Not Just The Letter, Get In-line With The Spirit of the Law
For almost twenty years now, the law of the land on FDI in eCommerce has been simple, short and unchanged. It simply reads as “[FDI in] Multi-brand B2C eCommerce is not allowed.”
The framers of the law were clear about its intent and its desired outcome. The intent was to attract foreign Investments into the country to build or otherwise strengthen the digital infrastructure of the country. The desired outcome was to start a process of nation-building via economic & financial inclusion of its masses at a scale, likes of which have never been seen before. Initiatives like Digital India, Startup-India, Standup India, Make in India, UPI, JAN DHAN, Aadhar, GeM, eGovernance and many more had this common underlying theme of enabling & leveraging our largest asset that is our 1.3Bn population.
For more than a decade, this law was not only well understood but was (generally) obeyed by everyone, till, that is to say, it wasn’t. Either greed or contempt of law or ignorance or some combination of all the above gave way to a wave of new-age eCommerce companies that through innovative corporate restructuring started a process of circumvention of the law. The violations were blatant and obvious and were called out on several occasions. The policymakers and the policy enforcers and industry ignored it, till they couldn’t. The government through its Press Note 3 (2016) made a feeble attempt to guide the violators in the right direction. But the violations continued unimpeded, though some minor cosmetic tweaks to satisfy the letter of the law were made. Two years later via Press Note 2 (2018) DIPP (now DPIIT) came up with much more detailed “clarifications” that not only put an end to these shenanigans but also established a deadline for compliance. Which, despite massive lobbying by interest groups, was not extended.
So, what does all this mean for the e-commerce industry in general and consumer, SMEs, domestic players in specific? First, let’s respond to the nay-sayer’s main objection “… but the consumer will suffer”. Yes, in the short-term there will be withdrawal pains as the “cocaine of discounts” is withheld from the consumer. But it will prevent any further damage to the SME ecosystem in the country and allow the process of the long-term sustainable healthy & competitive retail environment to thrive in the country. If anyone should recognize this dangerous cycle of oligopoly, it should be us Indians. For almost 200 years East India company unleashed exploitation which has been unparalleled in the history of the world. The argument of “…but it gave us railways”, “… but it gave us an English education system” have long been busted by the outcome. The only thing railways and other so-called “benefits” fast-tracked was the decline into poverty and subjugation of millions of unsuspecting Indians.
In a similar vein, capital dumping to the tune of lakhs of crores into the retail segment, circumventing the spirit in which these investments were to be made via clever corporate structuring, unsustainable discounts led to immense damage to the retail fabric of the country, it cleared out the competition, made small Indian business unviable. Gave control in the hands of the few group companies and their preferred partners and started a dangerous march to yet another era of oligopoly. Ironically, the people who were supposed to be the beneficiary of these FDI restrictions became the hapless victims of it.
This leaves us with an impact on the future of e-commerce biggies, especially the ones who have built a very large and lucrative business by circumventing the law of the land. In the short term, as we are already witnessing, they will be forced to rejig their businesses to be compliant with the letter of the law. We will hear things like “reduction of stakes” from their group companies, the emergence of “alpha-beta-tango chain of companies” to create a supply chain that allows them to keep their existing businesses compliant and going.
But the biggest impact will come in a completely different form. The fact that DPIIT issued their Press Note 2 as a “clarification” and not “new regulations” has made it abundantly clear that it wants the spirit of the law to be followed as much as the letter. They want an ecosystem where investments are channeled to develop the SME ecosystem and drive economic inclusion agenda and give control to one or two large players which takes out the competition.
This means that the future FDI from new players or incumbents will happen only when they are fully aligned with not just the letter but also the spirit of the law. Corporate restructuring and other mechanisms that served them well till date will be a very risky bet to take. The good news is that there is no dearth of capital which will love to come to the country to develop its infrastructure and its native ecosystem.