A sinister, subterranean, and inexorable development on the e-retail front may well hand over the entire Indian economic system to oligarchs, unless people awaken to the threat
This is not about Jio Mart, Amazon, Walmart or the Tata Group cornering a larger pie of the Indian retail marketplace, projected to reach around US$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 the Indo-Chinese disagreements. This is also not only about the 20 million small establishments (mom and pop stores/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, including those in the pandemic year, companies investing in digital tools flourished. When demonetisation was unleashed on an unsuspecting India, a few companies like PayTM benefitted. They were pitched as home-grown start-ups; David vs Goliath. Neither then nor — and more so — now is PayTM 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. Try remembering when Coca-Cola came to India. Ramesh Chauhan of the Parle group made a big hue and cry about swadeshi, only to bargain for a higher price for Thums Up and sell out to Coca-Cola. Similarly, many propagating swadeshi opposed ‘FDI in Retail’ a decade back, have now sold out their constituencies and accept it now because the politics changed, even though the circumstances have worsened.
However, the declaration by the largest trader’s body in India that an e-commerce revolution will be good for Indian small businesses, can only be a betrayal of the small shopkeepers. Today, if there is a community as aggrieved as the farmer’s, it is that of the shopkeeper’s. A 2014 report by the Federal Reserve Bank of Cleveland stated 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 creating businesses 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, which actually create jobs and inject economic dynamism. China first helped create Alibaba, Tencent and such others as the world’s largest companies. Now, suddenly realising that they have become a threat to China itself, Beijing is taking action against them. There is a lesson to be learnt from this.
Big e-retail companies being procurers of goods in large volumes, dictate bottom-of-the-pit prices and impose stifling terms on manufacturers. Along with investment in AI and process systems, their delivery price to consumers will eventually be less than the procurement price of kirana stores and its obvious consequences. E-retail companies are not only becoming super distributors to kirana stores but will even 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 a horizon of the next 20 years, a majority of kirana stores will close down. Along with them, interdependent businesses of supply chain intermediaries and hundreds of thousands of medium and small enterprises that supply to these mom-and-pop stores will slowly cease to exist. Inevitably, as stores dwindle in numbers, consumers will find single suppliers and face a monopoly. The US Public Interest Research Group, a non-partisan consumer research organisation, looked at 750 essential items like face-masks sold on Amazon’s marketplace before and after the pandemic. It found prices of 409 items increased by 20 per cent and for 136 items simply doubled.
Many term unorganised trade as inefficient and e-commerce as efficient. What is efficiency though? It depends on what is being measured. Measurement matrices are designed to be amenable to one’s objectives. More often than not, thus, the measure of efficiency is skewed. For example, monoculture can be termed highly efficient if one measures produce yield per unit and ease of post-harvest operations. If human health, biodiversity loss and climate change are the objectives, it represents the worst form of inefficiency.
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 do not get documented. However, every single additional job to e-retail is documented and politicians take credit for them. This bodes ill for a nation, especially when unemployment is running near historical levels and remains its biggest challenge. E-retail businesses with deep pockets to run smaller players out of business have the ability to source and provide cheaper credit to consumers.
E-retail will also dictate terms to credit card companies and e-payment platforms to retain part fees collected when customers make purchases. Sooner than later, public sector banks will lose the lucrative retail segment and begin to falter. E-retail companies will start their own brands like Amazon ‘Basics’ making cheaper stuff and forcing even big brands into submission. Last week Amazon bought MGM, the Hollywood studio for $8.5 billion. As other services get added to the cart, the addictive brew becomes more ominous. 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 mining data and in the business of advertisement. Data enables corporates to target and influence individual consumer behaviour, while aggregated data allows for large-scale manipulation of markets. Data is of value for even those not selling on e-retail platforms; finance, insurance, pharmaceutical and health industries, for instance. Europe is considering legislation to address the monopolistic behaviour of big tech and to make data anonymous.
Just as earlier modern retail stores asked brands to pay higher commission for placing products prominently on store shelves, so will e-retail platforms. Brands will thus be obliged to spend heavily on advertisements to gain visibility for their products. When Google was founded in 1998, the printed media collected over 50 per cent of advertisement revenue. Today, it is down to about 10 per cent. This year Google collected 30 per cent, Facebook 23 per cent and Amazon 10 per cent of the US digital advertising spend.
Free and independent media is one of the pillars of democracy. It survives on advertisements and is already beginning to collapse. In the USA, Facebook, a private company, denied the US President the use of a communication platform in a testimony to the power of digital empires. Recently Google threatened to deny access to its search engine to Australia. Today, Indian leadership gloats when they make twitter remove protesting farmer’s posts critical of the government. It is only a matter of time before such corporations become primary influencers of public opinion and determine the fate of elections. The question is about the survival of democracy itself.
Another important factor is the need for laws to keep data within the country. It is also time to make data companies pay every time for information they acquire from their users and impose a special tax on e-commerce transactions. These can be used for skill creation, re-skilling people, or increasing resources for human resource development for those having to cope with the painful transition.
It is not that the Government of India could not build similarly large companies. India could, but MTNL and BSNL were government of India monopolies, which were purposefully turned to loss-making public sector enterprises to benefit an aspiring private sector competitor. An opportunity was lost. There is still hope; India can turn the combined ‘India Postal department’ into a logistic hub with a UPI banking licence and a home delivery service company with US$100 billion valuation. Indian policymakers and politicians are, however, busy quarrelling with social media platforms, rather than creating value for its citizens.
Valuation is the key. For example, Jio Mart sales are around ₹25,000 crore but it has a market capitalisation of ₹1.50 lakh crore. The capitalisation in the food retail in India is 5-6 times revenue as against 15 per cent obtaining in the west. It will also make sense for foreign companies to retain and plough profits back into the trade in India, to help their stock prices in the USA. Foreign capital adds competition and that is good. Instead, one should be worried about how businesses operate, how they are regulated and of oligopolies getting created. These do not reduce inequality but tend to collude to raise prices.
Can India ensure that the system does not work for the businesses but businesses work for the people? Personally, one is beyond sceptical; regulation, enforcement and anti-trust legislation lack teeth, institutions are being systematically weakened. Subservient establishments and short-sighted political classes across party-lines have allowed a few a free run of the country. Only people’s activism can put off the oligarchs from having a stranglehold on the nation.
How does a farmer organisation get anxious about e-retail and the data economy, one may wonder. The answer is twofold. It needs to be publicly said because no one else is talking about the larger picture. Most notice the trees but miss the forest. More importantly, what happens off-farm matters much more than what happens on the farm for farmer livelihoods. Like it or not, only if the economy thrives, only when the private sector does well and generates employment in millions per month, will consumers have the money to pay more for nutritious food.
Only then will farmers receive higher farm gate prices and better livelihoods. There are no two ways about it.