Both e-commerce & physical retail need support

BIG Tech is coming under attack all over the world for various reasons. The tentacles of regulatory agencies in the US and the European Union as well as Australia and China are now tightening their grip over these multinational players. The reasons are multifarious. The concerns range from harmful content in Australia to China fining its own internet giants like Alibaba for violating anti-monopoly laws. Lawmakers in the US interrogated executives of the four Big Tech companies on anti-trust issues last year while the European Union has already levied hefty fines on some while continuing investigations against others in similar areas.

India has been having its own battles with Big Tech in recent times. The latest area of conflict, however, may end up being the most path-breaking as it involves the high-value area of e-commerce and a clash with the country’s vast brick and mortar retail network.

This follows the issuance of a new set of draft rules for e-commerce a few months ago. One of these related to the question of unfairly competing with third-party sellers by using privileged data available to the e-commerce platform, an issue flagged by the European Commission as well.

While this continues to remain an issue of concern, the draft rules go much further on marketing and even curb steep discounts. They also stipulate that companies associated with the online marketplaces cannot be present on the site. This has naturally evoked a sharp reaction from e-tailers, not just Amazon and the Walmart-owned Flipkart, but also homegrown players like the Tatas and Reliance, which have big e-commerce plans.

The plethora of conditions has even spurred internal strife within the government, with different agencies taking varying stances. The validity of the new rules issued by the Consumer Affairs Ministry is being questioned by the Finance Ministry and the Niti Aayog, with the Prime Minister’s Office likely to become a mediator.

Common to all the objections, however, is the idea that the rules not only represent an overreach in trying to protect brick-and-mortar retailers, but also they are not in the consumers’ interests. Which is a surprise, given that the proposals emanate from the Consumer Affairs Ministry.

A case in point is the provision to curb what are known as “flash sales” or heavy discounts on e-commerce marketplaces. These are usually carried out for mobile phones, thus worrying the cell phone manufacturers. The reasons for clamping down on such sales are not clear, barring the obvious one of trying to placate retailers in the physical space.

Consumers’ interests cannot be served by denying them opportunities to buy mobile phones at cheaper rates. And this becomes important at a time when the country is marching inexorably towards digitisation. The pandemic has created a scenario in which the mobile phone has transformed into an essential commodity. Even the poorest of the poor aspire for a mobile phone now as it not only tracks funding from government schemes but has also become an enabler for children’s education. The availability of phones at cheaper rates, thus, needs to be encouraged rather than the reverse.

Another questionable proposal is the mandatory registration of every e-commerce entity with the Industries Department. The purpose is hazy, given the fact that the offline retailers have no such requirement.

The draft rules are also contradictory in some ways. For instance, the existing policy does not allow e-commerce marketplaces from controlling inventory sold on their platforms but the new proposals envisage a liability on them for negligent goods or services.

There is also an overreach in terms of overlapping with the existing regulations imposed by other ministries. This includes proposals prohibiting the misuse of dominant market positions as well as rules for appointing grievance officers, both issues already dealt with separate legislations.

In other words, the regulations being laid down for e-commerce operations have several lacunae while remaining lukewarm to the consumers’ interests.

On the contrary, they seem to give paramount importance to the interests of trade and industry. The aim seems to be to protect retailers in the physical space from the potential adverse impact of online marketing platforms.

The fact is that e-commerce in this country is not just here to stay, it is only going to become bigger. The speed of its expansion is not merely in big cities, as reports indicate that the fastest growth is in tier-2 and tier-3 cities where Amazon and Walmart-Flipkart are able to provide goods unavailable in local stores.

It is also no longer just about the global Big Tech firms as domestic players are entering the arena rapidly. During the pandemic, it was indigenous grocery delivery apps that expanded their networks in a big way.

Yet, it cannot be overemphasised that it was the local kirana store that came to the consumers’ rescue at the height of the lockdown when supply chains had broken down. It is undeniable that the enormous network of retail stores needs to be given greater assistance. The way to do so, however, is not to hobble the competition but to provide them greater financial and logistical support.

The country’s traders have already faced an uphill task in complying with the provisions of the Goods and Services Tax. But it has been a productive exercise in terms of bringing the retail network gradually into the ambit of the formal economy. To carry this process further, government agencies need to provide more technical assistance for financial restructuring and banks need to give easier credit for inventory management, upgrading infrastructure and monitoring of supply chains.

According to Kearney Research, the country’s retail industry is slated to grow by 9 per cent from $779 billion in 2019 to $1,407 billion by 2026. It accounts for over 10 per cent of the GDP and around 8 per cent employment. It is also the fifth largest global destination for foreign investment in the retail space.

Given this potential, it is clear that both online and offline retail are going to grow rapidly in the next few years. In this backdrop, the aim should be to support both segments of the retail industry. But regulations must be devised to keep the consumers’0000interests as the paramount goal rather than to protect either online or offline retail players.