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Certain proposals for a new ecommerce policy, backed by lobby groups, are currently doing the rounds. The government would do well to reject them in the interest of systemic efficiency, promoting small and medium enterprises and defending their interests against the domineering influence of big retailers, and fairness in the treatment of foreign investment in the country. Some of the proposals conflict with the government’s desire to modernise the logistics of agricultural produce, for which it has brought in new farm laws at a significant political cost.
One proposal is to bar companies in which foreign companies that operate ecommerce marketplaces have any economic interest from selling on these marketplaces. Already, the rules cap, at 25% of total sales on the ecommerce platform, the volume of a seller in which a foreign ecommerce platform has a stake. The proposed change would defeat the essential gain for the economy from bringing in organised retail: to enable investment in the facilities and processes of modern logistics. If a foreign retailer is barred altogether from owning any stake in a company that invests in modern logistics to procure, process and sell on the ecommerce platform, that would rule out the possibility of realising the core efficiency that modern retail brings to the table. Unless, of course, retail is understood by policymakers as the science and art of attractive display of merchandise in the store, electronic or physical.
Another proposal is to permit foreign ecommerce firms to invest in logistics operations and to make their services available to one and all at fair and undifferentiated prices. This suffers from two deficiencies. Trade offers different rates to different customers, based on scale and regularity of custom, to begin with. Further, certain activities are too complex to be contracted out without loss of efficiency, and have to be internalised within a firm. This insight was awarded a Nobel prize in economics, and so, perhaps, is too highfalutin to inform government policy.
This piece appeared as an editorial opinion in the print edition of The Economic Times.