Why the debate on e-commerce must move beyond FDI rules
Policymakers must recognise that the current approach of extending competition law to the virtual marketplace does not suffice. The real problem is that this sector (just like others) is being restructured through the emergence of new business models that rely on monopoly control over data-based digital intelligence to optimise valueUpdated: Jan 06, 2019 16:43 IST
In October and November 2018, during the Great Indian Festival season in India, online retail giants — Amazon, Flipkart and Paytm Mall — sold goods worth $4.3 billion (Rs 29,947 crore), 43% higher than the last year.
Traders in physical retail must now reckon with the rather disconcerting reality of e-commerce. The press note issued by the Government of India on December 26 as a ‘review’ of the Foreign Direct Investment (FDI) in e-commerce policy was received positively by a large section of domestic traders/retailers. The relief, perhaps, is too little, too late.
India’s FDI in e-commerce policy permits only the ‘marketplace model’, where the e-commerce entity is only a facilitator between the buyer and the seller, and not the ‘inventory model’, where the inventory of goods and services is owned by the e-commerce entity and sold directly to consumers. However, foreign companies operating online retail platforms have been flouting the rules all along.
The government’s most recent clarification is a bid to stem the brewing discontent among traders. It restates that foreign companies cannot promote their own products or the products of companies in which they hold an equity stake. Additionally, they are disallowed from engaging in deep discounting practices that distort market pricing mechanisms and providing preferential treatment to any supplier. But traders’ associations have claimed that Amazon and Flipkart provide preferential terms to their partner sellers.
The government’s norms do not necessarily favour small players in retail. On the contrary, they preserve the space for large domestic retail companies to reap the advantages of the digital transition of the sector. In fact, the future is about convergence of online and offline sectors, projected to touch Rs 85 trillion by 2021. The fight, evidently, is between big foreign e-commerce and big brick-and-mortar Indian retailers like Future Group and Reliance Retail. The CEO of Future Group, in his response to the clarification of FDI rules, “thanked” the government for paving the way for a “domestic Alibaba”, confident that the physical is not going to go away.
So, where does all this leave the small retail business sector in India, which supports a large volume of self-employed and low-paid, hired workers? Even if Walmart and Amazon employ a few thousand more, experts argue that they are unlikely to neutralise the employment loss associated with the collapse of the informal retail sector.
In 2016, Jack Ma, the founder of the e-tail giant Alibaba, had observed that “the era of pure e-commerce will gradually vanish over the next 10 to 20 years. In replacement, online, offline and logistics will create ‘New Retail’: offline enterprises must go online, and online enterprises must go offline, and integrate with modern logistics, using big data.”
Retailing, as Ma suggests, is more and more driven by the god’s-eye view of markets that data-rooted intelligence alone can grant. Through their predictive AI analytics for shaping consumer preferences and optimising supply chain logistics, new retail controlled by big corporations will proprietise essential market linkages, and thus game the market. What this implies is that as per the new rules, even if foreign e-commerce companies do not discriminate between different sellers on their platform in “warehousing, logistics, order fulfilment, call centre, payment collection, etc”, their data-based hegemony in the market gives them the unbridled power to shape retail.
Unless there is a complete overhaul of policy thinking on e-commerce and a dedicated investment in building the capabilities of small businesses to participate in the digital economy, the mere curtailing of FDI in the inventory model of e-commerce cannot go very far.
Additionally, policymakers must also recognise that the current approach of extending competition law to the virtual marketplace does not suffice. The real problem is that this sector, just like others, is being restructured through the emergence of new business models that rely on monopoly control over data-based digital intelligence to optimise value. Small players simply do not have the capacity to participate on an equal footing in these. The government may have succeeded (to a limited extent) in pulling up Amazon/Flipkart for their price fixing and collusive sales practices, but is yet to do something to tackle the data power they wield.
Certain digital intelligence layers of platform marketplaces produced from economic transactions taking place on them need to become a public utility, so that diverse actors - big and small, corporate and cooperative, specialised/artisanal etc. - can find their place in the market. In this alternative model, big data analytics can be used for supporting the local economy, for instance, to nudge consumers to local goods and services. There is also room to embark on a nationalised e-commerce marketplace, on the lines of the online agricultural market place, e-NAM, with ‘preferred sellers’ arrangements that prioritise women and rural artisanal entrepreneurs.
The government’s policies have, however, consistently emboldened the big corporate lobby and brought enormous hardship to small traders, vendors and informal sector workers. It would augur well for traders and vendors to mobilise against such myopic, digital age neo-liberalism, deeply entrenched in policy and institutional spaces.
Anita Gurumurthy is executive director, and Nandini Chami is deputy director, IT for ChangeThe views expressed are personal
First Published: Jan 06, 2019 16:43 IST