New rules, 100% FDI in e-commerce give short shrift to consumers

Photo: iStockphoto

Photo: iStockphoto

New Delhi: The government on Tuesday allowed 100% foreign direct investment (FDI) in marketplace e-commerce companies. While this may bring regulatory clarity to the existing and future online retail sellers in the country, it may hamper consumer interest on several accounts.

First, the government has now prohibited any discounts to consumers by e-commerce companies. Though online retailers like Flipkart, Snapdeal and Shopclues never admit it, most of their sales are driven by deep discounts funded through enormous amount of money raised from private equity players. Though the guidelines are meant to provide level playing field to offline retailers, it goes against the basic principles of a market economy where the government has no business dictating prices, that too in a case where it helps the consumers to partially beat inflation.

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The problem is that the decision was taken after the government was boxed into a corner, though the government may like to brag it as yet another economic reform. Offline retailers had approached the Delhi high court, seeking a ruling against the government and online retailers, alleging a lack of level playing field. They complained that while the government has given a free hand to online retailers to flout existing FDI policy which only allowed foreign investment in online wholesale trading not online retail trading, it prohibited brick-and-mortar retail chains from accessing FDI.

And now to give the offline retailers level playing field, the government has barred the online retailers from giving deep discounts. The ideal way would have been to also allow the offline retailers access to FDI, but for the political opposition of the Bharatiya Janata Party (BJP)-led government. While the earlier United Progressive Alliance (UPA) government had allowed 51% FDI in offline multi-brand retail stores, the National Democratic Alliance (NDA) government has put its implementation on hold, abiding by its commitment to small traders in its 2014 election manifesto. The fear that small retailers would be badly impacted by allowing FDI in multi-brand retail is an outlived argument. More so after the government in its latest budget permitted 100% FDI in marketing of food products produced and manufactured in India, thus partially allowing foreign supermarket chains to set shop in India and compete with your neighbourhood shops in selling food items. A government’s job should be to remove the barriers in the economy that hamper consumer interest, not create fresh hurdles that advisedly affect consumers.

Second, the government notification says post sales, delivery of goods to the customers, customer satisfaction and any warrantee/guarantee of goods and services sold on online platforms will now be the responsibility of the seller and not the e-commerce company. So, now if you didn’t get the delivery of an order in time, you can no more tag Flipkart or Amazon on Twitter and rant about it. They will easily shift the buck to some vendor in some distant part of India who may or may not respond to you. This will only add to the agony of the consumer and create huge credibility issues at a time when claims of fake items on e-commerce platforms are already high. The mental comfort that if you got duped by a vendor on an online platform, you can always reach out to the e-commerce company for grievance redressal who in turn will help you out for its own credibility is no more there.

And this, for a nascent e-commerce market like India with huge potential is neither good for the consumers nor for online retailers.