Goodbye, GOSF

Online search giant Google’s decision to bring the curtains down on its ‘Great Online Shopping Festival’ (GOSF) within three years of starting it underscores the spectacular growth of the e-commerce business in India, now one of the fastest growing online retail markets in the world. Three years ago, when Google kicked off GOSF, the Indian market had about 130 million internet users, with just around 8 million shopping online. Almost 80 per cent of the $2 billion then (roughly ₹9,000 crore) was accounted for by the travel sector — mostly plane and train tickets. This year, the number of internet users has jumped to over 350 million, according to one estimate; the number of online shoppers is expected to double from the current 50 million in just one year. In 2014-15, the total online retail market was estimated at $10 billion. In fiscal 2015-16, market leader Flipkart alone expects to reach the $10-billion (₹65,000 crore) mark in so-called gross merchandise value — the total invoice value of the products and services sold through its online marketplace. With close competitors Snapdeal and Amazon striving to catch up, the e-commerce market overall will nearly double in size in just one year to over $22 billion, according to estimates by PwC.

Given this explosive growth, Google’s initial idea behind GOSF — of pushing more consumers into online shopping — has been rendered understandably irrelevant. But, while Google’s decision to shutter GOSF can be read as a sign of the maturing of India’s e-commerce sector, it would be unwise on the part of both players and the Centre to ignore the underlying issues that have been masked by this growth. The biggest issue is sustainability. When it started, GOSF offered buyers a once-a-year crack at deep discounted products. Today, deep discounting has become the norm. Funding of e-commerce ventures doubled in calendar 2014 to $11.3 billion, and looks set to surge again this year. Most of this funding has been burnt in underwriting deep discounts in everything from selfie sticks to cab rides. The difficulty in holding the priceline and competitive sales has led to other malpractices such as false stock-outs, artificial mark-ups in prices in order to show deeper discounts on paper, and predatory pricing, which is anti-competitive in the long run.

The rapid growth has also left tax authorities and regulatory authorities flatfooted. While the introduction of a uniform Goods and Services Tax regime may iron out some of the tax issues, there is an urgent need to revisit our competition laws as well as consumer protection regulations in order to ensure vigorous competition while preventing unfair practices. There is also the issue of providing a level playing field to brick-and-mortar retail in terms of foreign investment. Unless these issues are addressed urgently, there is every risk of India’s e-commerce boom becoming a transient bubble, the bursting of which will hurt both consumers and the economy.