Platforms for Viksit future: Driving growth without replacing kiranas

The fear that platforms will replace kiranas is misplaced. India needs a platform-driven economy to fuel growth and innovation

The Viksit Bharat 2047 objective fascinates this columnist — I suspect much more than most others of my tribe. The goal is tantalisingly just beyond our current reach, which makes it all the more alluring. If we use the models and learnings of the past, then, of course, it’s highly likely that we will not make it. On top of that, there is no doubt that many uncertainties —fragmented geo-economy, undependable trade partners, technology challenges, and climate change — will persist, and probably intensify. So, we neither have the momentum, nor the environment, whether geopolitical, trade, or climate, working for us. But I believe that the objective is attractive enough to do more than the usual.

 

In my view, the solution to all that uncertainty lies in ensuring an economic ecosystem that responds fast to the changing environment, is flexible, and where constant and unending innovation is a basic characteristic of production. To address this, economic activities are increasingly being undertaken under the platform mode — perhaps because it is especially suited to address the opportunity-challenge dyad. The platform approach is being used across a range of activities, in digital commerce, in military hardware, in automobile production, in information technology (IT), and many other areas. 

 

Of course, as with almost every new idea, this idea is also old.  Simply put, platforms enable different types of agents to interact with one another. A railway platform enables passengers, vendors, and railwaymen; a computer platform does the same with software; aircraft platforms enable different components (agents) to be placed and replaced, and so forth.  Other mechanism of exchange that can be thought of as platforms include universities and malls.

 

The key ingredients to be characterised as a platform are freedom and flexibility for the agents involved. That is, there is little dependence on any one agent or component. Therefore, sellers are not tied to a single customer, nor are buyers restricted to a single seller. This flexibility has many advantages. In the case of e-commerce, it enables firms to better differentiate their products and allows customers to have a greater variety of options, while meeting their fast-changing demand patterns at lower costs. In the case of defence aircraft, more advanced armament and engines can replace older ones, thereby increasing the lifespan of the aircraft platform. Therefore, freedom works well only when systems are designed to be somewhat flexible. 

 

Moreover, rapid advances in digital technologies have also enabled information flows to be targeted finely and in real time; and this has enabled the credible operation of feedback loops. And this, in turn, enables far more rapid innovation than would otherwise be possible.

 

The Indian government is one of the few globally to have been open to proposals for creating platforms.  The digital payments mechanism in India has classic platform characteristics, which enabled its fast rollout and success. With the Open Network for Digital Commerce (ONDC), the government is creating another platform that would help create opportunities for scores of young startups. 

 

We, therefore, now need a platform-oriented economic policy — not one for specific platforms in specific sectors like trade or industry, but a policy that focuses on platforms broadly.  Just like any other entity, platforms both compete and collaborate with one another. They are like any other economic entity that needs the freedom to grow and prosper. The government would do well to learn from itself and its own experiences with digital payments and ONDC. And instead of fearing potential risks and stifling innovation, it needs to enable what is occurring, which is the creation of another new form of transaction, where the platform owner is an additional provider and facilitator. 

 

However, it seems platforms are more feared than seen as an enabler of innovation and growth in an uncertain world. Where there is creation of opportunities, there is also the notion that they are exploitative of small businesses or that they lead to market dominance and unfair competition. There are already guardrails against such actions in the form of the Competition Commission of India. There is also the notion that such forms of transactions and trade will reduce the need for kirana stores, which must be protected. The argument is flawed, as kirana stores, like everything else, are also changing in scale and scope in ways that are difficult to predict. Moreover, the latest employment data from the Periodic Labour Force Survey (PLFS) shows no negative impact on employment in retail trade.

 

It is, therefore, time that we devised a comprehensive platform policy that incorporates the following:

 

First, platforms — whether public or private — must be enabled to participate in and benefit from the extensive digital infrastructure, including Digital India and BharatNet. With the government putting in place an alternative platform for domestic producers and consumers in the form of ONDC, competition is likely to increase with consequent benefits in terms of greater choice and innovations.

 

Second, simplify regulation. There is no reason to limit foreign direct investment (FDI) in this sector, as it is this FDI in platforms that will help create opportunities not only in India but also globally. Of all the policies constraining this sector, none is more flawed than this, as it has many negative implications. It will encourage the carving out of markets in an oligopolistic manner, reducing competition between domestic and global players, reduce FDI and associated technology flows, and discourage Indian firms from venturing into global markets.

 

Third, enable startups to easily access platforms and support them with mechanisms, including marketing support to benefit from the opportunities offered by these platforms. Further, requirements, including those on stringent KYC, reduce the ability of smaller localised startups and those in the informal sector to leverage these opportunities. Are the requirements too stringent? Can we relax them for the smaller players?

 

Fourth, work with platforms in creating an ombudsman for the sector and a well-defined customer redress strategy. The greater the confidence customers have, the stronger the sector’s growth and impact. Hence rather than controls and fines, it is better to invest in corrective processes.

 

Fifth, identify and remove bottlenecks to international transactions. The sixth is related. We need to identify ways of integrating Indian platforms with global value chains as they are more like distributed platforms and offer immense scope for domestic firms to access global opportunities. 

 

Finally, good policy is about facilitating the natural change that the economy will go through. The older ways of undertaking transactions are not suited to the needs of the future. They will slow us down and get in the way of creating both opportunities and the surplus required for welfare.  

 

The author heads CSEP