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Saturday, July 31, 2021

India must be wary of monopolistic e-retailers

Ajay Vir Jakhar writes: Can India ensure that the system does not work for businesses but that businesses work for the people? Personally, one is more than sceptical.

Written by Ajay Vir Jakhar |
Updated: June 29, 2021 7:58:28 am
Big e-retail companies, by being procurers of goods in large volumes, dictate bottom of the pit prices and impose stifling terms on manufacturers.

This is not about Jio Mart, Amazon, Walmart or the Tata Group cornering a larger pie of the Indian retail marketplace estimated to be $2 trillion by 2030. It is not about Chinese companies like Alibaba and Tencent wanting a piece of the untapped market but retreating due to Indo-Chinese disagreements. This is also not about the 20 million small establishments (the kirana stores) and the 40 million families spread across every street of the country dependent on the informal and formal retail chain. It is far more menacing.

In every crisis, companies investing in digital tools have flourished. When demonetisation was announced, a few companies like PayTM benefitted. They were pitched as home-grown start-ups — as Davids taking on Goliaths. Even then, and more so now, PayTM is not an Indian-owned company. It has investors representing Alibaba from China at one end and a Warren Buffet-backed US entity on the other. Capital has no nationality. The jingoism about local versus foreign company ownership is simply a marketing strategy. Many propagating swadeshi, opposed FDI in retail a decade back, have now sold out their constituencies and accept it because politics has changed, even though the situation has worsened.

A report by the Federal Reserve Bank of Cleveland in 2014 stated that the rate at which Americans were starting businesses had “declined significantly” over the past three-and-a-half decades and that “new establishments have increasingly been provided by existing businesses opening new locations”. Markets that used to be served by independent entrepreneurs are now increasingly being served by the expansion of existing businesses. Over time, it depletes the independent, entrepreneurial streak that is essential for a nation’s progress. Crony capitalism generates monopolies that reduce competition, strangle innovation and disincentivise smaller businesses that actually create jobs and economic dynamism.

Big e-retail companies, by being procurers of goods in large volumes, dictate bottom of the pit prices and impose stifling terms on manufacturers. Along with investment in Artificial Intelligence and process systems, their delivery prices to consumers will eventually be less than the procurement price of kirana stores. E-retail companies are not only becoming super distributors to kirana stores, but will use them for pick-up points for ordered merchandise. Simultaneously, kirana stores will be nudged and compelled to increase the minimum order size, driving up inventory costs and losses for such stores. This is a temporary arrangement and over the next 10-20 years, a majority of kirana stores will close. Along with them, interdependent businesses of supply chain intermediaries and hundreds of thousands of medium and small enterprises that supply to these stores will slowly cease to exist. Inevitably, as stores dwindle in numbers, consumers will find single suppliers and face a monopoly.

Every action creates losers and the social costs of such losses should be recognised. Due to their very nature, jobs in the unorganised sector are not registered and when millions are lost, they will not get documented. However, every single job addition to e-retail is documented and politicians take credit for them. This bodes ill for a nation especially when unemployment is its biggest challenge. E-retail firms with deep pockets to run smaller players out of business have the ability to source and provide cheaper credit to consumers. They will also dictate the terms to credit card companies and e-payment platforms to retain part of the fees collected when customers make purchases. Sooner than later, public sector banks will lose the lucrative retail segment and begin to falter. Amazon has recently bought MGM, a Hollywood studio. As other services get added to the cart, the addictive brew becomes more ominous. The lines between e-retail and e-commerce are already beginning to blur.

The fascinating thing about e-retail is not that it is just selling merchandise. It is in the business of data mining and in the business of advertising. Data enables corporates to target and influence consumer behaviour, while aggregated data allows for large-scale manipulation of markets. Data is of value to even those not selling on e-retail platforms — insurance and the health industry. Just as the earlier modern retail stores asked brands to pay a higher commission for placing products prominently on store shelves, so will e-retail platforms. Brands will be obliged to spend heavily on advertisements to gain visibility for their products. When Google was founded in 1998, print media collected over 50 per cent of the advertisement revenue. Today, it’s down to about 10 per cent. This year Google collected 30 per cent of the US digital advertising spending, followed by Facebook and Amazon at 23 per cent and 10 per cent respectively. A free and independent media is one of the pillars of democracy. It survives on advertisements and is already beginning to collapse. In the US, Facebook, a private company, denied the US President the use of a communication platform — a testimony to the power of its digital empire. Recently, Google threatened to deny access to its search engine in Australia. Today, the Indian leadership gloats when Facebook removes posts that are critical of the government. It is only a matter of time before such corporations become arbitrators of opinion and decide the fate of elections. This is about the survival of democracy itself. Beware, “Winter is Coming.”

Europe is considering legislation to address the monopolistic behaviour of big tech and to make data anonymous. Can India ensure that the system does not work for businesses but that businesses work for the people? Personally, one is more than sceptical. Regulation, enforcement and anti-trust legislation lack teeth. Institutions are being systematically weakened. A subservient establishment and a short-sighted political class have allowed a few, a free run of the country. Only people’s activism can hold off the oligarchs from having a stranglehold over the nation.

This column first appeared in the print edition on June 29, 2021 under the title ‘Challenge of the Goliath’. The writer is chairman, Bharat Krishak Samaj

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