Raghava Rao

An interesting and dangerous allegation going around is that foreign e-commerce marketplaces indulge in "capital dumping". This allegation is interesting because it is made by interest groups close to firms that have themselves raised loads of foreign capital. The allegation is therefore dangerous because India needs more foreign capital, not less.

India needs to create jobs, strengthen infrastructure and empower Indian SMBs and entrepreneurs with innovation and technology to accelerate its economic growth. All three interrelated objectives demand a common fuel – capital.

Domestic capital in India cannot fully fund the capital needed to fuel growth, so foreign capital is vital.

Capital is also needed to fund enterprises that can create jobs for our youth. A NASSCOM study projects that ecommerce (including partnerships) will create 12 million new jobs between 2020-2030.

To build physical infrastructure in warehousing and transportation and digital infrastructure in payment, we need more capital and technology.

One reason why the allegation of "capital dumping" is levelled is that it will fuel growth of e-commerce (of which the beneficiaries are foreign companies) but at the expense of kirana shops.

The Nasscom-Technopak study punctures this argument. The study says between 2020 and 2030, e-commerce will grow from $34 billion to $208 billion. In the same period, the study estimates that general trade will grow at a higher rate from $699 billion to $1,088 billion.

Another concerns that foreign capital funding is only funding “deep discounts” is also unfounded. India is still in a nascent stage of ecommerce growth, and the ecommerce companies like Amazon are investing for future growth. These investments are primarily for infrastructure (warehouse and servers, and hence capex) and operational costs in anticipation of future scale. The latter (Opex or operational expense losses) include cost of hiring software programmers to write algorithms, delivery personnel who operate often at below full utilization (since order density per neighborhood is still low, yet orders must be served on time), or upfront marketing and advertising costs to help build online behavior, nudging internet browsers into internet shoppers or one-time costs to help entrepreneurs start selling online.

Such losses are entirely akin to investment in Capex in putting up a new factory to manufacture a new product in anticipation of future consumer demand. While such investment in manufacturing assets (as Capex) as well as operational losses in initial years (as Opex) are well understood for the skin cream of TV manufacturer, why would we frown when a ecommerce marketplace does the same?

Proponents of "capital dumping" conveniently turn a blind eye to the role that ecommerce - irrespective of the source of capital funding it - plays in economic growth. Besides creating jobs, ecommerce companies help small and medium businesses (SMBs) market their products to a wider customer base at lower costs, boost tax collections, create a technology economy, drive exports and fuel consumption (while keeping customers safe indoor during Covid).

Additional restrictions on foreign capital in ecommerce could retard the modernization of these Kirana shops and be slow down their economic growth.

Lastly, it is amusing that the chant of "capital dumping" is sung by those who have themselves raised record foreign capital.

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