Cut to January 2020. The 56-year- old’s visit caught national attention yet again, but for all the wrong reasons. Not only did the world’s richest man get the cold shoulder from the Modi government, Amazon also had to go through the ignominy of being accused by commerce minister Piyush Goyal of predatory pricing.
On January 16, a day after Bezos announced another $1 billion investment in India, ostensibly to help small and medium businesses sell their products, Goyal commented that the e-tail giant was not doings any favours to India. He accused Amazon of pumping in money to cover its losses in India. How can a marketplace make such big losses unless they are indulging in predatory pricing or some unfair trade practices? These are real questions which will need answers, he said. Although Amazon has invested money in warehousing and certain other activities over the past few years, if it is bringing in money largely to finance losses in an e-commerce marketplace model, it does raise questions.
Not surprisingly, Bezos chose to ignore the minister’s tirade, and instead said the next day that the firm would create one million jobs in India over the next five years, which probably led to a calming of nerves. Goyal later clarified that all investments were welcome as long as they adhered to Indian laws. However, by then, it was obvious that all was not well between the government and large e-commerce players. There was criticism that the Modi government had snubbed the Amazon boss because of the bad press it was getting in the Bezos-owned Washington Post but, to be fair, Goyal also refused to meet Walmart International CEO Judith McKenna at Davos on January 21, citing conflicting schedules.
This is not the first time e-tailers have come under government scrutiny. In December 2018, a new set of FDI guidelines in e-commerce had kicked up a lot of dust. In a circular, the Department for Industrial Policy and Promotion (DIPP) barred online retailers such as Flipkart and Amazon (beneficiaries of 100 per cent FDI) from selling products of companies in which they own stakes and also from entering into exclusive deals for merchandise/ sale of products on their sites.
While the norms irked e-commerce firms, it cheered the traders, who operate the physical or online stores and had been pushing for a level playing field’. It was alleged that while the law allows 100 per cent FDI only in marketplace’ models (aggregators selling goods of other players), the large e-tailers had created a complex web of transactions where they were buying from preferred firms’ and, in some cases, even had a stake in those supplier firms, making it an inventory-based’ model.
The government stand against big e-tailers has surprised industry experts. It’s a moot point whether the reason behind this is economic or political, says consultant and author Jaspreet Bindra. One can think of political reasons, related to the protection of the trader community, the BJP’s core constituency in Delhi (where the party received a thorough drubbing in the recently-concluded election). As for economic reasons, there seems to be a growing tendency in the ruling party to go the protectionist way. Maybe they (the BJP) are also sensing that the world is changing. The concept of a completely open market is not necessarily true, as China has proved, says Bindra. China, which has protected domestic players in trade, business and even in e-commerce, seems to have benefited from the move. Economically, this seems to be working for China. You should be allowing your home players to win. Ironically, for us it’s too late, because there are no home players left in e-commerce, Bindra adds.
Ritesh K. Singh, founder, Indonomics Consulting, says the government move to chide foreign e-commerce players coincides with the grand plans of home-grown Reliance Retail led by billionaire Mukesh Ambani. Reliance wants to dominate the e-commerce segment and competing with Walmart and Amazon won’t be easy, says Singh.
Goyal’s latest tirade against big e-tailers seems to be a follow-through of the earlier accusation of them flouting FDI norms. Along with the ease of buying stuff online, e-commerce firms also brought with them huge discounts and offers, irking the traditional brick-and-mortar players. In fact, just ahead of Bezos’s visit, the Competition Commission of India (CCI) ordered an investigation against Amazon and Flipkart on complaints of deep discounting practices and tie-ups with preferred sellers. CCI claimed to have found prima facie evidence necessitating a probe into alleged anti-competition discounts by the two online marketplaces, media reports said. Amazon has reiterated its operations were compliant with all Indian rules. It has also challenged the CCI probe in the Karnataka High Court, saying it could cause irreparable loss and damage to its reputation.
Industry observers say while the CCI probe will clarify any wrongdoing, it would be prudent not to cast aspersions just for the sake of keeping certain constituents (read brick-and-mortar retailers) in good humour. After all, thousands of physical stores are jumping on the e-tail bandwagon through tie-ups with online marketplaces.
India is a burgeoning market for e-commerce. With 451 million monthly active internet users at the end of FY20, India is now second only to China in terms of internet users, according to a report by the Internet and Mobile Association of India in September 2019. However, internet penetration is still only 36 per cent, which means there is so much untapped potential. German data research firm Statista says mobile e-commerce in India will touch $38 billion in value in 2020, growing four times the value since 2016.
Top officials in the government told INDIA TODAY that they believe the traders have borne the brunt of the faulty GST implementation and demonetisation and needed succour. Officials say that although organised retail is only 7 per cent of the entire retail segment, it impacts the distribution network massively. And with digital penetration improving in the rural sector, the impact will only get stronger.
The Swadeshi Jagran Manch (SJM), the RSS’s think-tank on economic issues, has been a long-time opponent of FDI in multi-brand retail and e-commerce companies. The SJM pushed the government on a CCI enquiry over discounting practices, exclusive brand launches on the platforms and preferential treatment allegedly given to certain mobile phones sellers. This was a complete U-turn from CCI’s paper, Market Study on E-commerce in India: Key Findings and Observations’, on January 9, a week before Bezos’s visit. The paper had, in fact, recommended self-regulation for e-commerce players. The expectation of self-regulation is a farce, says Ashwani Mahajan, national co-convenor of the SJM. A day before Bezos landed, the orders for the CCI probe were issued.
Mahajan says it is unfair to expose the country’s retail sector to foreign giants. These conglomerates have deep pockets and access to cheap capital, whereas the domestic trader in India struggles to get loans, he said. Meanwhile, Praveen Khandelwal, national secretary general of the Confederation Of All India Traders (CAIT), says it would be wrong to assume that traders were against modernisation of the retail sector or e-commerce. E-commerce is a rapidly growing future model of business; we want to align the trading community with it by creating individual e-stores of every trader in the country, she said. However, he is quick to clarify that they were against companies who flout FDI policy for their gains and distort the market. He also wrote to the prime minister on January 24, seeking a probe into the business models of 15 tech start-ups and e-commerce players, including Flipkart, Amazon, Zomato, Swiggy and Oyo Rooms. There is a need to probe their foreign funds and utilisation, along with avoidance of GST and other direct taxes, he says. CAIT wants a robust e-commerce policy and the setting up of either a regulatory authority or an e-commerce ombudsman to ensure healthy and competitive business by e-tailers, and price parity between online and offline channels.
Singh says the fear that e-commerce will devour the offline trader is way off the mark. The so-called mom-and-pop’ stores are still surviving, despite the online onslaught, though profit margins may have gone down. In fact, such firms face big competition from large offline retailers, he says. Also, the online market is still very small compared to offline retail (it will be 7 per cent of India’s $1.2 trillion retail market by 2021). E-commerce players also offer a platform for offline stores which do not have the financial muscle to promote their products to a larger audience on their own. A small retailer in shoes or toys cannot afford marketing. Amazon or Flipkart provides scale to expand beyond the local area. This may mean lower margins since such platforms do charge a fee, but this is compensated with higher volumes. Major growth here comes from Tier 2 and 3 cities, says Singh. Moreover, he argues that everything is not cheap online, especially in non-electronic goods. There are physical stores that now offer products cheaper due to efficiencies in sourcing and supply chain. A good example of this is the D-Mart chain of stores with a big presence in Maharashtra, Andhra Pradesh and Gujarat.
Industry observers say it is imperative the government send the right signals regarding investments, and not come across as throwing a spanner in the operations of foreign players here. The likes of Amazon and Walmart have invested so much in India that they are unlikely to pack up at any slight provocation. But a sustained campaign against them can be detrimental. If such statements continue, clearly optimism and enthusiasm among the players will be affected, says Bindra. The government would do well to clearly enunciate norms and ensure compliance without making a public spectacle of its disapproval, even if it is reasonable. It will only sow confusion or give rise to fears among foreign firms operating in India or those planning to set up base in the country.
Source INDIA TODAY