As the market and the analysts cheer the big-bang reforms announced by the government, the e-commerce fraternity has noted the specific exclusion of e-commerce from multibrand retail FDI with some amusement. Amusement, because no one was expecting such a condition, but at the same time, it does not really affect most of them in any significant manner. Most are happy with the investment that they are receiving through the VC route. And anyway, the $100 million investment specified for the multibrand retail companies with FDI is too high a bar.
We have no way of knowing what Amazon is thinking, though. It is probably the only company which is potentially affected. Not only has it got the financial muscle to put in $100 million specified by the guidelines, it has, in the past, shown definite interest in the Indian market. It was apparently in close negotiations with Flipkart to buy the latter out and since then, has started a comparison site, Junglee.com to test out the market.
What is intriguing is why the government decided to put in this clause? Whose interest does it serve? How are small traders, who feel most threatened by this—or so is told to us by BJP and Mamata—going to benefit if FDI is not allowed in e-commerce?
The most plausible explanation could be that e-commerce is borderless and since the centre has left it to the state governments to decide whether they want to allow FDI in multibrad retail in their states, allowing e-commerce companies to sell in those states would have created a conflict situation in the policy. The government has just nullified that possibility by putting in this clause so that there are no future roadblocks.
Some suggest that there is an Internet policy that is in the making and since that will also touch down on e-commerce, the government wanted to exclude e-commerce at this point of time.
Some conspiracy theorists argue that the provision to allow FDI in multibrand retail was not really meant to help farmers, consumers, or the foreign retailers. They argue, it was allowed to help the real estate owners who have built huge retail space those are unoccupied and the entry of Wall-Marts and Tescos would help them.
There is this fourth theory that the government actually wants to help the nascent pure play e-commerce players and since some of the brands—be it Amazon or Tesco selling online—would have impacted them negatively, it was not allowed. That sounds like giving the government a big dose of benefit of doubt. If only the government was so sensitive...
But by and large it is agreed by all that it does not affect the existing pure play e-commerce players in any major negative way. So, the government could take the decision easily.
All these analyses miss one point. The poor consumer is nowhere in the picture. Since multibrand retail is allowed only in the big cities—usually those with 1 million plus population but other big cities as decided by the state governments—it will be out of reach for most Indians. Allowing these companies to sell online would have made the products available to consumers in small cities and towns, even if they would not see a physical store opening nearby. Even today, these consumers account for close to 30-40% of e-commerce sales in India.
So, the exclusion of e-commerce from FDI in multibtrand retail is, in a way, exclusion of a big chunk of Indians, who have the money, the desire, and the wherewithal to buy from those stores using the Internet but this one clause puts a full stop to that possibility, creating a new digital divide.
The government may not have thought about this explicitly but that is not an excuse.
By the way, we wonder, does it mean that an if a Shoppers' Stop or a Big Bazaar goes for FDI, they will have to first bring down their e-commerce website?
