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India’s new online FDI policy may stifle our startup revolution

We cannot talk of a startup-driven revolution while supping with protectionists who live in the past. India’s new FDI policy in e-commerce seems to do just that.

editorials Updated: Mar 31, 2016 20:16 IST
Flipkart’s co-founders: CEO Sachin Bansal and COO Binny Bansal (Mint)

“Man is born free, and everywhere he is in chains,” French thinker Jean-Jacques Rousseau said. Something about the government’s decision to allow 100 % foreign direct investment (FDI) in online marketplaces leading e-commerce reminds us of this paradoxical statement. Several conditions have been attached to the policy that smack of regressive protectionism. Typically, FDI ushers in competition in an industry to aid consumers, provides capital that fuels growth and jobs and brings in new technology. The caveats seem to fly in the face of all three in its desire to protect home-grown retail giants and a powerful lobby of traders. While the policy enables marketplaces like Amazon, Paytm, Flipkart and Snapdeal to bring in capital, the attached conditions may stifle innovation in technology and business models that may prove beneficial in the long run. One clause bars marketplaces from offering discounts on their own, which means only vendors can do that. Marketplaces are also barred from selling their own inventory or influence product prices. The conditions also cap total sales originating from a group company or one vendor at 25%. Such restrictions put incumbent stores at a protected advantage, and we think this goes against the spirit of the Prime Minister’s “Startup India” programme that encourages technology-driven startups.

Flipkart generates jobs for delivery boys

Apart from creating software technologies to help global retail giants, Indian startups have been also at the cutting edge of data-driven retail practices in marketing. It would be ironic if Indian techies cannot employ at home the innovations that they are aiding elsewhere. Online marketplaces have offered consumer discounts to woo users towards e-commerce and also to build market share in a competitive field. In the process, they have developed an ecosystem of new-age players in logistics, generating employment for data scientists and delivery boys alike.

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

Limited scope?: E-commerce startup Paytm’s CEO Vijay Shekhar Sharma at his office in Noida (Hindustan Times)

The big question before the government is whether it is stopping new-age, digital-first companies in its efforts to protect incumbent stores. Also, a consumer feels more assured when she shops from a marketplace that can also take responsibility for quality. Small manufacturers also gain in the process. With both Congress and BJP’s backyard nationalists in RSS-backed Swadeshi Jagran Manch opposing the new regime, the task before the government is understandably uphill. But it pays to note that we cannot talk of a startup-driven revolution while supping with protectionists who live in the past. Hopefully, restrictive conditions will be removed as we move forward.