ONE of the most sensitive sectors in India for years has been retail. The powerful domestic retail sector, dominated by traditional business families, has been preventing governments from introducing radical reforms in the sector.
Consequently, governments (both the Congress and the BJP ruled ones) have been dabbling in half-hearted attempts to bring in international majors including Amazon and Walmart into India.
The Congress-led United Progressive Alliance (UPA) government partially opened up the sector way back in 2007, allowing Walmart to set up a presence in the country. The company established a cash-and-carry store that supplied to Bharti Retail, a subsidiary of Bharti Enterprises, the telecom major, and the first Bharti-Walmart store was opened in 2009 in Amritsar.
The next eight years saw a mere score of new stores being set up in India by Walmart, all focused on wholesale purchases.
In 2012 Amazon was allowed a small foothold in setting up a site enabling consumers to compare prices online. But the American major managed to expand rapidly over the coming years both in the UPA-led regime, and the BJP dominated National Democratic Alliance (NDA) government from 2014.
Unfortunately for the international majors — including Amazon and Walmart — the forthcoming general elections in India, when small business entities such as local grocery vendors matter more than global chains, has resulted in major drawbacks for their ambitious expansion schemes.
The BJP-led NDA government, which suffered a jolt in recent state elections in its traditional stronghold — Rajasthan, Madhya Pradesh and Chhattisgarh — and was toppled from power in these states by the Congress, is worried about the April-May general elections.
And small-time traders, grocers and petty vendors are traditionally strong supporters of the BJP, which has always been known as “a party of traders.” However, in recent months this group has been vociferous in its criticism of the BJP for having thrown open the retail sector to international groups.
Top lobbyists from the sector vowed to teach the BJP a lesson. And for a party that was thrown out of three key states just months before the general elections, it was a warning about the future it faced in states where the traders have strong clout.
Obviously, the message was quite strong and the ruling party recently came out with modifications to the rules that hopefully would satisfy its erstwhile supporters, the traders.
The NDA government last month came out with new guidelines on the functioning of the e-commerce segment, obviously hurting the multinationals.
From February, e-commerce operators will not be allowed to sell products from firms where they have equity, or exclusive agreements with seller partners.
“An entity having equity participation by an e-commerce marketplace entity or its group companies, or having control on its inventory by an e-commerce marketplace entity or its group companies, will not be permitted to sell its products on the platform run by such a marketplace entity,” the Department of Industrial Policy and Promotion (DIPP) said in its circular.
This means that companies like Amazon and Flipkart cannot sell products through vendors in which they have a stake. Flipkart was set up in 2007 by two Indian entrepreneurs, Sachin Bansal and Binny Bansal, and has been offering stiff competition to Amazon all these years.
The e-commerce giants have been forced to offer a level playing field to all vendors, instead of restricting it to a few chosen ones
In August, global major Walmart acquired a 77 per cent stake in Flipkart for $16 billion stunning the Indian retail segment; the move also saw the two American giants — Amazon and Walmart — take control of a significant part of India’s organised sector.
THE unorganised sector has been complaining to the government that e-commerce players like Amazon and now Flipkart, who have massive funding from their controlling groups, are able to offer deep discounts and other hefty incentives through vendors who are closely associated with them.
The new government rule means that these companies now have to offer such benefits to all vendors on their platforms. The e-commerce giants have been forced to offer a level playing field to all vendors, instead of restricting it to a few chosen ones. Similarly, services such as cash-back or quick deliveries that Amazon has been offering are to be applicable for all vendors on their platforms and not just the select few.
Amazon and Flipkart have been luring thousands of customers by ensuring they get deep discounts and excusive offerings on a regular basis, which the regular traders felt was highly discriminatory and deprived them of their business.
The new rules also prevent e-tailers from selling products of companies in which they have a stake. Amazon itself has stakes in two of its major seller entities — Cloudtail and Appario — and this along with other curbs is expected to hit it badly.
Amazon also has a fully-owned company, Amazon Retail India Pvt Ltd, which sells locally sourced food both through offline and online stores. It was also planning to invest about $500 million in an exclusive food company in India.
However, the new government rules will impact its long-term plans for India.
For Walmart, the new rules mean that it cannot sell any of its products on the Flipkart site.
Similarly, several international electronic and smartphone brands such as Sanyo, Xiaomi, OnePlus, Marq and Blaupunkt TV, which were sold as online-exclusive brands on Amazon and Flipkart, will now have to rework their strategies as the new rules prevent them from doing so.
Many mobile phone brands entered India by offering products only on Amazon and Flipkart; they will now have to sell it on all online platforms and also through the normal off-line retail route.
The new rules have been criticised by many international bodies. “The new e-commerce restrictions are a cause for concern,” said Nisha Desai Biswal, president, US India Chambers of Commerce. “We fear that these restrictions will have a far-reaching negative impact both on US investments and on Indian consumers.”
Mr Biswal, the former assistant secretary of state for South and Central Asia, urged the Indian government to delay implementation of the new rules and allow time for comment from stakeholders.
Published in Dawn, The Business and Finance Weekly, January 7th, 2019