Govt trying to confuse issues on FDI in retail sector PDF Print E-mail
Thursday, 30 August 2018 04:08
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Banning FDI in retail by not allowing the inventory-model is sophistry since FDI is allowed via the marketplace


DIPP secretary Ramesh Abhishek asserting that FDI will not be allowed in B2C e-commerce ventures that keep inventory is supposed to assuage the apprehensions of bricks-and-mortar retailers, but will do nothing of the sort since it is just sophistry. Large players like Amazon and Flipkart—even before Walmart bought into it—are funded by FDI, and it matters little that they don’t hold inventory but are what is called a ‘marketplace’. Technically, the inventory stored in their warehouses belong to other sellers, but the e-commerce retailers control the activity on their respective marketplaces via the bulk purchases made by their associate companies, for instance a Cloudtail or a WS Retail. And it is because these associate firms are funded by FDI that they are able to pass on discounts to consumers; this was the point made by the Competition Commission of India (CCI) which pulled up Flipkart for its discounting practices even as it cleared the Walmart deal. What bricks-and-mortar retailers should be fighting for is a liberal FDI policy for multi-brand retail, one that allows 100% FDI as in the case of single-brand retail, and without the numerous caveats that have been tagged on. That then will give them the ammunition to fight their e-commerce peers.

Again, it is hard to understand what the DIPP secretary means when he says e-commerce should be driven by efficiency and not discounts. One would have thought only efficient producers would be in a position to offer discounts. And surely the government must realise there is little point in clamping down on discounts because the players will always find a way around it, as the CCI observed; indeed, even as the government publicly rails against such deep discounting, it has done nothing to check this in the four years it has been in power. Why shouldn’t consumers get the best deal if producers are willing to give them one? Shouldn’t the government be batting for consumers? Also, aren’t bricks-and-mortar retailers also discounting their merchandise?

Instead of rolling out a liberal policy that will help retailers of all hues flourish and, in the bargain, fetch the country some chunky FDI flows, the government proposes to bring in restrictive clauses, among them one that will disallow bulk buying by sellers. The draft e-commerce policy reeks of retrograde measures that run counter to established fair play and equity. If the government is attempting to drum up support from local businessmen by promising to ensure they retain control of their businesses even if the foreign investors have a bigger shareholding, this will be struck down by the courts since this is antithetical to corporate democracy where shareholder rights are proportionate to their equity share. Policies should be framed such that they benefit all stakeholders, including consumers. It is absurd that the government would even want to monitor the level of discounts on prices—that is a business decision which should be left to the sellers. The e-commerce ecosystem, or for that matter the entire retail space, must be allowed to flourish; too many controls will only end up choking businesses. The draft policy states the government wants to spur “digital innovation by providing a facilitative eco-system”, but too many controls will only put off investors and kill innovation. To be sure, there is nothing wrong in asking e-commerce firms promoted by foreign entities to store their data in India as part of an umbrella privacy policy, but beyond that they need to be allowed to function independently, just like other firms.


Last Updated ( Thursday, 30 August 2018 04:13 )

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