The going may get tougher for Walmart and Amazon in India
PremiumStringent rules proposed for e-com reveal a push for protectionism
The list of what e-commerce platforms aren’t allowed to do in India has been growing for some time, but the latest prohibition on flash sales has gone too far. If the rules get implemented, the entire business model of Amazon.com and Walmart could come unstuck before their investments in the Indian market can grow to a rewarding size. While a lofty public purpose can always be tacked on as an afterthought to draconian regulations, in this case the fig leaf is thinner than usual. It’s hard to see how “significantly reduced prices, high discounts or any other such promotions or attractive offers" for a period of time “limit customer choice, increase prices and prevent a level playing field."
The driving spirit behind the consumer affairs ministry’s new draft guidelines, currently open for comment, may lie elsewhere. In the garb of checking manipulative behaviour by online marketplaces, India is effectively muzzling the two leading US players. It’s also tilting the balance in favour of offline commerce, and away from digital startups that are India’s best bet for rebuilding the pandemic-ravaged economy.
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Amazon and Walmart are dominant, but in a tiny corner. Overall e-commerce is only 4% of India’s $800 billion retail market. Yet they’re supposedly exerting such a baleful influence on the natural flow of goods that they must be reined in by, in effect, instructing Amazon not to sell its Made in India Fire TV Sticks—a media streaming device—on its local e-com website. Ditto for Walmart. Its wholesale operation in the country may not be able to hawk a shirt on Flipkart, the online marketplace it acquired for $16 billion in 2018. And this is when it is trying hard to blend in. It plans to triple exports from India to $10 billion by 2027, and will float Flipkart in the local equity market.
The Flipkart purchase was Walmart’s most expensive. Soon after the deal, Reliance announced its own ambitious e-com plan for linking small independent stores with a telecom network that now has 420 million-plus subscribers. Reliance is also India’s largest operator of physical stores.
Piyush Goyal, the commerce minister, says that arrogant US firms have blatantly flouted Indian laws. Amazon and Walmart-Flipkart have denied charges of abuse of market power. Twitter, apparently in breach of rules framed for information technology intermediaries, [has been accused of arrogance too]. WhatsApp has gone to court after being asked to make messages on the platform traceable, arguing that this will destroy its promise of end-to-end encryption and have a chilling effect on privacy and free speech. The squeeze on US content firms [seems guided by] political calculations: Twitter’s offices were visited by the police after it branded a tweet by one of the ruling party leaders as “manipulated media".
The targeting of US e-com players is not as obvious, though even [this looks like] a political project. Safeguarding the interest of consumers or mom-and-pop stores is how the curbs are marketed to the public, though they [could eventually] put India behind something resembling China’s Great Firewall. Local tycoons would dominate the market, and while foreign players won’t be completely shunned, they may only be able to join the party as junior partners, supplying technology and capital.
Achieving this objective with a stringent foreign direct investment policy is something the government tried two years ago. Walmart and Amazon dodged the blow. The time for more of the same has passed. To avoid an open confrontation with the Biden administration, it may be more fruitful to twist existing Indian laws out of shape. For instance, it isn’t the remit of India’s consumer protection law to check if the many sellers taking online orders for phones during festive-season discount sales are thinly capitalized post boxes. A lot of them came into existence to circumvent a previous policy that e-com marketplaces, or their related-party sellers, can’t control more than 25% of the inventory on offer. If they’re still violating the spirit of that, it’s not a problem of consumer protection, but an anti-competition issue, and should be probed accordingly. It’s not e-com players that have devastated small Indian retailers, but covid. For small shopkeepers to [recover], they need partners who’ll help them go digital. Arbitrary rule-making gets in the way. A startup earning a small cut on each online sale will struggle to run a marketplace that has to refund 100% of a disgruntled customer’s purchase price, especially when no such straitjacket applies to physical retailers.
But then, consumers and small shopkeepers are just convenient excuses. Behind the smokescreen of shielding their interests, India is slowly creating a protectionist economy that will benefit only a select group of firms. After sinking billions of dollars into India, Amazon and Walmart are still not on that shortlist. Maybe they will never be.
Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services.
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