The debate about e-commerce often degenerates into either a ‘technology-will-v/s won’t’ conversation or a ‘online v/s brick and mortar’ conversation. The reality is every retailer knows that consumers drive distribution design and they demand, and deserve a multi-channel approach. No modern retailer is averse to technology and India’s top 30 business men have some kind of retail format.
Technology used by the e-commerce companies is not so unique that others can’t access this technology. Marketplace platforms, and online payments are commoditized the way a stock exchange trading platform is. Setting up an online channel requires a standard technology back end and integration and the principles behind these are well known.
The real differentiator is capital. The so called marketplaces have sourced FDI money, supposedly as investments in technology or as investment in Business to Business (B2B) wholesale entities. The investments are being used to discount products. Consumers will obviously flock when items are being deeply discounted– this really is a “dilki deal”. The argument that the person who is selling is a “listed seller” and so different from the marketplace, is spurious if the company is a subsidiary of the marketplace company, and where ownership and control both rest with the marketplace company. And if this argument is acceptable to the Government, every hypermarket and department store in this country is a marketplace and should be allowed to access FDI funds.
The fact is that marketplaces have now become ‘too big to fail’. And are a serious demonstration of how you can subvert the law of the land, if you are audacious enough and can raise enough capital which the prudent long term businessmen in the country would never do. They also pose a problem for a government which has received 60% of its FDI money in the last 18 months through e-commerce funders, and fiscally speaking, cannot afford to turn off that tap.
The policy stagnation during the formative years when marketplaces were setting up has meant that the government has a ‘tiger by the tail’ and can only keep running in place to get away.
For marketplaces, as long as capital is available cheap and venture capitalists buy into a GMV (Gross Merchandise Value) based valuation story, the party will continue. GMV is a term which exists only in India – there is no accounting or business logic for valuing a company based on a number which is not recorded or disclosed to any regulatory authority, and which is based purely on management declaration.
The marketplace story is also not about ‘sour grapes’ by brick and mortar retailers – rather – it is about the lack of a level playing field. Brick and mortar retailers cannot access FDI money, because FDI in ‘multi-brand’ retail (another Indian policy maker’s invention!) is restricted. So what stops them from setting up a ‘technology services’ company and accessing FDI? Arguably it’s as fundamental as whether you believe something is legal or not.
The Department of Industrial Policy & Promotion (DIPP) has reverted on the Delhi High Court’s show cause to the government to clarify its stand on FDI in marketplaces by stating that their role is restricted to setting FDI policy alone. They have reiterated that FDI in B2C e-commerce is not permitted and is restricted in multi-brand retail, and state that implementation and use of funds is to be regulated by the Reserve Bank of India and the Enforcement Directorate. The DIPP has also categorically refused to recognize marketplaces.
Which brings up the question of who is responsible for overseeing the end-use of FDI funds brought into the country?
Marketplaces claim that they are technology/ B2B companies. FDI in technology created the IBMs and Cognizants of the world – was it meant to create a deep discounting, pricing participating e-commerce company?
And where does it leave the sellers on these market places who have to deal with high returns? Where does it leave the consumer when the marketplaces state that it is a ‘technology platform’ for B2B business only, but advertises itself in as “India’s largest online store”, “India’s largest fashion and lifestyle store”? Where does it leave the millions of delivery boys who are being sweated as an asset, and are at risk on the roads? And where does it leave the revenue authorities – who have not been able to capitalize on the consumption boom of the last 10 years?
As long as capital flows, salaries will rise, returns will be refunded promptly, every complaint on defect will be met with a free voucher and money will mask the systemic issue here.
What happens when the music stops? When capital dries up? When grievances rise because there are no cash backs or free vouchers? When attrition rates start to rise? When there are no discounted products? When sellers go bankrupt because working capital is tied up in stocks which are in transit or returned?
When the great Indian sale goes stale?
Who will bell this cat?
(The writer is CEO, Retailers Association of India)