India’s e-commerce policy hurts first-generation entrepreneurs

  • Narayanan Madhavan, Hindustan Times
  • Updated: Apr 02, 2016 09:56 IST
E-commerce startups like Snapdeal try to break psychological barriers to online shopping (Reuters )

Market economics is messy, and that is not necessarily a bad thing. The question is: Do we understand what a creative mess is – the kind created by artists. That’s the thought that crossed my mind this week after the government ushered in 100% foreign direct investment (FDI) in e-commerce with riders that reminded me of the obstacles that steeplechase runners have to cross in athletic races.

It seems like the other day that Prime Minister Narendra Modi launched the “Startup India” programme to encourage technology-driven ventures that will put India’s economy on the world map even more than they have done already. The problem is: startups are not pussyfooting creatures who tiptoe in. If they do so at all, it is for a stealthy march before a big attack.

The best startups enter the game to change its rules.

Think of how the smartphone has killed the watch, the MP3 player, the camera, the typewriter and even the photocopier. Last week, I used my phone to copy a document and email it as a pdf file.

Let’s face it, startups attack incumbents to create a brave new world.

It was a bit surprising -- but also understandable – to see the government erecting barriers to competition that e-commerce marketplaces may pose to domestic brick-and-mortar chains like Big Bazaar and small shopkeepers who may lose demand from e-commerce players.

However, in the process, startups are being forced to follow rules that go against the spirit of creative destruction. Imagine Apple being told that the iPhone will not be allowed to carry a built-in camera because it would hurt a Nikon or a Canon!

India’s technology startups are being offered government funds, but that’s not really what they want. There are major venture funds, angel investors and even hedge funds already investing and willing to put more money into Indian startups. But such funds take big bets on entrepreneurs who have nothing but technology, energy and creativity because they are out to change the game. Disruptive startups also take big risks. By putting up obstacles to creative disruption, the government makes startups to be some kind of pets, even as giants get protection from foreign competitors.

Read | After the bubble, job cuts arrive at e-commerce companies

Now, there is a tricky question of who the e-commerce marketplaces are really hurting. Sites like Flipkart, Snapdeal and Amazon help small manufacturers reach a national or global market when they create an ecosystem to offer a range of services including financial help, market intelligence, promotional advice, logistics and delivery. By taking quality assurance and discounts out of the picture, the government policy stands in the way of “full-service” marketplaces.

In capitalism, it is legitimate to ask what is fair competition and what is unfair competition. We already have a Competition Commission of India as well as a Restrictive Trade Practices Commission that take care of such issues. Startups in fact are meant to turn the heat on giant players. It is true that small shopkeepers may lose out in some cases, but then big offline retail players are already doing that to domestic shopkeepers. Why should startups not enjoy a similar privilege?

Read | Modi govt cuts e-commerce price advantage to save retail

In essence, the FDI policy in e-commerce is hurting venture funds that take big bets on startups in the hope that if these companies do not go public with initial public offers (IPOs) they may get acquired by global giants.

It is possible to argue that the e-commerce policy favours domestic giants over first-generation entrepreneurs who may want to partner with venture funds.

Above all, there is a big issue. The digital economy is an across-the-board revolution touching everything from factory robotics in Europe to fishermen getting weather information in Kerala. It is time to accept such a leap as inevitable. Hopefully, the government will remove obstacles to e-commerce in a manner such that small manufacturers and first-generation entrepreneurs do not lose out to the monetary muscle and lobbying power of domestic giants.

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