In the last two decades, we have witnessed growing strength of the internet connectivity and its fast penetration even into the remote geographical locations. This technological scenario led to revolutionary changes almost in all sectors. It changed the dynamics of business and commerce in such a way that ease of doing business, especially in retail sector, recognized no borders. This is the scenario which strengthened e commerce.
Some twenty years ago, we were struggling to strengthening the ecosystem of e commerce in the country. With combined efforts of all stakeholders, a stable e commerce platform was established and advancement in technology revolutionized its growth. During this period we saw the ecosystem of e commerce companies in retail sector growing at tremendous pace as these companies were able to win the trust of consumers through their quality of services delivered at their doorsteps. These companies successfully capitalized on the power of internet and are growing at the speed of internet penetration.
According to a CRISIL report, e-retail in India between fiscals 2014 and 2018, grew at 40% a year to reach Rs100,000 crore. This growth left offline retail segment struggling at a growth rate of just 13% during the said period. This amazing growth in online retailers has been driven by deeper market penetration coupled with attractive pricing compared with offline retailers. The report has revealed that a robust foreign direct investment (FDI) inflows of over Rs95,000 crore in the past four fiscals have made this growth possible.
However, the tremendous growth of the e commerce companies was not possible without the trust and positive response of consumers to their offers. Overall these companies have been able to maintain quality of products as well as offering these products at discounted rates when compared to offline offers for such products.
But, the grace of e-commerce industry in the country is now on the verge of losing shine as the government announced new FDI rules on December 26, 2018 for the e-commerce industry. New FDI rules, to be effective from February 1, 2019, restricts e-commerce companies from entering into exclusive deals to sell at deep discounts. The new policy also bars them from procuring over 25% of the inventory from a single vendor, especially from sellers in which the companies own a stake in.
This means the e-commerce companies will have to change their supply chain and tailor a new business model to fall in line with the new FDI norms. All this would mean a cost which they have to incur to remain in business. When cost of operations in a business increases, it leads to price escalation as the company cannot survive without earning a profit. So, the e-commerce companies would not be able to offer deep discounts which their consumers used to enjoy. They have to necessarily revise the pricing of their goods upwards and this can propel consumer attrition.
Implementation of the new FDI norms will lead the online retailers , especially those dealing in electronic gadgets and apparels, to a huge loss. The CRISIL has put the revenue loss of the e-commerce companies like Amazon and Flipkart to 40%—between Rs35,000 crore and Rs40,000 crore—by 2020.
The benefit of all this situation goes to the offline small businesses which were not matching the huge discounts that e-commerce companies offered.
Notably, the small businesses operating offline had long back complained to the Competition Commission of India that Flipkart and Amazon were indulging in predatory pricing and deep discounting, destroying the business of smaller vendors. The rock-bottom prices offered by online retailers has hit the footfall in brick-and-mortar-stores. But the government tightened the FDI norms to meet the demands of the small retailers, known as brick & mortar retailers, at a time when parliamentary elections are just few months away. The timing of the move can easily be linked to the elections as the current government at the centre has its huge vote bank in small traders. Experts too have pointed out that it may not be a coincidence that such far-reaching policy measures against online retailers have finally been enacted in an election year.
In short, the common consumers will be deprived of the benefits of e-commerce and will have to bear the brunt in the tussle between the online and offline traders.
(The view are of the author & not the institution he works for)
sajjadbazaz@greaterkashmir.com