The FDI in e-commerce policy clarifications made by the DIPP was done in order to help the small retailers from getting exploited at the hands of the big e-commerce players. While it may help them in the short run, an atmosphere that is not conducive to investment in this sector is bound to hurt them in the long run.
Both Amazon and Flipkart have planned to approach the government together to reconsider these provisions. If they fail to convince the government, they will shrink the size of their future investments. This can have a significant negative effect on the entire e-commerce sector and can lead to job losses due to the closing of their private labels. Not to mention the loss of the number of jobs they would have created by their extension plans. Cities in the US are fighting with each to provide incentives and attract Amazon’s second headquarters, while the Indian government is driving away the investment.
Finally, the decision is bound to hurt the Indian consumers. By limiting the amount of discounts given by the private labels, the consumers will have to pay a higher price for their purchases. It will also reduce the variety of goods that are available to the consumers for online purchases.
Vertical integration can have anti-competitive practices, but can be dealt with in a far more efficient manner than outright bans on such operations. Antitrust authorities across the world have tools to recognize and prevent practices that can hurt consumers and small retailers. The competition commission can be given the mandate to develop these tools and implement them instead of killing the goose that lays the golden eggs.
Finally, this would also be the right time to revisit the policy of not allowing FDI in multi-brand retail. The parochial fears of potential harm to small retailers is overplayed in the public discourse. All of the small retailers in question have benefited massively from the presence of these platforms. They are now able to reach an unimaginable number of customers because of the platform. Similarly, multi-brand retail can have a massive positive effect on economic growth and job creation.