A revolution in chains
India’s new FDI policy in e-commerce is protectionist in substance and stands in the way of startups
Man is born free, and everywhere he is in chains,” said French thinker Jean-Jacques Rousseau. Something about the government’s decision to allow 100% foreign direct investment (FDI) in online marketplaces that lead e-commerce reminds us of this paradox. Several conditions have been attached to the policy and they smack of protectionism. Typically, FDI ushers in competition in an industry to aid consumers, provides capital that fuels growth and jobs and brings in new technology. The caveats fly in the face of all three in the government’s desire to protect homegrown retail giants and a powerful lobby of traders. While the policy enables marketplaces like Amazon, Paytm, Flipkart and Snapdeal to bring in capital, the attached conditions may stifle innovation in technology and business models. One clause bars marketplaces from offering discounts on their own, which means only vendors can do that. Marketplaces are also barred from selling their own inventory or influencing product prices. The conditions also cap total sales originating from a group company or one vendor at 25%. Such restrictions put brick-and-mortar stores at an advantage, and we think this goes against the prime minister’s ‘Startup India’ programme.
Apart from creating software to help global retail giants, Indian startups have been also at the cutting edge of data-driven practices in marketing. It would be ironic if Indian techies cannot employ at home the innovations that they aid elsewhere. Online marketplaces have offered consumer discounts to woo users towards e-commerce, and to build market share in a competitive field. They have also developed an ecosystem of new-age players in logistics, generating employment for data scientists and delivery boys alike.
The big question before the government is whether it is stopping new-age, digital-first companies in its efforts to protect the incumbent stores. Also, a consumer feels more assured when she shops from a marketplace that can also take responsibility for quality. Small manufacturers also gain. With both the Congress and the BJP’s backyard nationalists in the RSS-backed Swadeshi Jagran Manch opposing the new regime, the task before the government is uphill. But it pays to note that we cannot talk of a startup-driven revolution while supping with protectionists who live in the past.