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Can't have FDI in etail sans FDI in retail PDF Print E-mail
Thursday, 26 April 2018 04:33
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It has to be truly amazing that the government has just set up a taskforce to prepare a policy framework for e-commerce, so many years after big players set up shop in the country and invested billions of dollars despite the grey areas in the policy that have been obvious from day one. Indeed, at the time when some players were using foreign funds to discount heavily—even offering cash discounts to suppliers on their platforms—to attract customers and Indian brick-and-mortar retailers complained of the unfair competition, the government did little. Indeed, the government was unmoved when it was pointed out that while the law did not allow FDI in B2C e-commerce—FDI is allowed only in B2B e-commerce—many players were circumventing the rule through the ‘marketplace’ route.

The FDI would typically come into an entity investing in and handling the logistics, warehousing, sourcing, etc, and since this was a B2B entity, this was legal. This company, in turn, would have a contract with the marketplace that was a B2C entity and had, by law, no FDI. Effectively, however, FDI was coming into the B2C space despite the ban on it. The fact that the government is now coming out with an e-commerce policy is also ironical since, by now, there has already been a big shakeout in the sector; indeed, Walmart is expected to take over Flipkart over the next few weeks—all while India tries to formulate a policy on whether FDI should be allowed in B2C e-commerce!

It is not this newspaper’s view that B2C e-commerce should not be allowed. Indeed, given the convenience and lower prices of online shopping, and the efficiencies created through better logistics and massive warehousing, its spread is to be welcomed. Also, it has created lakhs of jobs in, for instance, the delivery space. And thousands of SMEs who couldn’t possibly have had access to pan-Indian markets—setting up such networks requires deep pockets and takes years—have now got this due to these e-commerce players.

But issues like level playing fields need to be addressed. If, say, a local retailer had access to FDI, it could also scale up and benefit from superior technology/sourcing, etc, and foreign money could allow it to offer low prices to compete with e-tailers. So, when the task-force finally makes it recommendations, it must realise that allowing FDI to access Indian customers through a legal fiction is unfair if the same FDI cannot access Indian customers through, say, setting up its own stores. To put this in the context of a Walmart trying to buy Flipkart, if this is to be allowed, why can’t Walmart be allowed to set up its own stores here or to buy into existing Indian retail chains? From the point of view of policy clarity, it is galling that investors who have invested billions of dollars in creating world-class wholesale/retail infrastructure chains could actually be asked to leave if a court decides to implement the law in its true spirit. Allowing FDI in B2C e-commerce, of course, poses a problem for the BJP since, while the UPA had allowed FDI in multi-brand retail—subject to various conditions—when the NDA assumed office in 2014, it didn’t want to encourage FDI given the BJP’s view that it would hit small kiranas. Hopefully, the party will keep in mind that, if e-tail FDI can come in, its potential to hurt small retailers is just as large, may be even more than in the bricks-and-mortar model. In an economy growing as fast as India is, and which needs billions of dollars to invest in the retail space, chances are the kiranas will survive.

 

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