Commerce Minister flip-flops on e-commerce

Piyush Goyal’s criticism of foreign e-commerce platforms for “predatory pricing” defends Indian businesses that similarly marginalise small retailers.

Piyush Goyal, Union Minister of Commerce and Industry, interacting with stakeholders from prominent global investment firms, on August 26. | Photo Credit: X.COM/Piyush Goyal

Recently, Congress president Mallikarjun Kharge quipped that the “U” in UPS (Unified Pension Scheme) stands for U-turn. While that could be seen as stretching the interpretative liberty, he was touching a raw nerve. Whether it be lateral entry into the civil services or the Waqf (Amendment) Bill, the current Narendra Modi-led government seems to be learning the art of coalition politics on the job. Accustomed to brute majorities that allowed it to “bulldoze” policy change, the inclination of the BJP’s leadership is to push ahead with its preferred policies without considering the views of coalition partners. To its surprise it is encountering opposition from these “allies”, which, in the absence of a majority, forces retreat.

But Union Commerce Minister Piyush Goyal’s partial U-turn on a public policy statement speaks of more than the need to respect the views of coalition partners. Addressing an event organised by the Pahle India Foundation, a not-for-profit think tank, marking the release of a report the foundation had prepared on the impact of e-commerce on employment and consumer welfare, Goyal decided to distance himself from the report’s conclusion that e-commerce had significantly boosted employment in the country. Rather, he warned that e-commerce was eating into the sales volumes of small retail businesses and displacing them in the consumer delivery market for high-margin products, which account for a major share of their profits.

To appropriate that market, large foreign e-commerce platforms like Amazon were resorting to a range of illegal and predatory practices, he claimed. Illegal because, foreign e-commerce firms, according to the Minister, are overstepping the limits set by the foreign direct investment policy. They are meant to be platforms connecting vendors and buyers and are not supposed to produce and/or stock and sell products to consumers themselves. But, Goyal argued—and there is evidence to back that view—that many of these firms are setting up dummy Indian vendors to do the job of selling products for them, and the algorithm confronting users of the platform drives them to these favoured vendors.

But the effort to gouge the market does not end there, according to Goyal. The consumer choice is sought to be influenced by making available these products at huge discounts covered by capital brought in by these deep-pocketed foreign firms in the name of “investment”. What this does is build a loyal base of buyers at the expense of demand for products sold by small brick-and-mortar retail outlets.

What was interesting was the Minister’s focus on Amazon. It recorded a loss of Rs.6,000 crore last year, he said, wondering how a mere platform could incur such huge losses if it was not engaging in predatory pricing. To support that, it was bringing in resources from abroad, acquiring products, and selling them at a huge loss to build a customer base, he claimed. To boot, according to Goyal, these companies paid Rs.1,000 crore to “professionals”, which he said must be top lawyers who were hired to block them from arguing cases filed against the practices of these entities.

What he failed to mention is that in the retail space in general and e-commerce in particular, there are big domestic players, especially the likes of Reliance, that are eroding the market share of small retailers. The issue is not just foreign e-commerce versus domestic small retail but big organised retail (foreign and domestic) versus small retail.

In fact, by combining its deep pockets and centralised organisation with its control of the digital communications and payments space through Jio and the use of the small retailer as the last-mile vehicle of delivery, Reliance is attempting to build a retail behemoth that few can challenge. The dominance of e-commerce of the likes of Amazon and Walmart-controlled Flipkart is an obstacle to that plan. In these circumstances, an attack on foreign e-commerce players like Amazon is also a defence of Indian big business.

But clearly Goyal had crossed the line and was possibly pulled up. Hence, soon after the first set of statements, he came out with a clarification that the Modi government wants to encourage foreign investors—so long as they are “fair” and “honest”—and embrace the technologies they ushered in. E-commerce also brings in tremendous benefits for consumers like speed and convenience, he added.

It must be said to the Minister’s credit that he was not completely off the mark with his first set of remarks. Big retail is, as is to be expected, displacing small retail. The points he made about the functioning of entities like Amazon and Flipkart had been made in the past. Amazon, for example, was alleged to have used subsidiaries like Cloudtail India and Appario Retail to operate as a vendor and managed to win for itself a large share of sales on its own platform.

Interestingly, in 2021, it was the Ministry of Consumer Affairs, then headed by Piyush Goyal, that attempted to rein in these operators through amendments to the Consumer Protection (E-Commerce) Rules. But foreign players found ways, such as diluting their stake in or exiting from formal ownership of firms operating as vendors, to monopolise sales through their own “marketplace”.

It is surprising that Goyal is still stuck spewing anger at the e-commerce majors. The government can, if it is serious, rein in these firms and keep them in line. But it is constrained by its own multiple objectives. It wants to be seen by international capital as an adherent to neoliberal openness, welcoming foreign capital and relying on foreign investment to convert itself into a manufacturing hub. It wants to promote friendly Indian business groups, like Ambani and Adani, which have a major foothold in the retail space. And it wants to appease a long-term vote bank of the BJP consisting of small businesses in a wide range of areas, including retail. In the evolution of the policies of BJP-led governments under Modi, the relative emphasis on each of the objectives changed. It initially moved in favour of being seen as open to foreign capital, while aggressively backing a couple of chosen domestic business groups. But now, with the results in the last election showing that it needs to restore the waning support of its vote banks, it has possibly decided to appease the small-business community that has been a major loser, especially after demonetisation and the introduction of the cumbersome GST regime.

Driven by that new emphasis, and in his enthusiasm to revive a battle he had earlier partly led, Goyal seems to have gone too far. Hence, the U-turn. Riding on the backs of small retailers to attack foreign firms and, consciously or otherwise, promote the interests of domestic big business is not an easy task.

C.P. Chandrasekhar taught for more than three decades at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. He is currently Senior Research Fellow at the Political Economy Research Institute, University of Massachusetts Amherst, US.