They source an array of goods from MSMEs. The notion that they hinder small sellers is misplaced
The National E-Commerce Policy has been in the works for the past few years. The policy presents a tremendous opportunity to boost small and medium businesses, facilitate their migration to online channels, and help them expand their reach.
The apprehensions of CAIT (Confederation of Indian Traders), along with fear of data being misused, appear to be guiding factors in policy-making, making it overly protectionist and focussing largely on foreign marketplaces and their relationship with sellers.
The proposed new Foreign Trade Policy, which will have an impact on e-commerce, has now been postponed by another six months. The FTP is seeking to further restrict business transactions between foreign marketplaces and sellers on their platform. In this context, anchor sellers can actually give a boost to MSMEs to enter a wider market both in India and abroad.
Large sellers as anchor tenants
This approach presupposes that large sellers are always harmful and hinder small sellers from succeeding online. This notion is misplaced. A pure marketplace with only small sellers is not likely to attract many consumers they typically look for a large selection of products.
The statistics, anecdotal evidences and array of products on e-commerce platforms reflect that large sellers source from a number of MSMEs and promote products made in India.
As an analogy, large sellers on an e-commerce marketplace can be seen as anchor tenants in a physical setting. Similar to a mall, where large sellers or flagship stores drive footfall to the market as a whole, including adjacent sellers, anchor sellers in an online market can drive the growth of e-commerce platforms, allowing small sellers to leverage this scale.
Boosting overall competition
Large sellers come with significant working capital and offer large inventories, including products procured from MSMEs. By offering a large inventory for sale, they expand the scope of consumer choice, increase the competitiveness of the marketplace, and allow for competitive pricing of goods. Aggregation does help as is evident in the GeM platform for government procurement.
Any move to restrict large sellers or shut them is going to have a huge downstream impact on this entire supply chain. Whatever be the sector or channel of sales, there exists large anchor sellers; one is not sure if there is a market or a sector which has only small sellers.
Large sellers have always leveraged their scale to grow the market and the consequent benefits have been leveraged by small and medium businesses. However, the focus in policy-making should be to make MSMEs more competitive and robust, and not shield them from competition. When local businesses are not encouraged to compete against new entrants, it prevents them from maturing and making their operations more efficient.
Also, to view large sellers as villains in online sales is misguided. Being a large or dominant player is not illegal. It is only abuse of dominance that warrants anti-trust scrutiny. Also, even if this were a concern, to target only large sellers in online marketplaces would be discriminatory.
Take, for instance, FMCG or electronics. From whom does the small seller face more competition — large modern retail format/ multi-store chains or only large sellers on online?
Ask a local electronics store and the answer will probably be large stores. Is the government going to restrict them or put a cap on their sales as well to protect small and medium sellers?
If the presence of large sellers on online marketplaces and their relationship with sellers is a concern warranting intervention, then there would be no reason not to apply these policy measures to domestic marketplaces as well.
However, the FDI policy and the proposed e-eommerce policy only seek to impose such restrictions on marketplaces with foreign investment.
This is discriminatory and will restrict FDI in not just e-commerce but also the entire chain of logistics, storage and ‘Make in India’-enabling products.
Therefore, the focus on large sellers on foreign marketplaces needs to be revisited. Also, it appears that the policy will leave certain crucial definitions open-ended — the scope of ‘associates’ and ‘related parties’ of marketplaces can be notified by the government from time to time.
This will cause a great deal of uncertainty for businesses as they may need to restructure their models from time to time to match the government’s expectations.
Rather than focussing on reducing competition by removing large sellers from the fray, the policy should strive to enhance competitiveness of small sellers. This can be achieved by offsetting costs associated with digitisation and adopting a programmatic approach, where SMBs can be supported to help them understand how to better market their products online to boost sales.
Large e-commerce marketplaces have significant expertise in these areas. The policy should be forward looking and support public-private partnerships to leverage this experience for the benefit of SMBs.
Bangladesh and Vietnam, for example, have captured and flooded the world market with products manufactured by SMBs and MSMEs. This has helped their economies grow even during these difficult pandemic times.
Thus, the new policy on e-commerce and the FTP must create the opportunity to enable e-commerce emerge as a big platform for small sector manufacturing.
The writer is a Development Economist and former Secretary, GoI