FDI in e-commerce is risky

Dr Ashwani Mahajan
If you plan to travel by air, rail or even bus, these days you don’t visit Airline’s Office, Railway Reservation Centre or Bus Stand. You simply purchase ticket on internet. Such purchase of services or tangible commodities is called e-commerce. It is undoubtedly a reality that such transactions have made life easy and they also involve less cost. Though such kind of e-commerce is not so prevalent in purchase of our daily needs; popularity of e-commerce in on rise. It is notable that today there are nearly 2000 small and big portals involved in e-commerce; however most of e-commerce is concentrated with a big few portals. Flipcart, Snapdeal, Myntra, HomeShop18 are some of the well known e-commerce companies. Flipkart claims that its annual turnover is nearly rupees 6000 crores. If e-commerce continues to grow at present pace, it may reach 4 percent of GDP by the year 2020.
In 2009, total retail business of e-commerce was hardly rupees 6000 crores, which has reached rupees 78000 crores in 2013. Though e- commerce is not so popular for day to day groceries or other such needs, 71 percent of travel (air railway and bus tickets) purchases are done through e-commerce. Today penetration of internet is up to 11 percent of population (14 crore people) and rising; looking at this trend e-commerce is going to become an important medium of trade. While making transactions on internet, one may use credit card, debit card, internet or mobile banking; or the payment can be made by cheque, cash on delivery; convenience of payment also makes it attractive to people.
Attempts of multinational retail companies to make entry into India in multi brand and single brand, in the last more than one decade are no secret. Government gave permission for 51 percent FDI in multi brand retail last year itself and paved way for MNCs in retail trade. However, smelling it’s far reaching effects on economy in general and small traders, industry and farming community in particular; BJP and many other political parties have been opposing FDI in retail. Many states have refused to give permission to MNCs in retail and a few who had given permission earlier have withdrawn the same (Delhi and Rajasthan). All these development are hunting at bumpy road ahead of FDI in retail. However, smelling increasing scope of e-commerce in the country, foreign e-commerce companies (especially major companies like Amazon, Alibaba and e-bay) have started lobbying for FDI in e-commerce, which so far is not permitted in India. In fact, these companies want to reap the dividend of increasing use of technology in India and one lobbying with the government to allow 100 percent FDI in e-commerce.
Recently Department of Industrial Policy and Promotion (DIPP), Government of India has issued a Discussion Paper expressing government’s intention to open e-commerce for 100 FDI. Discussion Paper has sought opinion from stake holders in this regard, especially with reference to whether permission to FDI in kept limited to non-agricultural goods or may it the extended to agricultural goods also. Many states have not allowed FDI in retail; opinion has also been sought that how foreign e-commerce companies could be restricted to states, which have permitted FDI in multi-brand retail. Discussion Paper also sought to know from people, that whether or not a condition be imposed on foreign e-commerce companies about compulsory procurement from within country.
E-Commerce is Cost Effective
Generally goods ranging from eatables to consumer durables, all are sold through conventional big or small shops and stores, and this involves establishment and running cost. However if services or goods are traded on line, there is some cost involved there too, but that is much less than conventional stores. Benefit of online trade reaches consumers also. Normally books sold in the market are available at printed price or with 5 to 10 percent discount. However in online stores books are sold at 20 to 25 percent discounts. Flipcart, Snapdeal, HomeShop18 type online dealers sometimes give a discount of upto 50 percent on many items. Consumer is saved of transport and time cost involved in case of online purchases and one gets much better deal online. Dealers also try to attract big purchases by giving higher discount and wavier of delivery charges on big purchases.
FDI in E-Commerce
Thanks to all these advantages of e-commerce vis-a-vis convention retailing, e-commerce has been growing in leaps and bounds. Last year, e-commerce business increased by 33 percent. Though e-commerce is less than one percent of GDP even today, but this medium has a great promise for future. Because of lower operating cost of e-commerce, not only conventional stores, even manufacturing companies are under severe stress. Conventional sellers are finding it difficult to sell range of products, which are being sold by e-commerce sites, say books, electronics and other consumer products, due to heavy discounts offered by online sellers. Perturbed by the looming dangers to their existence, domestic small and big retailers are joining hands. Many global companies, especially big ones namely Amazon, Alibaba, e-bay etc. have accelerated their efforts to press the Indian government to allow FDI in e-commerce. Their efforts and lobbying fructified with DIPP issuing a Discussion Paper on FDI in e- commerce.
Dangers of Foreign E-Commerce Companies
It is no doubt true that we cannot stop new technology; and therefore e-commerce too cannot be stopped. However unequal competition leads to concentration of income and wealth (including market) and that leads to monopolization. Global giants if allowed in e-commerce in India may put domestic economy, especially industry, commerce and agriculture into trouble, as they would not only easily take over the market, offering more discounts thanks to their deep pockets, may even endanger the existence of domestic producers, both big and small as they will most likely make procurement internationally to cut down costs. Small e-commerce companies have small capacities to challenge domestic conventional trade or make international procurements. Even domestic big e-commerce companies make domestic procurement only and therefore don’t pose a threat to domestic manufactures. Big corporate can always start their own portals to save their margins. However e-commerce, itself is an alarming bell for small and medium manufactures; and if FDI is allowed in e-commerce that may prove to be a death knell for crores of our SSIs, cottage and medium industries and artisans.
(The author is Associate Professor, Dept of Economics, P.G.D.A.V. College (University of Delhi)

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