The festive season sale on the e-commerce platforms such as Amazon and Flipkart has brought the issue of their role in achieving an ‘Aatmanirbhar Bharat’ or self-reliant India into a sharp focus.
Technological advancement both in logistics and fintech has expanded the reach of the Internet-enabled sourcing and delivery. It has dramatically altered the e-commerce landscape in the last few years.
It raises pertinent questions about their impact on the domestic economy. Do domestic producers and sellers benefit from such platforms, or we only see the re-routing of goods from the small sellers to these platforms owned by foreign ecommerce giants?
Defenders of these platforms argue that they enable sellers to connect to potential customers whom they could never tap before. Also, they empower the producers to directly sell to the consumers, and realise better incomes. Customers also benefit from access to a wide variety with verifiable quality at a competitive price. They are no longer limited to their local markets and can now make informed choices. By promoting market integration and expanding consumer options e-commerce platforms are supposed to stimulate the local economy and contribute towards realising an Aatmanirbhar Bharat.
Critics, on the other hand, point out the monopoly of power vested in these e-commerce platforms such as Amazon and their unfair trade practices. They argue that instead of any value addition, these platforms are merely under-cutting local sellers by providing deep discounts. They are selling products at a loss to drive local sellers out of the market on the strength of formidable cash reserves and cross-subsidy from their profitable businesses, such as the Amazon Web Service, which is not available to the domestic players.
What we have here is not the creation of new markets or deepening of the markets, but trade diversion from domestic sellers to these platforms. Moreover, benefits to producers are illusionary. They lose their bargaining power due to lack of alternative avenues. Also, Amazon is known to enter the direct production of goods in high demand by the consumers. We have seen the proliferation of the Amazon in-house brands such as Solimo and Basics selling goods from comforters to tissue paper rolls to kitchen utensils. Due to the scale and priority in search accorded on the platform, in-house brands/private labels have been capturing market share from the individual domestic producers.
Platforms such as Amazon and Flipkart exercise both monopoly and monopsony power as sellers and buyers. Instead of leveraging technology to create competitive market due to lower barriers to entry and exit, a larger number of buyers and sellers and information dissemination, they end up creating a segmented market with dual monopoly power vested in these platforms.
Amazon particularly has been accused of practising predatory pricing to undercut competitors and vertical integration into strategic markets.
Besides this, there is another problem posed by foreign e-commerce giants’ control over data. It allows them to monitor and learn from the sales data of the third-party vendors and launch their brand in those categories based on an unparalleled data insight not available to any competitors. Such brands in those categories are then given priority in searches, thus slowly undercutting domestic third-party vendors. The same data control allows them to predict and manipulate customer behaviour. In the past, Amazon has been accused of using customer data to tailor prices according to individual and deploy bots to adjust the prices in real-time concerning competing e-commerce platforms.
Such practices are detrimental to the avowed goal of the government to promote an Aatmanirbhar Bharat as foreign companies can potentially become the arbiter of Indian markets, and dictate terms to the domestic companies. However, we must remember that the digitisation of the marketplace is a forgone conclusion.
Furthermore, the scale and reach of big e-commerce companies can be leveraged to stimulate the domestic economy under the right policy and institutional setup. For example, Amazon has pledged $1 billion to digitise small and medium businesses apart from enabling exports worth $10 billion by 2025. It has 70,000 employees and more than half a million sellers along with 20,000 kirana stores for end-point delivery.
What India needs is a new e-commerce draft policy to address the concerns on data usage, predatory pricing, monopoly power and consumer protection. A national regulator, empowered to tackle unfair trade practices along with the use of emerging technology such as Artificial Intelligence, etc. can help to align the goals of an Aatmanirbhar Bharat without retreating into protectionism.
Abhinav Prakash Singh is Assistant Professor, Shri Ram College of Commerce, University of Delhi, Delhi. Views are personal.