The e-commerce bogey

| Updated on January 20, 2020

Misgivings about large online retailers like Amazon driving others out are unfounded

Recent statements by Commerce and Industry Minister Piyush Goyal on online retailer Amazon suggest that the Centre has a mixed view on e-commerce and how it should be regulated. On the one hand, the Centre wants investments from foreign players to pour into the country while on the other hand it refuses to stop micro-managing the sector. Amazon made two significant announcements while its founder Jeff Bezos was in India last week. This included an investment of $1 billion to help small shops connect to its platform. Amazon also said that it will create one million jobs in India over the next five years through ongoing investments in its operations on the ground. Instead of welcoming these initiatives, Goyal raised questions about Amazon’s operations, suggesting that Amazon would not be doing the country any favour by investing in India. The US company, he indicated, was ‘not following the laws of the land’, as a result of which millions were losing jobs with small retailers going out of business. This broadside comes on the heels of antitrust regulator, the Competition Commission of India, opening an investigation into Amazon and Flipkart over their alleged undercutting of local businesses.

It is a fallacy to believe that in a retail market as large and diverse as India, e-commerce players will drive everyone else out of business. 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. E-commerce in goods and services reduces information asymmetry, provides dis-intermediation, cuts search costs, and increases network effects. Hence, e-commerce benefits users of associated platforms as well. These have a profound impact in emerging economies that have ingrained inefficiencies and poor associated infrastructure. As for anti-competitive practices such as deep discounts, the marketplace provides checks and balances. When Reliance Jio dropped voice call tariffs to zero even as other telecom operators were struggling to survive, the CCI dismissed allegations of unfair business practices made against the operator. Two years later, market dynamics have forced RJio to increase tariffs. Discount sales on e-commerce platforms hold benefits for both sellers and buyers. They help sellers liquidate stocks faster, particularly in a slow market, and attract buyers from smaller towns where brands do not have a presence through physical stores and the spending capacity of the consumers is modest. Goyal could be right in saying that mobile phone stores were forced to shut down as vendors were selling the devices at a discount online; but it is a fact that technology enables continuous evolution of businesses. The Centre could help in enabling the small entrepreneurs to adapt to this shift in technology.

Instead of micromanaging e-commerce, the regulators should adopt a soft approach, focussing on specific malpractices.

Published on January 20, 2020

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