Ever since the commerce and industry ministry came out with its latest Press Note on revisions to foreign direct investment (FDI) norms for the e-commerce sector, the Confederation of All India Traders has been jumping with joy claiming that the regulator has finally woken up to the ‘unfair’ discount practices prevalent in the sector. Rub off has also started happening on other sectors, with the National Restaurant Association of India, a body of restaurateurs, claiming that consumers are becoming ‘discount addicts’, courtesy food delivery companies.
While the amendments, which were announced by the Department of Industrial Policy and Promotion last month, cover multiple aspects related to what the digital marketplaces can and cannot do, one part is particularly disconcerting.
It relates to creation of a ‘level playing field’ between the online sellers and the brick and mortar trading community. This directive appears short-sighted and is probably driven by the need to appease the traders in the run up to the general elections. This is because creating a level-playing field artificially is against the spirit of a true freewheeling business environment. Capital has always been, and will always be, an entry barrier and this is fundamental to any type of business not just retail. Look at any industry for that matter, be it fast-moving consumer goods, food and beverage, automotive, electronics and appliances, media and telecom, energy, banking, etc. It’s no surprise that all these industries are highly consolidated and are dominated by a handful of players. The heavyweight incumbents have always used capital to create sustainable moats against competition and newbies are forced to compete against their spending might.
Related to this is also the restriction on discounts and cash-backs, which will crimp the pricing power of e-commerce companies. The government’s thinking is that e-commerce companies continue doling out offers on back of limitless dumping of investor capital and it must be stopped. However, its worthwhile to ask if the concept of discounting is limited only to e-commerce. Aren’t the flash sales, used to liquidate inventory, part and parcel of other forms of retail? Don’t most of us go binge shopping during the year-end sales at fashion stores or supermarkets or even at automotive dealers?
Of course, the existing market forces may always resist change, but when the demand undercurrent is strong, supply will eventually find a way. E-commerce is just like that. It is bringing about a paradigm shift in the way the people browse and shop.
Vivek Singla works for a private equity firm.