FDI in e-Commerce, When?

Bharat Jhunjhunwala

United States' Senators Mark Warner of Democratic Party and John Cornyn of the Republican Party have asked President Obama to pressurize India to open up the e-commerce sector for Foreign Direct Investment. Japanese e-commerce giant Rakuten has also asked Prime Minister Modi to do the same. On the other hand, Swadeshi Jagaran Manch, the economics' affiliate of the BJP, has asked that amount of foreign investment permitted in Indian e-commerce companies like Flipkart should be restricted. The Manch feels that entry of MNCs will kill the incipient Indian e-commerce industry.

The basic objective of the economy is to increase the production of goods and services and reach them to the consumer. E-commerce is making this smooth and easy. The link between the producer and consumer is established directly. A mobile phone manufacturer can make a website and announce that he has ten models of handsets available for sale. A consumer can pay to him directly and have the handset delivered at his address. The need to appoint a distributor and to reach the many models to the shops is eliminated.

A book publisher told this writer that e-commerce has enabled him to sell old stock of his books. These books had laid in the warehouse for years. Bookshops did not want to display these old books because that took a large amount of space. They wanted to place only the recent releases on their shelves. The publisher uploaded the details of these older books on the web. These too started moving. The few consumers spread across the world were able to see these and started to place order. It was possible to reach the consumer without having to display the books in a shop.

The retailers are on the receiving end though. They find customers slipping out of their fingers. There have been street protests by retailers in the last festive season as they found customers buying goods at discount from the websites. Such transitions have happened in the past as well though. The horse-driven tonga was replaced by the auto rickshaw. The STD booth has given way to mobile shops. Now retail shops are giving way to e-commerce.

The future belongs to e-commerce. Question is how does one fructify this imminent opportunity. Economists have the concept of "infant industry." New startups need protection for some time till they are mature and can face competition from established giants just as the infant baby requires nurturing for 20 years before she can take on competition. Modi must provide protection to domestic e-commerce ventures for some time but not permanently. Permanent protection will breed complacency and inefficiency. Objective must be to cajole domestic companies to become global and take competition in the home countries of the competitors. There is no harm to allow MNCs to enter once Indian companies have acquired that acumen.

A major problem in growth of e-commerce is the insecurity of transaction. A UK study found that 38 percent consumers browsed on the net to select the product they wanted to buy; then they went to a store to buy it. Reason was that they felt insecure with e-commerce. They could come back to the store in case they faced a problem. The Government should take steps to enact an "E-commerce Act" and set up an e-commerce police. It should be possible for a person sitting in Brazil to recover his money from an e-fraudster located in Burdwan, for example. The Government should also set up authentication system where the consumer can be assured that his money will not be stolen. That will jumpstart the global entry of Indian e-commerce and also provide new venues to the retailers under distress.

The shopkeepers also have to tighten their belts. They must focus on the new opportunities that are being created. There are many services that will need the old ways of supplying. The student, for example, will still need to sit with the teacher to get tuition in mathematics. E-commerce can facilitate this. A friend of this author has got herself listed with a tuition website in the United States. She provides tuition to American students through the web. This was possible only through e-commerce. Similarly, globalization is leading to a huge demand for translations of documents from one language to another. It is possible for a translator sitting in his home at Gurgaon to translate a document from Japanese to German and provide to a British Multinational Company. Indian retailers should move into provision of such services. Instead of crying hoarse about e-commerce taking their bread away, they could encourage their young to learn foreign languages.

A market for the supply of location-based services is emerging. Amazon cannot supply one kilo each of five varieties of fresh vegetables to the homemaker at 11 am. It is possible to do this through a local website. A Company in Gurgaon receives orders for vegetables in the morning; buys them from the wholesale market and delivers to the consumer at her house. Or a beautician or a physio-therapist can sell his services over the net. It will be difficult for a large company like Amazon to do this because verification of the quality of the services provided is not easy to do on a large scale. The rape of 3 Woman by a taxi  hired through the popular Uber site has exposed the difficulties of micromanaging delivery of services by a big company. The small traders must spot such opportunities and shift away from selling those products where e-commerce has an advantage.

Frontier
Vol. 47, No. 39, Apr 5 - 11, 2015