One can ‘buy’ customers with FDI, the other can’t
While millions of Indians are splurging on festive shopping, the big difference this year is that much more of the shopping is happening online. And considering that India has the third-largest base of smartphone users, it is not surprising that 40% of the online transactions are happening on mobile phones. According to a report in Business Standard, it is estimated that the gross merchandise value (GMV) of Indian e-commerce companies this calendar year will be over $12 billion (R78,000 crore), almost thrice the $4.5 billion (R29,000 crore) achieved in 2014. That’s happened as the three big companies—Flipkart, SnapDeal and Amazon—that account for 80% of country’s e-commerce market have widened the variety of goods on offer, apart from reducing delivery time to a few hours in the major cities. Goldman Sachs has just upped its estimate of India’s e-commerce market to $103 billion by 2020, a 27% hike over that estimated just 5 months ago.
The emergence of online retailing has resulted in the creation of an entirely new genre of jobs in the country, and is great news for the logistics industry in India—and the thousands of SMEs that will benefit from both the new access to markets as well as the superior logistics. Today, tens of thousands of youth in towns across the country have new jobs—be it in logistics, warehouses, delivery boys—as consumers across the country get their goods delivered almost overnight. Bhiwandi, north of Mumbai, has emerged as a major centre with hundreds of state-of-the-art warehouses built over the past few years; Amazon alone has 21 fulfilment centres across the country to stock goods and that number is only going to increase.
The problem in this idyllic picture is what this is doing to traditional retailers. While there is little doubt e-tail offers great convenience over traditional retail for a time-constrained class of customers, there is also no doubt that e-tailers have an unfair advantage over traditional retailers in that they can virtually ‘buy’ their customers by offering huge discounts using free private equity money. Were traditional retailers to be allowed to get FDI, they too could perhaps offer great deals to customers or increase their product offerings and grow their outlets even while making big losses—with the losses funded by foreign partners who tend to be more deep-pocketed; they may still lose the fight to e-tail, but would at least be able to put up a tougher competition. If only to provide a level playing field, the government needs to clarify its policy on FDI in retail—this cannot be allowed in e-tail through roundabout models like the marketplace one, while being banned/discouraged in the bricks-and-mortar retail. It would be ironical if a party traditionally known for being close to retailers ends up presiding over their demise by favouring e-tailers.