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The New Normal for Indian Retail
Future rulemaking should be collaborative, and allow different retail businesses to leverage their respective strengths.
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Amongst the economic actors worst hit by the Covid-19 pandemic and the subsequent lockdown were brick-n-mortar retailers. Landlords refused to reduce rents, migrant workers went home and, in the first few weeks, only those establishments which sold essential goods were allowed to operate. The rest had no option but to shut shop. Even when the lockdown opened and retailers resumed business, there was a sharp drop in customers. The rising number of Covid-19 cases had induced a fear amongst people and they were wary of going to markets unless absolutely necessary. Those who did venture out had to abide by strict social distancing norms, which meant waiting outside a store till the crowd inside had reduced.
Consequently, all the retail action shifted to laptops, tablets and mobile phones as people shopped online. From food to medicines, the lockdown unleashed the power of doorstep deliveries – a consumer habit that is already the new normal. It facilitates social distancing, opens new avenues to earn livelihoods and prevents the spread of infectious diseases. Home delivery of goods isn’t new but e-retail achieved unprecedented scale during the lockdown. Before the pandemic, GlobalData, a London-based data analytics firm estimated that online commerce will grow at a CAGR of 19.3 percent between 2019 and 2023.
Thousands of individuals at firms like Amazon, Zomato, Flipkart and Swiggy have worked together to have orders delivered without compromising on safety. These players have ensured that the virus does not spread despite the presence of multiple human touch points. The entire supply chain process that includes packing, sorting and transporting of products was rejigged to ensure that the virus is eliminated at each stage of operations. Warehouses were sanitized, employees worked in staggered shifts, payments were made contactless and pre-departure temperature checks for delivery personnel became par for the course. This ability to transition business processes to a new normal bears testimony to ecommerce platforms’ nimble-footed nature.
However, stringent government rules during the initial phase lockdown claimed e-retail businesses as the first casualty. The sale of non-essential products wasn’t allowed, there were reports of police harassing delivery personnel, and vehicles that transported goods were stopped at various checkpoints. In fact, a perusal of government orders indicates that the rules were tilted in favour of traditional retail. For instance, the Home Ministry withdrew its April 15 order, which allowed e-retailers to deliver all forms of goods, on April 19. The withdrawal of the order was justified on the grounds that allowing e-retailers to deliver non-essentials would adversely impact small traders. It was only on May 1 that online platforms were allowed to sell non-essential products, more than a week after standalone retailers were allowed to sell non-essentials
Even in the pre-Covid era, government regulations vis-à-vis e-retail have been skewed by the ostensible need to maintain a level-playing field with traditional retail. The assumption is that somehow, any policy decision that enables online commerce in India to grow further and flourish, will be detrimental to the overall retail sector. India has over 60 million traders and retailers, a powerful political force to reckon with. Therefore, reforms that benefit e-retail are implemented only when deemed politically viable.
Another case in point is the Policy to allow domestic investments into inventory-based e-retail, and not foreign direct investment (FDI). E-retailers that own their inventory have the added advantage of exercising control over pricing and logistics. While domestic entities can establish inventory-based e-retail platforms, as per the extant FDI Policy, foreign entities can only run pure marketplaces where buyers and sellers meet. The Policy also delineates operating conditions for foreign-funded marketplaces, including on aspects of marketing and promotions. Therefore, while seeking to level the playing field between e-retail and traditional retail, the Policy distorts the playing field between foreign and domestic e-retail.
The COVID-19 induced lockdown has demonstrated that, in times of crises, it is online commerce that will come to the rescue of consumers and the economy. E-retailers continue to cater to consumer demand, provide employment at a time when jobs are scarce and nimbly reorient operations to address health and safety concerns. All this in a regulatory environment that isn’t quite favourable. It’s time that policymakers recognise the importance of online commerce and frame rules that foster its growth. Any attempts to level the playing field should not delay the adoption of technology that aids economic efficiency. The retail sector’s resilience to both crises and competition depends on its ability to harness such technology.
Future rulemaking should be collaborative, and allow different retail businesses to leverage their respective strengths. As an example, rules could look to promote the hybrid system of e-retail, such as JioMart and Amazon Local Shops, which allow online and offline retailers to leverage their specializations. More importantly, India must create governance frameworks which prioritize sectoral development, so that the retail industry’s inexorable transition to digital is accelerated. In essence, any future authority with supervisory remit over e-retail should be designed in the mold of a development corporation, the likes of which have achieved immense success in Malaysia and Singapore. These bodies help small businesses scale and compete by promoting the use of technology.
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.
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 FoundationMore From The Author >>