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Privileging physical retail over e-commerce is risky

Online retailing has long been a stepchild of economic policy, a fact that has been thrown into sharp relief during the national lockdown. Since March 24, online retailers have had to contend with poorly communicated policy decisions and a notification U-turn, thanks to renewed lobbying by physical retail associations. The problems began within hours of the abruptly announced national lockdown, when police across the states started assaulting online delivery personnel, even though the initial orders from the Centre permitted the delivery of essential goods by e-commerce companies. Though state administrations clarified the policy, police intimidation in forms of arbitrary border-checks and interrogations continued, discouraging delivery agents from showing up for work. This cannot be helpful when jobs are in short supply. The second phase of the lockdown, extended to May 3, compounded the problems. The prime minister announced allowing certain economic activities in areas outside containment or sealed zones after April 20. A home ministry notification permitted the delivery of essential and non-essential goods by e-tailers from April 20. One day before, however, the home ministry declared that e-commerce players would not be allowed to deliver non-essential goods, after all, with no clarity on when they would restart. This caused no small inconvenience to online retailers, who had started hiring warehouse and delivery staff in readiness.

This last-minute flip was the result of urgent appeal from two well-established small retailers’ lobbies to the prime minister, the home minister, and the defence minister. Their argument was that physical retailers had already built up summer inventories in non-essentials and allowing online retailers into this space would crowd them out. This “level playing field” argument is mobilised by physical retailers whenever they feel an existential threat. In the immediate context, the plea for a no-compete benefit to reduce summer inventories leaves unanswered the question of how they would have managed if the Black Swan event of a lockdown had not occurred. This is not the first time e-commerce has been impeded in favour of their brick-and-mortar counterparts. It has, in fact, been subject to regular business rule changes, one memorably after Walmart had invested in Flipkart in the biggest foreign direct investment deal till then.

The new rules, which came into effect in February last year, debarred companies from selling products via firms in which they have an equity interest and also from making deals with sellers to sell exclusively on their platforms. These rules do not apply to physical retailers, for whom in-store brands can account for up to a quarter of revenues. The government also opened investigation into these platforms’ discount policies, again at the urging of the physical retailers, which had reported indifferent festive sales. This overt privileging of one form of retailing over another is not only illogical, it is risky. It is unlikely to be helpful for an economy that urgently needs to expand employment, strengthen national supply chains, and, most importantly, position India as an alternative destination to China. Besides, if the lockdown has demonstrated anything, it is that there is ample space for both forms of retail to exist. This is the wrong time to be sending protectionist signals.