By Dr DM Deshpande *
On December 26 2018, new norms for e-commerce players were announced. New policy regulations are slated to come in to effect from February 1 2019, yet, there are certain terms and definitions that need clarity. A policy which creates more confusion is not exactly a good policy. The cumulative effect of new norms would hurt consumers, players and fresh investments. Even the earlier investments that were made on a premise of a general policy stability will get impacted. This will further reinforce the perception that India is a land of policy uncertainty and therefore poses higher business risks and also costs.
The genesis of the proposed changes lies in the desire to create a level playing field between online and offline players in Indian retail. Large online companies with access to huge foreign funding are generally seen as being detrimental to small traders and offline vendors. Offline retailers complain that dominant e commerce players such as Amazon and Flipkart offer deep discounts and cash backs; effectively they are following ‘discriminatory’ and ‘predatory’ pricing policies. That is how they are driving out brick and mortar retailers. Flash sales and new launches of smart phones and festive sales are given as examples and ‘evidence’ of such practices. Sale of smart phones and electronic goods account for 50 per cent of overall e-commerce sales in India.
In the new regime private labels are effectively banned from online selling. However, this continues to be permitted offline. Isn’t this discriminatory? And how will this benefit the small firms or traders offline or online? Private labels, all over the world, offer an affordable alternative to a more established and in all probability an expensive brand. As long as the consumer is aware of the product or a brand that he/she is buying is in fact from a private label category there should be no problem. No one least of all the government should restrict the choice of the consumer.
Further, ‘an entity having equity participation by e commerce marketplace entity’ shall not be allowed to sell goods on the former’s platform. Which means a product in which Amazon has a stake shall not be allowed to sell on Amazon. This is in addition to the distinction made between market based e-commerce player and an inventory based player based on the inventory controlled. If 25 per cent or more sale of an e-commerce entity is linked to a single vendor/firm, then it ceases to be a market place player. It becomes inventory based platform provider. It cannot then attract FDI. The order seen with a ban on exclusive product deals (such as exclusive brand of mobile sold on a particular e commerce platform) and curbs on cash backs is clearly inequitable and goes against the interests of consumers.
What is the government’s problem? In what way is it concerned with the marketing policies of companies or the incentives offered by them? It is wrong to assume that online players have infinite financial resources and they will continue to give discounts endlessly. Ola and Uber have almost stopped giving all sorts of concession to both commuters and drivers. If a Jio prices its service at rock bottom, it is alright because it is a ‘desi’ firm. Same thing by Amazon is not acceptable because it is an American firm. This will not do. So long as they pay legitimate taxes, consumers get goods of their choice and investment generates employment, government should have nothing to complain. Even if their arrangements result in predatory pricing, there is Competition Commission of India (CCI) which is precisely there to look in to any such allegations.
E- commerce has revolutionized buying in India. It has helped the small firms to grow by giving access to its platforms. Unlike in the west in every segment there are three or four major e-commerce players in India. According to NASSCOM report, by 2022, e-commerce sales in India will grow three times and cross the US $100 billion mark. Even so e-commerce penetration in India remains small in comparison with huge spends in retail in India. It is likely to grow from 2.1 per cent in 2017-18 to 6.2 per cent of total in 2022-23!
So, everyone understands that e-retail still requires deep discounting to attract and retain customers. It is only the big players who can afford it. There are two foreign players-Amazon and Walmart which recently brought out Flipkart- who control three-fourth of Indian e-retail business. If they make way or are made to make way, only big domestic players will replace them. That is not likely to help the small traders or the small firms (swadeshi). What could probably help is allowing firms to issue shares with differential voting rights so that control is retained even while capital is attracted from abroad.
Unfortunately, what the government is doing is trying to micromanage, which goes against it’s own professed policy of minimum government, maximum governance.
* The writer is the in the field of higher education-teaching, research and administration for nearly four decades. Presently he is the Vice Chancellor of ISBM University, Chhattisgarh.