It is a highly competitive market. (iStockphoto)
It is a highly competitive market. (iStockphoto)

Opinion | When the government turns online retailer

The Centre might expand its online market portal to compete with private platforms. This is a gamble. But to keep competition levels high in the retail sector, it should go right ahead

Could the Government e-Marketplace (GeM), a portal launched in August 2016 by India’s commerce ministry to ensure transparency in the procurement of goods and services by government departments and public sector undertakings (PSUs), compete with e-commerce majors such as Amazon and Walmart-owned Flipkart in the retail arena? It’s an intriguing prospect. A news report said the state-run online platform, which replaced a fossilized arm of the ministry that was earlier in charge of buying what the government needed, will soon let private enterprises make bulk purchases on it, before venturing into low-value deals for people at large. A cabinet note has reportedly been floated and the portal is being linked with state-run banks to route payments and smoothen settlements. As of now, GeM has nearly 300,000 vendors, but has no private buyers. Technically, the portal can easily let sundry sellers come aboard to hawk books, clothes and other stuff; a doorstep delivery network could also be set up.

It is a highly competitive market. Whether an e-commerce website run by the government can match the operational efficiencies of Amazon and Flipkart may seem doubtful, given the record of our PSUs, but that does not mean it is impossible. There is also another question. Should the government enter a new field of business at all? Arguably, yes. While GeM might end up draining central resources in a bid to take on private players, especially if it loosens its purse strings to generate customers, it’s also true that this is not just another business. It’s a special case. E-commerce majors have expanded into small towns as well, and their discounts and delivery convenience are seen as a threat by neighbourhood shops that just can’t afford to drop prices beyond a point. Pushback has begun. Small retailers accuse online portals of predatory pricing and bemoan their own lack of heft to bargain with producers for cheap bulk supplies. For many, it’s a survival issue. On behalf of the brick-and-mortar system, local distributors in Gujarat have started boycotting companies, which allegedly supply their wares cheaper to online platforms. If kirana stores close down, goes the fear, it would leave India’s vast retail space open to abuse by two or three large players, and the emergence of such an oligopoly would go against consumer interest. One response to such a potential outcome is to regulate the sector tightly, a proposal for which has been mooted. A more effective solution, perhaps, would be the presence of a state-run platform, one that would pose sufficient competition to private players and thus keep prices in check.

Two factors could work to the advantage of GeM. The incumbents are not particularly popular with all vendors, some of whom believe they get a raw deal on these platforms. Such sellers might flock to the GeM. The other is the Centre’s deep pockets, which would grant it staying power. Of course, the adoption of a “loss-leader" strategy to attract customers, as online startups do, would be controversial. But the government may well find it a worthy investment if it serves the public interest. In fields that are vulnerable to monopolization, the state has a legitimate reason to intervene. Regulators are often ineffective; in extreme cases, they’re even prone to capture. The same could be said of a state-run online operator, but at least consumers will watch its behaviour closely. Plus, it will be answerable to Parliament, not shareholders abroad. All considered, it is a good idea to take GeM mass market.