Out for delivery: E-commerce policy should aim to enhance competition

It must provide a level playing field and not differentiate between platforms based on ownership and investment. A neutral policy will help boost investment, create jobs, and increase consumer welfare

After expressing concern about e-commerce platforms’ growth and potential impact on the retail sector, Union Commerce and Industry Minister Piyush Goyal clarified last week the government was not against e-commerce but was focused on ensuring fair competition between online and physical retailers. He also underlined that it was important for online retailers to comply with the rules. While Mr Goyal did well to spell out the government’s position, the issue of online vs offline retail will continue to be debated. It may also require the government to adjust its policies in a way that does not stifle what is likely to be natural churn and shift in the market.

From a policy perspective, it is important to understand what e-commerce is doing and what potential threats it could pose. For the customer, e-commerce has significantly increased choice and ease of buying. With the extensive network and logistics capabilities built by some e-commerce platforms, consumers in small towns and rural India have access to the same products as shoppers in metro cities. From the producer’s perspective, connecting with online platforms transforms the entire country into a potential market, even for small and medium enterprises. A recent report by the Pahle India Foundation, which surveyed both online and offline vendors along with consumers, noted that 60 per cent and 52 per cent of vendors, respectively, stated that their sales and profits had increased since they started selling online. They are also reported to be hiring more workers. It is thus clear that both sellers and consumers connected within online retail platforms have gained.
 

However, from a policy perspective, there could be two primary concerns. First, it has often been alleged that some online platforms adopt predatory pricing. It’s nobody’s argument that such practice should not be investigated. Large online retailers, in fact, have been probed for this by the competition regulator. However, from a pure business point of view, it doesn’t make sense for online retailers to adopt such a practice. Usually, such practices are adopted in smaller markets with limited competition, which is not the case here — at least not anymore. The two large foreign-funded e-commerce platforms are now competing with a host of domestic platforms, including those owned by India’s biggest industrial houses. Notably, quick commerce is gaining primarily due to fast delivery rather than by offering big discounts. This suggests online retailing is fairly competitive and entry barriers may not be as high as previously believed.
 

The second big concern for policymakers could be employment. A large number of people depend on their neighbourhood shops for a living. Although online retail has not affected kirana stores much, given the internet penetration, some churn in the coming years cannot be ruled out. E-commerce is estimated to be under 8 per cent of the overall retail pie but is growing rapidly. As the report shows, it is worth noting that vendors on online platforms tend to hire more workers. Thus, there could be a shift in the nature of employment in the sector. Policy intervention, therefore, should not be aimed to protect the status quo. The government is soon expected to bring a new e-commerce policy. It must ensure that the policy provides a level playing field and doesn’t differentiate between platforms, based on ownership and investment. A neutral policy will help boost investment, create jobs, and increase consumer welfare.