R Srinivasan

Why is the government so wary of e-comm?

R. Srinivasan | Updated on January 20, 2021

A win-win The government can leverage India Post’s logistics capabilities for its e-comm push   -  PTI

Instead of browbeating an efficiency-enhancing sector with controls, the Centre should try and grab a slice of this pie

For some reason, e-commerce and the BJP don’t appear to mix well. Of course, some of this may have to do with the party’s deep connect with the small trader. It was not without foundation that the BJP was for years dismissed by other players as a “lala-bania” (shopkeeper-trader) party.

Under Prime Minister Narendra Modi’s leadership, of course, the party has been transformed into a national electoral juggernaut, winning election after election in State after State, with increasingly larger vote shares. The lalas and the banias may still be a part of the party, but they are no longer neither its face nor its voice.

That doesn’t mean that they have lost their influence, however. The trade lobby within the party has been responsible for the party’s many policy flip-flops on the issue, and the reason why even Prime Minister Modi, who could hustle the most significant transformation of Indian agriculture since Independence through Parliament in a matter of days, and has been obdurate in the face of rising protests against the laws from a section of the farmers, has been unable to put in place an overarching policy on e-commerce, even though he is nearly two years into his second term.

The draft national policy on e-commerce, framed by a working group which built upon the report of a task force on e-commerce set up in 2018, has stayed just that — a draft policy — since 2019, with the government showing no inclination to push it on to the rule books. This is quite a turnaround since 2014, when the government had lauded the sector in its first Economic Survey.

In his first Budget, Finance Minister Arun Jaitley had allowed all manufacturers to sell via e-commerce portals without any additional approvals, and had even hinted that FDI in e-commerce will be allowed shortly after.

That however took another two years to happen, with several ifs and buts and provisos. 100 per cent FDI was allowed in e-commerce but only in the so-called ‘marketplace’ model, where such e-commerce companies were allowed only as facilitators between buyers and sellers, and not allowed to sell directly from their inventory. Of course, Amazon and Flipkart and the like have all found workarounds, but e-commerce liberalisation still remains largely a no-go area for this government. Likewise, e-retail’s cousins, e-pharmacies, also continue to languish, with the draft policy staying a draft since 2018.

And so it has continued. A step forward, then some back-pedalling, rinse and repeat. Earlier this week, speaking in a webinar organised by the All India Association of Industries, Minister for MSMEs Nitin Gadkari, who also wears several other important hats in the Cabinet, was fairly laudatory of the contributions of the e-commerce sector to the economy.

Pointing out that e-commerce giant Amazon alone generates a whopping ₹70,000 crore revenue for small enterprises in India annually (arch rival Flipkart is no slouch either, and its recently launched B2B portal for MSMEs is seeing transaction values nearly doubling month on month), Gadkari announced that the government will soon launch an “Amazon-like” portal for MSMEs, which will be developed in conjunction with State Bank of India. This statement by Gadkari is important. One, as a senior member of the Cabinet and BJP leader (he was earlier party president), Gadkari weighing on e-commerce’s side is going to carry more weight. Second, it indicates a shift in the government’s stance towards e-retail.

IRCTC’s success

In fact, the government’s antagonism to e-commerce is a little surprising, seeing how it was the first mover in this space. The IRCTC portal, built, maintained and run by the government, remains one of India’s biggest e-commerce portals by transaction volume and volume (although the pandemic-induced suspension of railway services spelt a catastrophic hiatus in its growth). In fact, a little over a year after it went public, the IRCTC share has delivered a nearly five-fold increase in capital value to investors, of which the government remains the largest.

In fact, almost exactly six years ago, I had argued in this paper (Time for a PSU Flipkart? http://bit.ly/3qAkujB) that far from discouraging e-commerce, the government should not only encourage e-commerce, but embrace it itself. I had then mooted the idea of an e-commerce portal that can retail the myriad things that governments (both Central and State), and undertakings and entities owned or supported by them, directly to consumers. The government did start a B2B PSU marketplace later.

Gadkari’s proposal for an MSME portal takes this idea forward. In fact, the government can be a disruptive disintermediator in the business. Simply by aggregating its own purchases under the e-procurement programme, it has already tasted the massive savings that scale buying can bring in. Marry that with its unparalleled reach among customers, as well as its credibility. If it can sort out quality and branding issues (it already has the biggest logistics provider — India Posts — in its fold, as also the payment gateway), and it can become a formidable player in this space.

Gadkari’s e-commerce plan is partly driven by his ambitious goal of raising the contribution of village industry to the economy from the current ₹80,000 crore to over ₹5 lakh crore per year within two years. That kind of scale change (forget the ‘two years’ bit for the moment) can only be achieved by leveraging digital technology.

In the same Economic Survey for 2014 cited above, the Finance Ministry’s economists expected the e-commerce sector to grow 50 per cent over the next five years, from around $16 billion in 2014 to around $24 billion in 2019. Instead, the industry had hit $38 billion by 2017 and stands at $60 billion as of 2020. India is already the world’s second fastest growing e-commerce market and is projected to become the world’s second biggest as well (after China) by 2024.

Why shouldn’t the government grab a slice of this lucrative pie?

The writer is a former Editor of BusinessLine

Published on January 20, 2021

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