By Debashish Mukherjee, AT Kearney
What do the recently updated guidelines for foreign direct investment (FDI) in e-commerce in India mean for the ecosystem? Let’s start with the premise that there are no perfect regulations — most regulations will have positive and negative impact for different stakeholders.
So, when it comes to a regulation, the idea is to make it ‘net positive’ for all stakeholders, which includes consumers, brands, distributors and other service providers.
If there is limited data and analysis available regarding the impact, then it may be a good idea for the regulations to be driven by a view of the desired vision of the future, such as whether it will be electric cars or conventional vehicles, compact fluorescent lamps (CFL) or lightemitting diode (LED) bulbs.
In the case of e-commerce (vs brick-and-mortar retail), there are two contradictory points that have had a role to play in the current outcomes. One, the assumption that e-commerce is a technology business and not a retail business.
However, it is clear that any entity that controls or curates the assortment for sale has pricing power, acquires customers and, to some extent, deals with inventory and other services to the end customer is a retailer. So, it’s high time to clarify this so that the policy can strive to be more implementable.
Two, multi-brand retail in India can be conducted with 49% foreign equity. However, the attempt to frame policies for a ‘technology platform’ that serves the retail business (B2C) is what makes it complicated. Therefore, it may be simpler to accept the reality that e-commerce firms are, essentially, serving the B2C market as a channel.
This will, however, mean changing the earlier assumption of e-commerce as a technology business to a retail one.
It is clearly difficult for these two points to meet. Which is why the current set of clarifications issued on the earlier press notes faces challenges of measurability and compliance. What is needed is a consensus that can evolve a constructive way forward by including the opinion of key stakeholders, including brands and distributors/retailers.
Brands have a role to play in maintaining market hygiene and influencing other market parameters, such as investments in price and customer acquisition. So, they need to become part of the discussion. Perhaps the simplest way forward is to be consistent with the current FDI norms in multi-brand retail, and include e-commerce platforms in this category.
Finally, in the absence of a structured analysis of whether such policy can be ‘net positive’, India needs to place its bets on technology led democratisation of consumer choice and service. Experiences in all aspects of our lives — cab bookings, food delivery, travel — the evidence of consumer preference is overwhelming.
Consequent investments in developing channels such as e-commerce would also have significant potential for employment and investments in the back and front end, and provide an opportunity to collaborate with existing distributors and retailers.
So, while at first sight, the ‘new’ e-commerce guidelines seem to be aimed at creating a ‘level playing field’ for all retailers, in reality, it may not yield results. What’s needed urgently is a pragmatic review of key assumptions made so as to create a cogent framework for.
(Debashish Mukherjee is a partner at AT Kearney. Views expressed above are his own)
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