Bureaucrats are attempting to strangle e-commerce
April 05 2016 11:20 PM
Delhi diary
Delhi diary

Delhi Diary/By A K B Krishnan/Gulf Times Correspondent


It is often said of doctors, quite uncharitably of course, that they are heartless when it comes to enforcing diet regimes on their patients. The rule of the thump in these matters is: “If it tastes good spit it out!” You simply can’t afford to eat that yummy triple chocolate sundae if your blood sugar levels are spiking like the Himalayas. So doctors have only your well-being at heart when they read out the taboo list.
Only a few of India’s bureaucrats are qualified doctors but they seem to have wielded a great influence on their entire brotherhood because, more often than not, the thump rule by which these worthies make laws that govern their countrymen is: “If it’s doing good for the people, ban it! And if that is not possible, at least spoil it.”
Prime Minister Narendra Modi is a big fan of technology. He has set much store in his pet programme “Start Up India, Stand Up India”, by which he meant to give a major push to the ever-growing numbers of budding talents in technology.
Much of the developed world has acknowledged that now that China’s economy is not what it used to be just a couple of years ago, it is India that is the next big thing for almost every kind of business. An aspiring, young population also means a growing market for all sorts of consumer products. And when consumer business meets technology, e-commerce is but natural.
Look up any of the pink papers in the country and you will find page after page of reports on e-commerce. Venture capitalists, angel investors and even hedge funds are queuing up like there is no tomorrow. The Modi government has launched a major initiative called ‘Invest India’ which mostly focuses on attracting foreign investment in technology-driven businesses. The National Association of Software and Services Companies (Nasscom) is a body of IT and business process outsourcing (BPO) firms which has its own ambitious programme called “10000 Start-Ups”, many of which are centred round e-commerce.
Alibaba and Amazon are household names but homegrown Flipkart, Snapdeal, Myntra, Shopclues and several others are giving them a run for their penny and pound. You could sit in your study feet up and at the click of a button order anything from a motorbike to a three-wheeler toddler cycle, from an expensive Swiss-made watch to a pair of socks. All this at prices unheard of hitherto thanks mainly to two reasons: underwriting by investors and low cost warehousing.
The consumer never had it so good, both in choice and in price. According to an Associated Chambers of Commerce (Assocham) estimate, e-commerce in India is set to touch $38bn in 2016. It was $3.8bn in 2009, a ten-fold jump in just seven years! The figure for 2020 is a mind-boggling $69bn. The future, by general consensus, is in e-commerce.
But the bureaucrat thinks it should not be! Of course, unlike the physician, he can’t altogether ban it, but he is furiously finding ways to spoil the good times Indians are having. So he has come up with a new set of rules for these companies which, if they go unchallenged, have the potential to kill the industry altogether.
The new rules unveiled last week by Ramesh Abhishek, Secretary in the Department of Industrial Policy and Planning (DIPP) bans these major e-commerce firms, known as ‘marketplace players’ in bureaucratic parlance, from selling products at a discount. The marketplace player “cannot directly or indirectly influence the sale price of goods and services and shall maintain a level playing field,” Abhishek said.
Apparently the “level playing field” formula is meant to keep the offline businesses intact. But should a government decide which business should survive and which should not? The word “services” could also include quality assurance and no-questions-asked refunds on unsatisfactory products now in vogue in e-commerce. These marketplace players do not produce or even stock any of the stuff that they sell through their platforms. Instead they have tie-ups with various vendors across the country and through an intricate network offer products at highly discounted rates to the consumer at his doorstep. In the process they help these regional or small-town vendors reach a national or even global market. They have also created millions of jobs directly and indirectly.
It is not as if the vendor company, which will most likely be Indian-owned, is selling at a loss. The marketplace player has enough backing from investors - mostly foreign-based - who are willing to make good the loss suffered by the vendor plus an additional percentage of profit as well. Why they should do so is something that no one has been able to answer convincingly. It is said these players will eventually hike their prices and make a profit after getting the consumer addicted to online shopping. Also, if these vendors do not go public they may get acquired by global giants and then the venture capitalist can make a killing. But these, truth to tell, are very hazy arguments at best and very big risks at worst.
Be that as it may, the consumer has been benefiting because of the rivalry between these major players. Yes, the brick and mortar business of retailing has taken a hit and so has the mom-and-pop shop around the bend. But is that reason enough to stop e-commerce firms from providing substantial discounts? Also, if the ultimate beneficiary is the citizen at large, then shouldn’t that override all other considerations?
The bureaucrat was not done with his attempts to strangle e-commerce. Another rule says a marketplace player cannot allow one vendor or its group companies to account for more than 25% of sales through its platform. All through his election campaign in 2014 Modi’s refrain was “minimum government, maximum governance.” Now his bureaucrats are threatening to intervene even in the number of items sold by a certain business house. How much more ridiculous can it get? Pity is, Modi and his very articulate Commerce Minister Nirmala Sitaraman seem to have swallowed this highly retrograde idea hook, line and sinker.
During the earlier Congress regime it was the retrospective tax that sent shivers down the spine of foreign investors. It continues to plague the new government. The status-quoist bureaucrat is never happy to cede his ground. When Modi came to power he promised the “red carpet and not red tape” to foreign investors. That would not suit the ‘babu’, as the bureaucrat is referred to somewhat derisively. So take this unkindest cut.
Curiously Secretary Abhishek had also announced the government decision to permit 100% foreign direct investment in online retail. That was a very welcome move because it meant more money flowing into India’s businesses. But the sting lay in the tail in the form of the several riders that Abhishek came up with during the same press conference. Much has been left to bureaucratic discretion, a sure recipe for corruption.
There is a Competition Commission of India (CCI) and a Monopolies and Restrictive Trade Practices Commission (MRTPC) that oversee exploitation of consumers by big business houses and cartels. It is not known if a third government body would be formed for e-commerce and start-ups, but the government’s intentions have been spelt out: Big Brother will be watching! And there goes another Modi promise of improving the ease of doing business in/with India. Suddenly the bad old days of “licence-permit raj” looms.
Indian cities are now dotted with malls and hypermarkets. But these came into existence in the last quarter century or so. Before that you had small and medium-sized shops selling a limited number of goods. A century ago even these did not exist. The weekly village fair was where all business took place. And before that you had only the barter system, so even money did not change hands, if at all there was any. As with everything else, the way we buy and sell things has also evolved over time. Now the malls and hypermarkets are threatened by e-commerce. Soon we will have other modes of business that will make even e-commerce outdated.
“No army can resist an idea whose time has come,” said Victor Hugo. An idea has come to the Indian marketplace. Hopefully the army of Indian bureaucrats will be swept aside. Hopefully Narendra Modi will call the bureaucratic bluff.



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