India’s brick-and-mortar retailers doth protest too much over ecommerce

Lal Bahadur Shastri was a humble farmer who rose to be India’s second prime minister. He brought pride to multitudes in a largely agrarian economy. That was 50 years ago.

Today his grandson is a mediator for cell phone retailers campaigning against discounts offered by ecommerce sites. Adarsh Shastri, who quit his job with Apple India to join the Aam Aadmi Party (Common Man’s Party) just before the general election this year, has met executives of Samsung and other leading phone producers to persuade them to limit or even stop distribution through online channels which are discounting the prices of phones. Shastri has reminded them that the bulk of their sales still happen offline and they cannot afford to act against the interests of these brick-and-mortar retailers.

The missing link in this is the consumer, who will end up paying more for cell phones if Shastri has his way.

Now here’s the irony: The consumers who are among the biggest beneficiaries of the low distribution cost of ecommerce, and consequent boom in discounted budget smartphones, are small farmers. Smartphone apps give them vital weather data and, more importantly, commodity price updates from markets – without which they were at the mercy of unscrupulous traders.

Smartphones and ecommerce are vital for farmers in other ways too. Instead of traveling periodically to the nearest marketplace, they can order both household and farm supplies online, saving time and money in the process. A recent Deloitte study found that expanding internet access in a developing country boosts productivity by 25 percent. In India, a majority of people access the internet through smartphones.

Obviously the retailers that Shastri backs would want farmers and others to buy their smartphones at a higher price offline. But this goes against the very concept of organized retail. Right from the time the shop around the corner lost customers because of a supermarket that offered better quality and more choice at a lower price, the mom-and-pop shops have had to figure out ways to stay afloat by providing niche or more personalized shopping. Either way, the consumer gained.

Pot is calling the kettle black

The campaign against ecommerce gets curiouser and curiouser when it comes from big Indian retailers like the Future Group – one of India’s leading private conglomerates – which right now has its own Diwali festival sale going on that offers gifts galore to shoppers. Big supermarkets were the ones that proved the undoing of many small retailers. So for the Future Group chairman Kishore Biyani to cry that “ecommerce is killing local trade” is a bit like the pot calling the kettle black.

The brick-and-mortar retailers do have a legitimate grouse when product prices go below manufacturing costs in some cases. In world trade, there are laws against dumping of discounted goods to kill the local competition and grab market share. The use of venture capital by ecommerce sites to provide deep discounts for market share would amount to something similar.

But to regulate pricing across the board would open a Pandora’s box. We have seen how vexatious a government-regulated pricing mechanism is in sectors like electricity.

Besides, the lower prices online are also a result of more efficient distribution, logistics, and a variety of other reasons – not just venture capital. New-fangled smartphone producers like Xiaomi, Motorola, and Jolla don’t even have offline sales outlets, so they can save on distribution costs and offer lower prices. Digital technology can only get more pervasive; to try and limit it would be anachronistic.

In fact, the best way to regulate ecommerce would be to have more ecommerce. But here, it is the local ecommerce players who have successfully lobbied with the government to stop FDI (foreign direct investment) entering their space. Amazon has limited itself to being a marketplace for third party sellers, while Rakuten, Walmart, and Alibaba have held off from going all out in the Indian market.