Unshackle e-commerce

Online retail can do better without current policy hurdles

India’s e-commerce sector has grown quickly despite an uncertain policy environment. In 2013, online retail accounted for less than 1 per cent of the retail market. By 2018, it is reckoned to have crossed 3 per cent. Indeed, in several categories of electronics such as personal computers and smartphones, e-commerce holds a far larger market share. Even in non-traditional items such as furniture and high-end fashion labels, growth has been phenomenal. E-commerce companies such as Amazon and Flipkart have reportedly spent over Rs 5 billion in marketing during the just-concluded Navratri period, and they will, presumably, spend more in the run-up to Diwali. This season, in particular, there is even greater competitiveness than usual. Flipkart is now a Walmart subsidiary, which means that the world's largest brick-and-mortar retail chain is going head-to-head against the world's largest online retailer, Amazon, in one of the world's largest and fastest-growing markets. These are not the only players and all are offering huge discounts. Analysts claim online sales during Navratri have crossed $2.6 billion, or about Rs 190 billion, which is a huge year-on-year rise over the $1.4 billion sales during the same nine-day period of 2017.

The increased impetus has been attributed to the wider market reach in Tier II and Tier III towns. Small-town India reportedly contributes 82 per cent of Amazon India's new customers, which explains the e-commerce giant's creation of local language interfaces and its determination to be capable of delivering in every rural pin code. Flipkart also claims that over 50 per cent of its new customers come from small towns. It is interesting to consider the positive externalities that have arisen from the e-commerce explosion. Between them, Flipkart and Amazon have close to about 100 fulfilment centres spread across multiple states, which means that they have been the prime drivers for warehousing. The portals offer direct employment to tens of thousands, in multiple capacities, ranging from delivery to high-end data analysts to marketing. They deploy artificial intelligence in their India operations. They have adopted easily accessible, in-house fin-tech solutions, offering EMIs through PayTm, Amazon Pay and PhonePe and, thus, induced widespread acceptance of “cashless” commerce far more effectively than demonetisation did. 

So far as the consumer is concerned, apart from easy payment options, e-commerce sites offer a wider choice of merchandise along with lower prices. In Tier II/III locations, there may be no offline alternatives for the many categories of goods available online. It is, therefore, no exaggeration to say that e-commerce has triggered a retail revolution in the rural and semi-rural hinterland. If there were fewer policy constraints, the sector would grow faster and that would mean the creation of more employment, better real estate occupancy and lower prices for consumers. In particular, the industry is hampered by the fact that any e-commerce portal with a majority overseas shareholding is restricted to being a marketplace. If restrictions on holding inventory in multiple branded goods were removed, efficiencies would be enhanced, enabling a further deepening of the market. The industry is also worried about draft proposals for enforced data localisation, which would add to the costs, and proposals to ban or impose "sunset clauses" on discounted prices. The draft e-commerce policy is currently in review. It could be a win-win situation for consumers and e-commerce players if those clauses were removed, or the restrictions eased.