eCommerce FDI violations: Fruit of the poisonous tree?

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eCommerce FDI violations: Fruit of the poisonous tree?

-Sanjay Sethi

 

In the August of 1849, the Great Indian Peninsular Railway (GIPR) was incorporated by an act of British Parliament. In the “guarantee system” approved by the parliament, it provided free land and a 5% rate of return for private British companies willing to build railways in India. By 1853 we had our first passenger train running between Bombay’s Bori Bundar station & Thane. Today, very few amongst us would take any issue with that development about 170 years ago. On the contrary, many will argue that had it not been for the establishment of GIPR, India would not have the modern rail network today.

 

Well, on the face of it, nothing seems to be wrong with the above picture, till you start putting it in its full context. Indian economy between 1858 and 1947 was stagnant, essentially growing at the same rate as its population. During this period India witnessed deindustrialization, our per-capita income dropped, and we had lower levels of urbanization. India’s contribution to the world’s industrial output between 1750 to 1900 dropped from 25% to 2%. Clearly, there is something wrong here? How come a seemingly positive act by the British Parliament to incentivize private investments into India fare so poorly for the people of India?

 

Since the early 1990s when India was reluctantly forced to open up its economy to the world, we have been trying to tread the delicate balance in protecting our domestic economy from global oligopoly, lest we once again become the victim of a version of British era colonialism.

 

Our policy prohibiting “multi-brand retailing in B2C eCommerce for companies with Foreign Direct Investments (FDI)”, was very clear in its intent and purpose. It did not need any further clarification. But driven by their expansionist agenda to grab as much land of the Indian consumer as possible, by which ever means available, coupled with practically non-existent enforcements of our own laws, created a situation where the spirit of the law was blatantly and continuously violated by these companies under the guise of “but customer is winning”. By itself it seems like a cogent argument but a slightly deeper look at the situation will make it clear that – the customer is not winning, actually they are being fed the “cocaine of discounts”. An unsustainable and harmful business practice which does not do any long term good to the economy or the ecosystem.

 

Government’s restriction on FDI in multi-brand retail has been to invite lakhs of crores of foreign investment to come into India to help build its fledgeling eCommerce infrastructure. It was to bring millions of small & medium businesses to participate and benefit from the internet revolution that is happening around the world. Instead, if we look around what do we see? We see that more than Rs. 1Lac Crores of FDI money that has been spent in the country and the only beneficiary of these investments are a handful of large corporates. Majority of these are the group companies, or, are controlled directly or indirectly by large foreign players. These companies have used capital dumping to eliminate competition, destroy the SME ecosystem or otherwise damage the fabric of retail in the country. The comparison between the disastrous policies and greed of the British East India Company that led to Bengal Famine and the situation we are in is not very far-fetched.

 

The clarifications issued by MoCI on FDI policy has at least taken cognizance of the rampant violations of the law by the two large players. It will force eCommerce players to not only follow the letter of the law but also prevent them from coming up with “creative” corporate structures to circumvent the spirit of the law.

 

Even though the clarification on FDI policy is welcome, our failure to enforce the law of the land allowed these companies to become disproportionately large at the expense of the customer and sellers. “Success” built by dubious means should be deemed as the fruit of a poisonous tree.

 

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