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Giving E-Retail its Due

In finding a balance between lives and livelihoods, governments should consider the merits of the continued sale of discretionary goods through online retail channels.

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The Covid-19 pandemic should have served as an impetus for better policy design, given the imperative to save lives and livelihoods. However, recent curfews in several States seem to replicate poorly conceptualised restrictions adopted by the Centre last year. Nowhere is this more evident than in the strictures on e-retail. For instance, the Maharashtra Government banned the delivery of non-essential goods via online channels, in its ‘Break the Chain’ Order on April 13. The Delhi Government promptly followed suit on 19th April with similar orders. The extant limitations are counterintuitive on several fronts. 

First, a de-prioritisation of digital trade and commerce when it’s most needed, shows a lack of institutional learning. Home delivery is safer than in-store shopping – a fact that several countries recognise in their policies for managing the pandemic. For instance, the UK and Germany, shops are only allowed to sell essential goods, while e-retailers are allowed to deliver non-essentials during lockdowns. Similarly, countries like New Zealand follow a graded lockdown approach, in which physical retail outlets are required to close their premises at higher stages, while the online delivery of goods remain permitted.

In another stark departure from best practices, the term ‘essential goods’ is left undefined in curfew and lockdown orders. The closest proxy is available in India’s Essential Commodities Act of 1955. However, this 66-year-old statute excludes a range of products such as mobile handsets and computers, that have become critical for remote work and access to many public services. In contrast, countries like Italy and Spain explicitly defined essential goods to include items such as information technology and telecom equipment. 

Second, the discrimination against online channels demonstrates a limited understanding of the India’s retail market. The country has 12 million small ‘kirana’ retailers, whose main competition is organised offline retail, not e-retail. This includes medium and large sellers, both of which scarcely require state support to digitise unlike their kirana counterparts. For perspective, it’s worth noting that a fifth of the US retail market and a third of the Chinese, is online. Conversely, only four percent of Indian retail is online, which indicates digitalisation is still in its infancy. 

Third, the restrictions underscore a faulty protectionist consensus among India’s largest political parties, despite avowed ideological differences. The United Progressive Alliance (UPA) Government debarred foreign direct investment (FDI) in inventory-based multi-brand e-retail in 2013. This model of e-retail allows a greater ability to control prices and discounts, than the alternative marketplace model where e-retailers are only intermediaries between buyers and third-party sellers. This prohibition on inward FDI was reinforced by the National Democratic Alliance regime. However, the associated curb on the inventory model for multi-brand e-retail does not apply to domestic firms. This indicates policymakers have no problem if kiranas are replaced by big retail, as long as ownership is Indian. 

The Confederation of All India Traders (CAIT) estimates that shops suffered a nationwide loss of five lakh crore rupees in April 2021. This could have been minimised if central and state governments consistently incentivised and supported digital adoption, to strengthen and aggregate the kirana ecosystem. Digitalisation can build on its innate qualities, like presence at the last-mile and knowledge of local demand. Hybrid models that fuse digital and physical are now in vogue across the world and in India, with Amazon and Jio tying up with kirana stories across the country. This represents an inevitable transition from ‘brick-n-mortar’ to ‘brick-n-click’ models of retail. But, the latest spate of state-level restrictions demonstrate that true digital transformation still requires a more enlightened policy response.

In finding a balance between lives and livelihoods, governments should consider the merits of the continued sale of discretionary goods through online retail channels. Indirectly stymying consumption, due to misplaced policy imperatives, will only hobble the economy further from the ravages of this pandemic.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Vivan Sharan

Vivan Sharan is a Partner at Koan Advisory Group, a boutique consulting and policy advocacy firm. An economist by training he is also a Visiting Fellow at the Observer Research Foundation

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