a Reliance Retail from doing this on marketplaces, should they set them up. Imagine the furore if the US were to put restrictions on an Infosys while not putting the same on a US firm. So, before finalising its e-commerce policy, the government needs to think about a uniform policy for Indians and foreigners. Indeed, while India does not allow FDI in multi-brand retail, Samara and Amazon operate the More retail chain!; and since Indian firms can have FDI at group levels, how will the government ensure this money doesn’t flow down to the retail chain? Again, one policy for one group of investors and another for a different set.
Also, not wanting ‘deep discounts’ is one thing, but can the government tell us what an acceptable level of discounting is, and apply it uniformly? It cannot be that a, say, 60% discounting is unacceptable in retail outlets, but is all right in the food space; the furore over Swiggy and Zomato is about their discounting driving Indian restaurateurs into bankruptcy. Also, given how the restaurant business is being revolutionised with ‘cloud kitchens’, among other changes, what is the government policy on this going to be? A narrow focus on just levels of discounts is counter-productive.
And, though The Times of India (ToI) priced its newspaper—or ‘product’, as the marketing gurus that ran the newspapers called it—at `1 several decades ago, is the government going to take action here? After all, thanks to ToI, the price of a newspaper has little relationship with the cost of delivering it? But, the government will be quick to reply, this is different; since newspapers earn their revenues from advertising, this is not predatory pricing or ‘deep discounting’. But, what if Amazon or WalMart argue that their business model is really about increasing market-share, or that the ‘data’ they collect on consumers and their buying behaviour more than makes up for the discounts they give? Indeed, this permits cross-selling as well. That’s how Google and others justify offering free services, like email or maps, or, in the case of YouTube, free videos. Surely, such services are playing havoc with local industry—WhatsApp, for instance, killed lucrative SMS revenues for telcos.
And, if the destruction of local industry is the touchstone for policy intervention, surely this has to apply to RJio and its hyper-competitive pricing—clearly below its costs—that hit already struggling telcos badly? If maximising consumer welfare justifies RJio’s pricing—this is probably true of free email, WhatsApp, etc—surely consumers are benefiting enormously from the ‘deep discounting’ of a WalMart or an Amazon?
If the issue is about the ‘free’ capital that foreign retailers can access while local retailers cannot, surely this applies to other areas as well? A big Indian firm getting FDI at the group level is really the same thing, even if there are so-called ‘structures’ supposedly in place to ensure this doesn’t flow to the retail subsidiary. And, if free taxpayers’ money allows an Air India to price its tickets below those of other full-service airlines like Jet Airways, isn’t this ‘predatory pricing’ based on free equity capital that others don’t have access to?
You would think this is something that should concern competition authorities in the country, yet the Competition Commission of India (CCI) has never raised this issue when, year after year, Air India gets fresh government funds. Indeed, CCI hasn’t intervened even as the government is planning a `80,000-odd crore bailout package for MTNL and BSNL that, very clearly, will affect the competition landscape.
Under normal circumstances, complaints of ‘predatory pricing’ and ‘deep discounting’ should be referred to CCI. Yet, most competition law the world over says that companies accused of ‘predatory pricing’ must have, among other factors, ‘significant market power’; so, when RJio began its assault some years ago, CCI didn’t intervene since RJio was a new entrant and had zero ‘market power’. Going by that logic, CCI cannot interfere in WalMart/Amazon either as online’s share in India’s retail market is just around 1.5%. In which case, CCI’s top-brass is probably contemplating whether the definition of ‘significant market power’ needs to be amended to also include, say, deep pockets.
Another issue for CCI to consider—and more so the government, before it finalises its e-commerce policy—is the larger issue of consumer and other welfare. One difficulty that competition authorities the world over have with digital giants like Google is that, with little chance of them jacking up prices—in this case, even beginning to charge for their services—there are few consumer groups complaining; but, anti-trust action is predicated on monopolists planning to hike prices once the competition is killed. So, the government needs to be clear about what it really wants. While the need to maximise consumer welfare is obvious, millions of farmers benefit from a complete supply chain, and lakhs of SMEs will benefit from the billions of dollars being invested by Amazon and WalMart in creating warehouses and supply chains. Does the government think the money they can make from just running ‘marketplaces’—as opposed to trying to become bigger players in India’s retail space—is enough to warrant such large investments? Once you ask the