DEBATE ON ECOMMERCE IN INDIA

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Context

• E-commerce is growing rapidly in India but the Government calls it a “cause for concern”.

Details

• The rise of e-commerce in India has seen small stores gradually losing their customers to high margin goods like consumer electronics and apparel at cheaper prices.
• This debate also coincides with the rapidly growing quick commerce sector which has allegedly been blamed for pulling customers from Kirana stores.
• Quick-commerce, a subset of e-commerce focusing on delivering within 10 minutes, has become viewed by some as a danger to old-style retailers.

Concerns

• A report by Pahle India Foundation indicated that among others, e-commerce represented only 7.8% of total retail sales in 2022.
• Foreign multinational companies such as Amazon often invest heavily to create strong market positions through predatory pricing strategies, loss funding, and inventory holding which violate the government’s foreign direct investment policy.
• The conventional retail sector has suffered due to delay in implementing e-commerce regulations.
• Social disruption is an imminent threat that comes with rapid expansion of ecommerce such as when it affects small-scale retailers and local businesses.
• Predatory pricing represents one of the most polemical topics during ecommerce debates.
• Amazon’s predatorial pricing could indicate billion-dollar losses, which undermine traditional retailers and distort the market.

Debate: Opinion of different stake holders

• Small retailers overwhelmingly support the Government while industry bodies argue that e-commerce has helped small players too.

Forum for Internet Retailers, Sellers, and Traders (FIRST), India

• The Forum for Internet Retailers, Sellers, and Traders (FIRST), India, says its members have “benefited immensely” from E-commerce.
• SMEs can exploit the potential of electronic commerce to reach a countrywide and global customer base without investing in distribution channels.
• Minus Amazon, Flipkart Zomato or Swiggy many would have struggled to do business leave alone grow it.

Enterprises

• Online retailers are becoming increasingly attractive to customers which negatively affects sales for SMEs.
• E-tailers at a disadvantage when competing with large retailers.

Confederation of All India Traders (CAIT)

• CAIT argue that foreign firms like Amazon are trying to capture Indian market through unhealthy competition using their investments as well.

Silver lining

• Boston Consulting Group and the Retailers Association of India report released in this year shows that customer additions in online commerce have slowed from the Covid years due to lower discounts, and changing customer habits as offline regained lost favor.
• However, it should be remembered that the whole retail sector will also witness significant growth in the next 10 years.
• This suggests that there is opportunity for both online and offline players to benefit — if a level playing field exists.

Evaluation

• e-commerce has made it possible for small businesses to reach a large number of potential customers, a feat which is not possible when using physical stores.
• On the other hand, consumers have more choice now compared to before. Besides, this sector has been important in generating employment over that past ten years.
• It must be noted that e-commerce companies can use technology that ultimately improves efficiency and therefore reduces costs. Nevertheless, this doesn't necessarily mean the end for traditional retailers given the survival of Kirana stores from organized retail innovations and scale advantages.
• The problem of e-commerce should be looked at from both sides of the argument. An informed policy is the need of the hour.

Way Ahead

• Detailed analysis is required regarding those points where e-commerce can adversely affect the interests of India.
• Foreign investments should be investigated with regard to the contribution they can make to the local economy, rather than simply keeping afloat enterprises that are not yet profitable.
• The requirement of striking a balance in the regulatory framework has become urgent, with India's e-commerce sector getting fast-tracked.

PRACTICE QUESTION Q. E-commerce is growing rapidly in India but many call it a “cause for concern" as the rise of e-commerce in India has seen small stores gradually losing their customers. Analyse.

SOURCE: BUSINESS STANDARD