Amazon Inc chief executive Jeff Bezos seems to have got an icy welcome in India. A couple of days ago, addressing a gathering of local Amazon sellers, Bezos announced an investment of $1 billion (approximately Rs 7,000 crore) to digitally upgrade small businesses in India.
Despite his financial commitment, his Nehru jacket and his adulatory tweets for Mahatma Gandhi, the Government of India is not impressed.
While demonstrators from the Confederation of All India Traders outside the Amazon event shouted “Jeff Bezos, Go Home”, Union Commerce and Industry Minister Piyush Goyal timed a broadside on Thursday: “They are not doing a great favour to India by investing a billion dollars.”
What Goyal was suggesting is Amazon was using loopholes in the law to beat competition with predatory pricing, and then bank-rolling the losses with the fresh investment. “If on a turnover of $10 billion you are going to have a loss of $1 billion, it certainly raises questions where the loss came from,” he said.
Doublespeak
India’s army of small traders is facing the heat of online retail, which is offering better prices and more choice. Facing shutdowns and unemployment, these traders have been complaining to the government, who has now decided to ally with its traditional BJP base. There appears to be government doublespeak in the new-found empathy for small traders as the policy for foreign direct investment (FDI) in retail has clearly favoured the online camp so far.
Foreign investment in direct retail was barred in the country till 2011. Then in a series of concessions, FDI has progressively been allowed in multi-brand retailing, but as business-to-business (B2B) deals. Initially 49 per cent was allowed, and thereafter raised to 51 per cent in December 2012. Walmart, Carrefour and Tesco took advantage of the opening, but the law still does not allow direct sales by these groups to consumers.
On the other hand, the FDI policy towards online retailers has all along been indulgent. E-commerce platforms running a digital ‘marketplace’ have been allowed 100 per cent FDI since end-2016 and there is no rationale as to why brick-and-mortar retailers did not get the same concession. Further, the Amazon, Flipkart and other marketplaces were supposed to be just that – facilitators to bring buyers and sellers together. However, it was a thin veil, and it is Amazon and others who did the pricing, and controlled the inventory of sellers. They were the retailers.
A new set of rules from February 1, 2019, attempted to tighten up things. Businesses having the marketplace as an equity partner were barred from selling products on that marketplace. Ownership or control over the goods and products of a vendor by the marketplace would similarly be a disqualification. However, all along, the government has done precious little in the form of enforcement. For the Amazons and Flipkarts, it has been business as usual.
Rolling back Digital India
But in all this brouhaha, what’s happened to the government’s commitment to a ‘Digital India’?
The retail sector is a driver of the economy estimated to be a $600 billion market and contributing 10 per cent of the country’s GDP. However, e-commerce’s share is a miniscule 5 per cent. Again, despite the growth in the Internet, the culture of online shopping is still in its infancy. India had 665 million Internet users in 2019, but just 50 million are online shoppers today, with active monthly purchasers at 20 million.
But it is the potential for growth that is mind-boggling. The Internet economy is set to double from $125 billion as of April 2017 to $250 billion by 2020. Driving this would be e-commerce revenue, which is galloping at 51 per cent annually, and expected to jump from $39 billion in 2017 to $120 billion in 2020.
Instead of riding this wave, hugely disruptive signals are being sent out. It displays that the government intent as well as its regulations are flexible, ever-changing and cannot be relied upon. If there is one thing that investors don’t like, it is unpredictability. Why can’t there be a single retail law that applies equally and across the board to all formats? As retail guru Kishore Biyani said, there is no such thing as ‘offline’ and ‘online’. It is all a single marketplace.
One can take the path of linear growth or that of exponential growth. Over one year, one mom-and-pop store may become two and revenue may expand 10 per cent. But for India, it is digital-enabled exponential growth that will give us 20x, 100x growth. Bezos expects to export $10 billion worth of goods from India annually by 2025. It can be a game-changer for jobs and income. The digital marketplace does well because it is efficient, and offers choice and convenience. It is the way of the future. Whatever we do, Jeff Bezos will be back soon.
$600bn is the estimated size of India’s retail sector, one of the drivers of the economy, which contributes to 10 per cent of the country’s GDP5% is the share of e-commerce sector, compared to this