Stifling e-commerce

The latest ‘Review of foreign direct investment in e-commerce’ is based on a misguided view that offline and small online (read ‘swadeshi’ in both cases) retailers are in dire need of protection from online giants. Thursday’s press note spells out three broad curbs, some of which go beyond the Consolidated FDI Policy Circular 2017. It does not allow “an entity having equity participation by e-commerce marketplace entity” to sell its products on the latter’s platform. Hence, a product in which, say, Amazon or Flipkart have a stake cannot be sold on their respective platforms. This is in addition to the proviso that draws a clear line between a ‘market-based e-commerce platform’ and an ‘inventory-based’ one, on the basis of inventories controlled. If more than 25 per cent of the inventories of the former are linked to a single entity, it ceases to be a market-place platform, or an intermediary between buyers and sellers. Once it is regarded as an inventory-based platform, it cannot attract FDI. Seen along with the ban on exclusive product deals (such as a branded phone being sold on attractive terms on a particular site) on such platforms, and the curbs on cash back services, the order seems unreasonable and indifferent to consumer choice and welfare. It is hard to justify why online stores should not be allowed to display their own labels, when offline ones are allowed to do so. The new policy does not take into account the expanded options for producers as well. Online aggregators are able to reconcile producer and consumer interests by reducing logistics, storage and intermediary costs. It is also a fallacy to believe that in a retail market as large and diverse as India’s, e-commerce players will drive everyone to the wall. They haven’t done so in the metros, which are their natural constituencies – where consumers strapped for time have turned to online shopping in a big way. The advantages of disaggregated retail have been underestimated.

The policy goes against the Modi government’s initial assurance of ‘minimum government, maximum governance’, by leaning towards heavy-handed rather than light-touch regulation. As for anti-competitive practices such as deep discounts, the marketplace can provide its own checks and balances. The Competition Commission of India can step in to check such practices.

However, some regulation may be appropriate in view of concerns over data privacy and the uses to which data is put. The promotion of RuPay is not a bad idea. Rather than focus, as earlier consultation paper floated in August did, on creating a separate platform for MSME vendors, the Centre should promote easy access to finance. Allowing online start-ups to retain control in the face of expansion and capital infusion can also be looked into. Consumer concerns over internet charges levied on movie and airline tickets are genuine. But for now, the regulation is barking up the wrong tree, by micromanaging the retail space.

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