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Time to end the hypocrisy on retail PDF Print E-mail
Monday, 15 February 2021 03:27
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Just as the PM said about the private sector, time to appreciate what Amazon/Walmart have done & allow FDI in retail sector

If Indian e-tailers can discount their products or set up firms to produce private labels, why can’t foreign firms do this? More so since ‘Indian’ firms also have FDI

 

Whether it was his speech lauding the private sector’s role in nation-building or the praise for India’s vaccine development or the mobile phones being made under the PLI scheme, PM Modi has repeatedly shown his willingness to ditch dogma and to embrace anything that helps the country. It is time to extend this to the rapidly growing e-tail sector instead of, as the commerce and industry minister is threatening to do, further tighten the screws on foreign investors by issuing various ‘clarifications’  to the law. 
The Covishield vaccine being manufactured by Serum Institute, by way of example, is hardly “Indian”  as it has been developed by Oxford-AstraZeneca, but that didn’t stop Modi from tweeting about the Canadian prime minister speaking to him about “supplies of Covid vaccines sought by Canada”. And, even though the phones that Apple assembles here have mostly imported components right now, Modi realises that while this will create lakhs of jobs, over time, indigenisation levels will also rise, apart from the big boost Apple and Samsung assembly operations will give India’s exports. 
So, instead of focusing on whether Walmart and Amazon are foreign players, why not focus on the tens of thousands of jobs their e-tail operations are creating, on the lakhs of SMEs to whom they have provided pan-India market access, and the impact of the $8-10 billion they have brought in—apart from the $16 billion Walmart paid to buy Flipkart—to create warehousing and delivery facilities across the country?
On the face of things, the curbs on foreign e-tailers are to prevent them from killing off millions of small kirana stores with their deep discounting and other strategies to lower prices and offer better deals to consumers; indeed, the clarifications that the government will be coming out with are aimed at stopping this since the view is that the existing rules are being flouted. While it is not clear whether Flipkart-Walmart and Amazon’s operations will hit the kiranas—the latter have managed to hold their own quite well so far—as in the case of the farm laws, much of what is being talked of are half-truths and fear-mongering. 
Press Note 2 of 2018 says e-commerce entities “providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field”.  Apart from the fact that deep discounts benefit consumers, there are several problems with any new rules/clarifications on this. First, it is not even clear that deep discounts are being offered, let alone these being ‘influenced’ by the e-tailers. The price of the iPhone12, for instance, is roughly the same in both offline and online stores. Very often, when prices appear much lower in some online marketplaces, those are for models with different specifications. So, if the allegation of deep discounting is to fly, the government or the Competition Commission needs to back this with data.
Also, if restrictions are to be put on discounts, the government will have to define what the appropriate level of discount is. And is this discount, say 25%, to be applied on each product at any point in time or across a larger time period? Many traditional retailers offer 60-70% discounts on various items at different points in time, say, during clearance sales; indeed, some ‘loss-leaders’ have significant discounts for longer periods to draw in customers. And how do you calculate discounts on items that are not mass-produced with an MRP listed by the manufacturer?
More worrying, these rules do not apply to brick & mortar stores or Indian online players! So, assuming online players discount items so heavily as to kill off kirana stores, the policy suggests that it is alright for a Reliance Retail/DMart/Future Retail to fund big discounts but not Flipkart-Walmart/Amazon!
While this seems unfair, the logic behind it appears to be that foreign e-tailers have very deep pockets as compared to local players; so their ability to carry on a discount war for longer is higher. While the bruising price war that RJio carried on in the telecom market makes it clear the assumption isn’t a reasonable one, what happens when an Indian firm gets large foreign investments at the level of the parent? How is the government ensuring that the foreign equity infused at the level of the parent is not going to fund big discounts by the retail arm of the firm?
Another rule in Press Note 2 pertains to what are called store labels. There are two clauses here. The first one —in Clause 5.2.15.2.4 of the Press Note—says that if a vendor buys more than 25% of its purchases from the marketplace or its group entities, it “will be deemed to be controlled” by the marketplace. And the next clause says that if the marketplace or its group firms has equity in a vendor—or controls its inventory —it cannot sell on the marketplace. So, if a foreign e-tailer like an Amazon wants to create a store label to offer attractive deals to customers, it cannot invest in a supplier to do this, nor can it supply raw materials to a contract manufacturer to do so. Yet, the same facility is available to any brick & mortar player or an Indian e-tailer. 
The BJP, it is true, has traditionally been opposed to FDI in multi-brand retail and the rules in Press Note 2 essentially flow from this; were FDI to be allowed, there would be no need for Press Note 2. But, under Modi, especially now, the party is showing that pragmatism is more important; if that is the case in other areas, why not apply the same logic to e-tail as well? Also, when billions of dollars were being brought in by big foreign retailers, what did the government think was going on? Did if think that these firms were bringing in all this money just to set up trading platforms—like the government’s GEM e-marketplace—so that they could earn a commission from suppliers, including SMEs, who sold their product using their marketplaces as well as from the delivery charges from retail customers? Some honest introspection, and a sense of fair play, will guide the government on what it needs to do.
 
Last Updated ( Monday, 15 February 2021 03:32 )
 

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