Allow FDI for inventory-led e-tail, physical stores
Given the rapid growth in India’s e-commerce space over the past two years, fuelled almost entirely by foreign investors, the industry had all but presented the government with a fait accompli. With close to $20 billion in investments, thousands of jobs created and the promise of a lot more to come, it would have been hard for the government not to encourage e-retailing. But the formal announcement of the FDI guidelines on Tuesday would have been partly prompted by action in the courts: in September, the Delhi High Court observed there had been a ‘prima facie violation’ of foreign investment regulations by e-commerce companies and sent a notice to the government on a petition filed by footwear retailers. By November, the court had directed there be a probe and in late January, the court heard a PIL seeking a thorough investigation into all firms that had received FDI. The judges who heard the matter sought a reply from RBI on the central bank’s latest circular governing FDI policy.
While the government may have been pushed to take a call on e-commerce, the decision smacks of hypocrisy given it has been so openly opposed to allowing FDI in multi-brand retail for brick-and-mortar players—how hypocritical is exemplified by the fact that it is yet to reverse the UPA government’s rules permitting 51% in multi-brand retail but, as a party, remains opposed to it. Indeed, online grocers will be more of a threat to kirana stores compared to big FDI-retailers. Perhaps, it is politically inappropriate for the BJP to displease the trader community, which constitutes a large vote bank. But that is short-sighted, given the tremendous potential the retail sector has for not just improving life for farmers and small manufacturers—witness the number of SMEs finding a market through e-commerce, and can also do through a Walmart or a Tesco—but also creating employment opportunities for skilled and unskilled workers.
While the guidelines for e-commerce platforms might appear to have levelled the playing field between them and brick-and-mortar players, the former are always going to be at an advantage because of the convenience they offer. Yes, the advertising will need to be tweaked since e-platforms can no longer offer customers a proposition such as guarantee of satisfaction. But skirting around some of the norms may not be difficult. For instance, even if the platform is barred from influencing the price of the products—that is, it cannot offer a discount—this can be done in other ways since the platform is allowed to support the vendor by providing a whole host of services. Disallowing a single vendor or its group of companies from selling more than 25% of total sales of the platform would hurt large suppliers such as Cloudtail or WS Retail but splitting these up to show different ownerships may not be too difficult either. By not allowing FDI for an inventory-led e-commerce model—such as Bigbasket—the government is trying to protect and appease local brick-and-mortar retailers. But a Bigbasket shouldn’t be asked to shut shop merely because it is backed by foreign investors. The government should instead move to a free market with a common set of guidelines for e-tailers of all varieties as well as brick-and-mortar chains.