Free the clicks

Deregulate e-commerce, and see ancillary benefits

Indian e-commerce has seen frenetic activity in the recent past, but it needs to be allowed to grow out of restrictive government regulation. Private equity deals in the current fiscal year amount to over $3 billion (or approximately Rs 18,600 crore at the current exchange rate), and global players like Amazon and Alibaba have stated deep commitments to developing an India presence. Japanese technology major, SoftBank, has invested about $1 billion in sundry Indian e-commerce outfits, and it has committed to investing $10 billion over the next few years. Local e-retailer Flipkart raised funding to the tune of over $1 billion and taken over fashion major, Myntra. Another e-retailer, Snapdeal, which received $627 million from SoftBank, has bought Exclusively.com, a "luxury" brand. Yet another fashion major, Jabong, is owned by a German investor, Rocket Internet, that also owns Foodpanda. Foodpanda and Zomato are hot competitors in the online food market. Classified advertisement sites like Quikr and taxi companies like Olacabs have seen investor interest. Even the hoary Indian Department of Posts plans an e-commerce portal. The market is substantial and growing very fast, with a cumulative annual growth rate of over 30 per cent between 2009 and 2014. Competition is fierce with online sales often highly discounted - so much so that there have been complaints about "predatory pricing" from brick and mortar retailers. E-commerce will log $6 billion equivalent in turnover in this fiscal year - and that excludes travel tickets and hotel bookings, which will yield over $16 billion. By 2018, e-retailing turnover is expected to cross $22 billion. Even that will be a tiny slice, less than three per cent, of the overall retail market - which should be worth over $800 billion by 2018.

So there is ample room for growth and the coincidence of several favourable socio-economic trends means growth should accelerate. India's young and growing middle-class likes shopping online. The rapid adoption of cheap smartphones implies that close to a billion Indians may soon be on the mobile web. The e-commerce industry has the ability to service Tier-II and Tier-III cities, where there is little brick and mortar retail reach. Marketers have worked around low credit-card reach by setting up cash-on-delivery systems. Innovative payment portals, such as Paytm, mobile wallets and payments banks, will make transactions simpler, safer and cheaper. The industry will occupy huge chunks of real estate, ranging from offices, to data centres, to warehouses. Apart from providing large revenues to the logistics industry, e-commerce will generate massive employment. It can offer high-end jobs to data scientists and MBAs, and also absorb less-skilled labour at the low-end of the delivery and logistics chain.

But the fly in the ointment is red tape. Restrictions on foreign investment in multi-brand retail remain, in spite of the protestation even of foreign leaders. This protectionist attitude confines e-retailers to the marketplace model. This is one reason for industry disputes with state excise and sales tax departments. It is unclear who is liable for local taxes - is it the seller, or the marketplace? Warehouses have been raided with states alleging non-compliance with the cumbersome formalities for transporting goods across state borders. It is high time that the regulatory regime was simplified to allow free play to e-commerce. If restrictions on foreign direct investment were removed and state taxes rationalised, efficiencies would dramatically improve. An opportunity exists to modernise the retail sector, boost inter-state trade, generate mass employment and create positive spin-offs for real estate and logistics. It would be imprudent not to take it. The forthcoming Budget will do well to outline a road map.