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FDI in E-commerce – Under cover of the ‘honeymoon’ period: Aditya Velivelli

July 2, 2014

Guest Post by ADITYA VELIVELLI

Although Mr. Modi has said that he has not had the luxury of a ‘honeymoon’ period, recent news headlines say otherwise. For instance PTI carried this headline on June 7: “Modi hailed as new ‘fashion icon’ by American media” and Christian Science Monitor has “Modi 2.0: How India’s new prime minister may have evolved” without waiting to evaluate Mr. Modi’s performance over the coming months.

One should look beyond these headlines to see what the new Government is up to under cover of the ‘honeymoon’ period.

Reuters reported on June 4 that the Modi Government will be allowing FDI in online retail or business to consumer (B2C) e-commerce during the upcoming budget session in July. FDI in e-commerce would mean foreign entities such as Ebay, Amazon and Walmart can start selling their inventories directly, and can have their own supply chains. No comment or analysis has been offered by the news media or the opposition parties so far. Neither was attention paid to the multiple instances of opposition from retailers body CAIT.

The Reuters article was not the first indication this year of allowing FDI in B2C e-commerce.

On the day Mr. Modi was sworn in, Pando Daily’s Mark Ames (the first journalist to write about the billionaire Koch brothers’ connection to US tea party groups), reported on Mr. Modi’s connection to eBay billionaire Pierre Omiydar through Mr. Jayant Sinha. Mr. Modi spoke about e-commerce on February 27, the same day he addressed an important investors meeting organized by Jayant Sinha, a former top lieutenant of e-commerce giant eBay’s largest shareholder, Pierre Omidyar. Mr. Sinha as an employee of Omidyar Network had openly espoused FDI in e-commerce.

Mr. Ames investigated Mr. Sinha’s employment with Pierre Omidyar and found Mr. Omidyar to be a libertarian billionaire whose philanthropic philosophy insists on making money off the poor. On the day before Modi’s ecommerce speech, eBay announced a $133.7 million investment in Snapdeal.com, an Indian online marketplace e-commerce company.  eBay’s Marketplaces’ President Devin Wenig told Re/code. “We have a history of making minority investments where at times it works well and we take the next step and end up acquiring the target.”

That eBay’s largest shareholder, Mr. Omidyar would benefit from this transaction was not a secret. US based investing websites had the following headline in Jan 2014: “Why Is Now the Time to Invest in eBay? Just Look at India’s E-commerce Market.”

The second indication this calendar year for pushing FDI in e-commerce came from newly appointed Department of Industrial Policy & Promotion (DIPP) secretary Amitabh Kant. Mr. Kant in an interview with CNBC on May 23 strongly advocated allowing FDI in e-commerce. Mr. Kant’s views on e-commerce were condemned by retailers body CAIT.

They should have good reason to do so, because the DIPP had previously listed in a white paper the disadvantages of e-commerce FDI. A couple of them are predatory pricing by international e-commerce players, and dumping of cheaper products causing harm to the domestic manufacturing sector. Mr. Kant had not addressed these concerns during his CNBC interview.

Nobel winner Joseph Stiglitz shares the views listed in the DIPP paper: “… a company like Walmart may owe some of their success to its power and ability to drive down prices. Because they can buy things out and if that’s the case then they will use that power to have Chinese goods displace Indian goods. The real harm will not be to the retail sector. That is not the real problem. The harm will be to the Indian supply chain going into the retail sector.”

Echoing Stiglitz, the retailer’s body CAIT notes “Now the question is if the move to open FDI gates for retails sector will have only one victim the traders or shopkeepers or will it also go beyond the realm of shopkeepers, particularly [to] those who supply goods and services to these shopkeepers.”

What Stiglitz noted about Walmart applies equally well to the powerful online commerce entities such as eBay and Amazon.

The previous administration while allowing 51% FDI in multi-brand retail had put in restrictions whereby the individual States would decide on allowing retail FDI in their regions. With e-commerce this restriction becomes invalid. The DIPP had said that FDI in e-commerce would be against the spirit of the restrictions imposed on FDI in multi-brand retail.

BJP in the past had firmly opposed FDI in multibrand retail. The BJP’s current Water resources cabinet minister, Ms. Uma Bharti had stated that she would set fire to the first Wal-Mart store whenever it opens here and its current Finance minister said that allowing FDI in retail would mean India will become a country of sales girls and boys where shops run by American and British companies will sell mostly Chinese goods.”

Considering this, the BJP on principle should oppose FDI in e-commerce as it is even more unpalatable than FDI in multi-brand retail. BJP’s commerce minister Ms. Sitharaman accepted that concerns regarding FDI in e-commerce are similar to those regarding FDI in multibrand retail. But in a WSJ interview, Ms. Sitharaman indicated a willingness to allow FDI in e-commerce.

Ms. Sitharaman is a director of India Foundation an organization whose directors have been espousing neo-liberal reforms. Mr. Jayant Sinha is one of those directors and is the former head of Omidyar Network in India. As noted by journalist Mark Ames, this network had funded microfinance investors in India. Another director Shaurya Doval is on record stating his opposition to the retroactive taxation of Vodafone’s capital gains. It is not known who funds India Foundation. What is known is it was founded by Ajit Doval, the NSA.

Veteran award winning journalist Aditi Phadnis reported that India foundation is “The brainchild of former Intelligence Bureau director, Ajit Doval”. She also reported that India Foundation “is quietly doing all the backroom thinking on economy and security-related issues to prepare policy stances for the BJP.”

BJP’s backroom thinkers on the economy include Jayant Sinha (Yashwant Sinha’s son) and Shaurya Doval (related to Ajit Doval?), both listed as directors of India Foundation.

Mr. Sinha can be vocal about his former boss’s philosophy. In an article co-authored with a SKS board member, Mr. Sinha claimed that the poor suffered due to the Andhra Pradesh ban on microfinance loan recovery. This claim by Mr. Sinha can only be called tone-deaf as it was SKS’s loan recovery practices that led to suicides.

Mr. Ames had brought to light Pierre Omidyar’s contribution to the microfinance suicides. Mr. Omidyar had funded Unitus, an SKS investor. This kind of funding encouraged aggressive and over-lending (multiple loans) to the poor which directly contributed to their inability to pay back those usurious-interest loans

Mr. Omidyar as demonstrated by Mr. Ames’s article is something beyond your usual capitalist and is in a class by himself. Ames’s article starts off with a quote from Mohammed Yunus in the New Yorker. It is worth repeating here

I had a long debate with Pierre,” [Nobel Peace Prize winner] Yunus told me, referring to Omidyar. “He says people should make money. I said, Let them make money—but why do you want to make money off the poor people?

Mr. Modi mentioned in his February 27 speechTrading community shouldn’t run away from global challenges. Don’t be scared of online growth. Face the challenges and modernise your supply chain and delivery system… demand from govt to help build your capacity

A WTO document points out the fallacy in Mr. Modi’s argument “… most developing countries rely heavily on small and medium enterprises (SMEs), rather than on large firms. … one particular challenge for SME participation comes from the pressures of lead firms to push inventory costs down on the suppliers. For larger firms or those with secure financing, the costs of holding inventory might be manageable. For SMEs, these costs are prohibitive.”

The SMEs pass on the costs and risks to their employees. One should look at the examples provided in the study of the electronics industry in India by Amrita Chhachhi during the aftermath of liberalization policies of 1991. One example notes Calcom Electronics the subcontractor for Philips International whch employed 700 workers of whom 200 were women. In April 1994, 200 employees requested higher minimum wages as per the promulgation of increments in minimum wage by the Delhi Govt. In Sept 1994, Calcom downgraded the skill level of workers to avoid paying the higher minimum wage. For instance operators were downgraded to simply workers. This meant that they were termed unskilled workers as opposed to skilled workers despite possessing diplomas.

The electronics industry restructuring in the aftermath of 1991 liberalization also included massive layoffs. Those still employed were downgraded from permanent to non-permanent positions. Some companies which changed the status of employed workers into contract workers also set up new units, thus hiring more contract workers. This was a continuation of the 1980s policies where in order to reduce labour costs and to avoid unions, large electronics corporations increased their reliance on subcontractors. In some cases to the extent that workers at the main plants were left without work.

John Stuart Mill referring to the shops and warehouses that conduct retail business on a large scale wrote this: “… these are almost always able to undersell the smaller tradesmen, partly, it is understood, by means of division of labour …

What was true during Mill’s time is true today too and this division of labour is noted through Foster and McChesney’s examples of Nike and Apple subcontractors.

“Global corporations and their affiliates frequently rely on sweatshops run by subcontractors to obtain lower unit labor costs.

Firms like Nike and Apple (which subcontracts its production to China) are rightly seen as monopolistic multinational corporations—capturing extremely high profit margins through their international operations and exerting strategic control over their supply lines—regardless of their relative lack of actual FDI.”

Note “relative lack of FDI”, which means Omidyar/eBay can operate without actual FDI other than in building warehouses etc. The DIPP had also mentioned that with e-commerce it would be very difficult to inspect whether the foreign e-commerce entities are actually investing in back-end infrastructure as per guidelines.

Omidyar’s obtuse philosophy will mean eBay is going to one-up the likes of Nike and Apple.

 Mr. Modi also mentioned this in his February 27 speech: “We should not worry about these things. Our children have taken IT to the world. We’ll have to embrace it”.

CAIT should have told Mr. Modi that they even fear domestic online retailers, forget about foreign online retailers. Already there have been complaints from CAIT against domestic e-commerce firm Flipkart over predatory pricing: “Dozens of small brick-and-mortar retailers have banded together to seek protection from e-commerce companies, which they say are undercutting them with predatory pricing.”

A Sept 2012 BusinessWorld article demonstrated how Flipkart skirted laws regulating the use of FDI in B2C ecommerce.

In many of his speeches and writings, Swami Vivekananda frequently mentioned or quoted John Stuart Mill: “… candor compels me to say, that here in the West the development of women was brought about by men like John Stuart Mill and the revolutionary French philosophers.”

Swami Vivekananda greatly admired Mill. It is well-known that Mr. Modi greatly admires Swami Vivekananda. Mr. Modi should therefore take note and understand this statement of Mill:

“When indeed the market, being that of a great city, holds out a sufficient inducement to large capitalists to engage in retail operations, it is generally found a better speculation to attract a large business [more customers] by underselling others, than merely to divide the field of employment with them. This influence of competition is making itself felt more and more through the principal branches of retail trade in the large towns; and the rapidity and cheapness of transport, by making consumers less dependent on the dealers in their immediate neighbourhood, are tending to assimilate more and more the whole country to a large town.”

Two phrases from the above should be underlined – “underselling” and “rapidity and cheapness of transport”. Both very much apply in today’s world. A company like eBay with access to immense credit/cash and alternate supply chains can easily undersell the common trader to destroy competition. And Mr. Omidyar’s philosophy of shareholders coming first would call for exactly that.

 Aditya Velivelli is originally from Hyderabad, India. He currently works as thermal applications engineer in Detroi

33 Comments
  1. July 2, 2014 1:47 PM

    Reblogged this on National Alliance of People's Movements.

  2. Aditya Velivelli permalink
    July 2, 2014 8:53 PM

    Addressing Nikhil Pahwa’s comment on NIvedita’s article (http://kafila.org/2014/06/13/when-are-foreign-funds-okay-a-guide-for-the-perplexed/#comment-135193) :
    @Nikhil Pahwa, you have mentioned in your comment – “If you link it to Amazon’s lobbying, I would agree with you. They want it, and need it. ebay doesn’t.”

    This is not true. eBay has been lobbying for FDI in e-commerce and this has been reported by atleast 2 news sites that I know of. I have linked to one of them in my article above.

    1. Economic Times on May 16, 2014 – “Foreign retailers like Amazon and eBay have been strongly lobbying with the Indian government to allow FDI in e-commerce”

    http://articles.economictimes.indiatimes.com/2014-05-16/news/49898174_1_mbrt-fdi-dipp

    2. TechCrunch in Jan 2014 – “Sources at Amazon India and eBay’s operations in the country have told us that both the companies are aggressively preparing their pitches urging the policymakers to revoke the e-commerce ban.”

    http://techcrunch.com/2014/01/03/india-may-relax-e-commerce-rules-opening-the-door-further-for-amazon-and-other-global-giants/

    Aditya

    • July 2, 2014 9:21 PM

      Not only that, only two people in the BJP have indicated willingness to allow FDI in e-commerce – Modi and Nirmala Sitharaman and both are connected to Jayant SInha, a former top employee of Pierre Omidyar, eBay’s largest shareholder. As noted in the article above, Modi talked about e-commerce on the day that he addressed a foreign investors meeting organised by Jayant Sinha. Ms. Sitharaman and Jayant Sinha are colleagues at India Foundation and Ms. Sitharaman indicated in WSJ interview (see above article) her willingness to allow FDI in e-commerce.

    • July 3, 2014 8:57 AM

      Hi Aditya,

      this is a logical fallacy known as Affirming the consequent. Your statement essentially means “Ebay is lobbying for FDI in e-commerce in India, therefore they must need it”. Details here: http://en.wikipedia.org/wiki/Affirming_the_consequent

      My point was that they don’t really need FDI in e-commerce. I’ve explained the policy, and the slippery slope of your assumptions. Just because multiple reports mention ebay in passing, without understanding the need for it, without confirming the fact that ebay is lobbying for it, doesn’t mean it’s true. Tomorrow, someone will use Pando Daily’s and Nivedita’s report to justify another ludicrous assessment. Where does it end? An incorrect assessment based on a false assumption becomes fact.

      You STILL haven’t explained why ebay would need FDI in e-commerce. That they’re lobbying for it, doesn’t mean that they need it to operate. They can still invest in companies like Snapdeal, and even buy them out without needing Government of FIPB approval. They bought Baazee.com, remember?

      I was a part of the DIPP meeting that held in May: they were just there, not really saying much. eBay made no strong representation for FDI in e-commerce. Amazon was arguing for FDI, as was Yebhi (which needs to raise funding).

      I’ve based my explanation on the existing policy. Can you give me a rational argument outside of multiple news reports by people who probably don’t have a clue about e-commerce policy in India?

      I can give you one: if there is FDI in e-commerce, the money that comes into the market will bring multiple merchants online, some of which may also end up selling on ebay. Ebay, thus, will benefit indirectly, not directly. But that doesn’t mean that ebay needs FDI in ecommerce, which was my point.

      Do check out the link to the “Affirming the consequent” logical fallacy above.

      • Aditya Velivelli permalink
        July 3, 2014 11:09 PM

        Nikhil, re your comment “That they’re lobbying for it, doesn’t mean that they need it to operate.”

        This is a plain stupid statement. Can you EXPLAIN why eBay would lobby for it then, and why their shareholders would want to pay for a lobbying campaign that does not benefit the company’s bottom-line?

        eBay is an e-retail firm with the world’s largest online payment system, PayPal. FDI benefits their bottom-line. FDI would mean they can sell inventory directly, inventory that is sourced from China at a cheaper cost. This will harm Indian small and medium enterprises (SMEs), and will put pressure on SMEs to cut costs by reducing wages, hiring temp workers etc.

        What you are saying is akin to “both Boeing and Lockheed are lobbying India for FDI in defence, but just because Lockheed is lobbying does not mean they need FDI to make profits”

        • July 4, 2014 8:58 AM

          Sure. In case of ebay, they benefit from it, but don’t *need* it, because the policy allows them to operate. In case of Boeing and Lockheed, they aren’t allowed to operate because the policy doesn’t. This isn’t just possible or not-absurd, it is the actually the case right now. If e-commerce in India grows, more Indian merchants come online to sell to Indian customers, and the usage of marketplaces like ebay grows. I’m not saying they don’t benefit. I’m saying they don’t need it. There’s a difference.

          In case you aren’t aware of it, ebay had bought 100% in Baazee.com, an Indian company, in 2004. Baazee, like ebay,

          About your point about inventory from China being sold in India: it is already happening. Aliexpress (www.aliexpress.com) delivers to India. You don’t need FDI in e-commerce to allow that. Paypal already operates in India (which certain restrictions imposed by the RBI, because open wallets are not legal in India; airtel money, itz cash etc are semi-closed prepaid wallet systems)

          Have you read the Indian government’s policy documents pertaining to mult-brand retail and e-commerce in India?

          If it helps, do read a document I put together with a CA firm to explain this: http://www.arkayandarkay.com/structuring-of-investments-in-ecommerce-businesses-in-india/

          Listen, since you’re convinced by my lack of education, don’t take my word for it. Do the right thing and read the government policy documents around multi-brand retail and e-commerce.

          Then explain to me why what I’ve said is incorrect.

      • Aditya Velivelli permalink
        July 4, 2014 12:27 AM

        Mr. Pahwa, DO you also realise the complete absurdity of quoting Wikipedia of all sources to prove someone’s “logical fallacy”? With Wikipedia as their sole education, absurd, ill-educated people like you are calling Kafila a “conspiracy theory blog”.
        People who use Wikipedia as an authoritative source to criticize their opponent’s logic should be laughed the hell out of here. How did you get invited to the DIPP meeting with your level of education? Is this why DIPP is now arguing for FDI in e-commerce in direct opposition to its previous stance?

      • Nivedita Menon permalink*
        July 4, 2014 9:55 AM

        Nikhil, it is actually completely beside the point and ‘off-topic’, to keep citing Wikipedia for simplified accounts of philosophical forms of argumentation. I wonder if you would ever cite Wikipedia for a scientific argument.
        But in this last comment you have also cited your submission on FDI in e-commerce, so the comment has been passed. Thank you for making clear that you have a personal stake in what you have so far presented as ‘facts’, which you claim has nothing to do with ‘education’! As if facts are easily recognizable physical objects. Please do some Wikipedia reading that might at least alert you to ‘the fact’ that this belief is highly debatable, at best!
        Your submission to DIPP (Department Of Industrial Policy & Promotion) is a strongly expressed statement for unrestricted FDI in E commerce, open to all products, with no restriction on minimum capitalization. That’s great, that you felt so personally invested in attending a DIPP meeting to push for this. But forgive me if it is now clear that this is not about ‘facts’ at all (of course, neither Aditya Velivelli in his post nor I ever thought it was – this is about politics and money and other ‘non-factual’ things). It is not a ‘conspiracy theory’ to understand that a strongly worded statement like yours on FDI in E commerce, implies some sort of stake in the outcome, that goes beyond mere ‘facts’.
        Finally – those who understand how ‘lobbying’ works, how much money is involved in lobbying, and how it functions below the radar of publicity, would get immediately that E Bay would not need a public consultation organized by DIPP to do its work. If EBay had sent representatives who were ‘just there not really saying much’, that’s because the work of lobbying does not take place in public consultations.
        Please do consider the possibility that everybody intervening in this debate has at least the same levels of knowledge and expertise as you do, instead of adopting this annoyingly lofty air of (unestablished) superior wisdom, which for some reason you keep buttressing with Wikipedia entries!

        • July 4, 2014 10:21 AM

          Nivedita,

          1. I had cited my submission to the DIPP in the comment I had shared with you on June 24th, here http://kafila.org/2014/06/13/when-are-foreign-funds-okay-a-guide-for-the-perplexed/#comment-133402 . So this is not a new disclosure.

          As a publication, we do not directly benefit from FDI in e-commerce, but we do believe that it will benefit the digital ecosystem and Indian consumers. Those arguments are explained in the filing. In the past, we have submitted viewpoints to the government against Paid News, in favor of opening up the Mobile VAS ecosystem (and against restrictive trade practices by telecom operators), and amendments to the Copyright bill. We’re preparing a submission on Media law to the law commission. We have a point of view, and we represent only ourselves. I attended the DIPP not because of a personal commitment, but out of curiosity, and a willingness to explain our point of view. I also deposed before the Parliamentary standing committee on Paid News, and spoke up in a TRAI open house discussion on Mobile VAS. We can (strongly) present a point of view without having a stake in the outcome. Your statement is another indication of “affirming the consequent”.

          2. As as I said earlier, please focus on the point that I am making, not on my “lack of education” or the fact that I’m quoting Wikipedia. The point that ebay doesn’t NEED FDI in E-commerce, because the current policy allows it, still hasn’t been addressed by you or Aditya. Instead, you’re either attacking me or Wikipedia. You’re ignoring the current state of policy, as per which ebay can buy companies in India without FIPB approval. In fact, it has done so, buying Baazee.com in 2004.

          I’m citing Wikipedia (and now Princeton, which you have conveniently ignored) to make a point about logical fallacies in your arguments.

          You may keep attacking me (ad hominem) and making assumptions about my motives. That is your prerogative. However, that still doesn’t change the facts that you’re ignoring about the existing policy.

          • Nivedita Menon permalink*
            July 4, 2014 10:25 AM

            You say – ‘I’m citing Wikipedia (and now Princeton, which you have conveniently ignored’). I didn’t ignore it, I was sparing you further embarrassment – Aditya Velivelli has already exposed that so-called Princeton link in his response below. Anyhow, you can’t just keep returning again and again simply restating your flawed argument – shouting louder doesn’t make something correct.

            • July 4, 2014 10:36 AM

              Yes, I saw that Princeton bit later. My apologies, I had missed it.

              However, neither you not Aditya have explained how my argument about ebay not needing FDI in e-commerce is flawed.

              Have you read the government policy on FDI in multi-brand retail? Please explain to me how marketplaces like ebay aren’t allowed to operate and invest in India, under the current policy? If they aren’t allowed, how did ebay buy Baazee.com in 2004? How did it invest in Snapdeal?

  3. Tridib permalink
    July 2, 2014 11:07 PM

    I do not want to comment on the article per se, but if there are any “formal” economists browsing over these comments, I have a question:

    Apparently, the benifits/drawbacks of FDI in retail have to do with returns to scale. So here is the question.

    Assume that the market has a nice linear demand curve and assume that there are two firms who compete in prices. Let both firms have the same downward sloping average cost curves, which are convex and intersent the demand curve BEFORE costs begin to rise. What are the competitive prices going to be? The crux here is that firms compete in prices (not quantities). You may use the concept of Bertrand equilibrium if you like.

    My take on the problem is that in such situations we cannot make a prediction about prices (for those who are formally inclined: a Pure strategy Nash equilibrium does not exist and a mixed strategy equilibrium if it exists is too complex to comprehend). In such situations, at least from a theoretical perspective, we cannot talk about the welfare implications of competition when there are scale issues (one way or the other). That brings us to empirical estimations. I am told that estimates go both ways, depending on the countries for which studies have been conducted.

  4. July 4, 2014 9:49 AM

    @ Nikhil Pahwa, have you even checked the top of the Princeton page. It highlights “WARNING: DO NOT CITE”. Click on that and you will see “This content of this page is taken from Wikipedia”. A graduate student runs that web-page. Whoever posted that stuff on Wikipedia was smoking something or is plain dumb and you are quoting it with abandon to counter my logic. If this is not ill-education, then what is?

  5. July 4, 2014 9:55 AM

    http://dipp.nic.in/English/Discuss_paper/Discussion_paper_ecommerce_07012014.pdf

    . Some of the disadvantages it listed were as follows:
    • Because of scale of economic operations, e-commerce players in the inventory based model will have more bargaining power than standalone traders and will resort to predatory pricing.
    • MNCs may dump their cheaper products in the market causing a negative impact on the Indian manufacturing sector in general and to MSMEs in particular.
    • Opening of B2C e-commerce on inventory based model is likely to seriously impact these [“small time”] shopkeepers leading to large scale unemployment.

  6. July 4, 2014 10:26 AM

    Not sure about the connect between FDI and China inventory dumping. AFAIK the dumping is happening even with small merchants all over the country. But what kind of Chinese inventory would people order on E-commerce which is not available in the ‘baazaars’? I hope you are also aware that the e-commerce play is slowly but steadily shifting to Market place model from the inventory model. Wouldn’t FDI in such a case also help in strengthening logistics and local merchant connect?

    • July 5, 2014 1:37 AM

      Ms. Swaroopa. Please read the article completely. You will notice a statement by a recipient of the Nobel Prize in Economic Sciences.
      Also notice from the various examples in the article (including John Stuart Mill) that big corporations can destroy domestic SMEs when they source materials from outside the country.
      Don’t compare small merchants who sell Chinese trinkets at road-side stores with big corporations selling Chinese-made furniture online

  7. somnath permalink
    July 4, 2014 3:13 PM

    Linking Chinese imports to FDI in e-commerce is a case of building completely spurious correlations. Chinese imports in a range of manufactures, from toys to Ganesha idols are being sold at every kirana outlet in India. E-commerce isnt responsible for that.

    The opposition to FDI in e-commerce is a throwback to the ’80s, when a bunch of people opposed introduction of computers in banks. They argued that it would lead to job losses. What actually happened is well known – the banking sector has grown many dozens of times since then, aided by new Indian banks taking advantage of the latest in technology to grow the market manifold, ahead of even the international banks.

    In the article above, to buttress a non-existent argument, the author brings in laughable examples, like that of the electronics industry. Thanks to reforms, the Indian electronics industry today employs many times more people than it did in 1990.

    E-commerce in India is a business segment being largely built by Indian kids from our elite schools, providing jobs to thousands. FDI, if anything will support the eco-system and expand the market, besides offering better and cheaper options to consumers.

    Online retail actually enables small manufacturers tap into the power of big logistics, something that is otherwise inaccessible to them. Large buying power of the online chain results in better prices for the consumer. Not sure why that should be objectionable! The advent of Amazon has reduced the number of street-corner book stores, but has added a lot many more readers for each book!

    Bringing in personal motives of Pierre Omidyar and Jayant Sinha etc without reference to the facts and issues make no sense.

    • July 5, 2014 1:36 AM

      Mr. Somnath, Don’t compare small merchants who sell Chinese trinkets at road-side stores with big corporations selling Chinese-made furniture and other large ticket items online.
      Read the full study on the electronics industry and you will see the horrendous impact it had on workers, specially women.

      Can you answer why BJP opposed FDI in multi-brand retail, but now favors FDI in E-commerce which is worse than the former?
      “personal motives of Pierre Omidyar and Jayant Sinha” – these matter when such people secretly lobby governments over the opposition of for instance Indian retailer’s body CAIT.

      • Somnath permalink
        July 5, 2014 9:08 AM

        Not sure which “study on the electronics industry” you are referring to, but for anyone to claim that economic and social value added of the electronics industry today is NOT many times more than in the ’80s would be quite disengennuous.

        You only have to see the penetration of electronic products in the population and the number of people employed in the value chain as a result.

        About Chinese imports, it’s not just small retailers, but large corporates and domestic large retailers are also importing. Not sure how FDI in e-commerce isresponsible for that. We as a nation already run a large trade deficit with china. If anything, the shift of intermediation from smaller players to larger players gives us better pricing power.

        BJP’s opposition to multi brand retail is a reflection of the vested interests of its core constituency, the traders. Doesn’t mean it is right!

        As I said earlier, India. E commerce is driven by young Indian boys and girls who are building a brave new Eco system. FDI will expand that ecosystem in terms of talent, capital and access to markets. What is te problem with that?

        About the behaviour of foreign companies, it’s up to us how we regulate. Nestlé is known to have been a predatory company in Africa, but it remains a good corporate citizen in India. I am not really terefore bothered about neatle’s peccadillos in Africa as an Indian, I would rather take their money, technology, jobs and chocolates!

        One fundamental question hasn’t been answered – amazon has lowered the cost of books and expanded the number of book readers, e- bay has pushed prices of a host of things down. Yatra.com has made air travel affordable to many more Indians, and Flipkart and Snapdeal have made consumer goods at premium levels accessible to the lower middle class indian. What can be the objection to strengthening of this trend?!

  8. somnath permalink
    July 6, 2014 11:44 AM

    Aditya, I had noticed the reference to “Amrita Chacchi” earlier. But even I wasnt sure that you are really trying to make a point in 2014 basis a study done in 1997 based on data of the early-mid ’90s! That too on a specific, micro point of “women workers in Okhla industrial area”. Surely, making a broad policy point requires a little bit more than that.

    Lets take that study as “fact”.It would only mean that in the earlyt ’90s women workers in the industry were worse off in Delhi. How does that compare against a 15-20 fold increase in product penetration, and and equal increase in employment generated by the sector since then to now? As a matter of developmental choice, a reduction in the number of women workers in Okhla is a small price to pay for the enormous benefits to economy and society through the industry in the last 20 years.

    In just 5 years preceding 2012, the industry created more than 2 million jobs (according to N Vittal).

    http://www.efytimes.com/e1/78263/Electronics-Industry-To-Create–Million-Jobs

    I see you didnt respond to my substantive points around Chinese imports, impact of large retial on prices and impact of FDI in -commerce, but picked on the comment around the make-up of the Indian e-commerce sector as “yuppie talk”. Not sure what that means, but Flipkart, Myntra, Jabong, Redbus, Snapdeal – the largest e-commerce companies in India are all built by young Indians setting up new industries on their own and building large scale in them. What is your problem if these guys are helped with fresh capital and talent through FDI?

    • July 7, 2014 4:02 AM

      Somnath, you are willfully ignoring the references and facts published in the article. I told you to ctrl+F ‘stiglitz’ and ‘finance minister’. You ignored what they said. You then ignored the disadvantages of e-commerce listed in the DIPP white paper. You also ignored the findings of the electronics industry study which demonstrated how permanent workers were reduced to contract workers to reduce wages and remove benefits.

      Your “young Indian boys and girls” at Flipkart willfully and illegally flouted FDI rules to make profits through predatory pricing as demonstrated by the BusinessWorld article. (again referenced in my article).

      Snapdeal will be bought by eBay. eBay can operate through snapdeal for the marketplace model. This does not require FDI approval.

      Why are eBay and Amazon strongly lobbying for FDI? They want to move to the inventory model because that is where the money is.

      Before you reply again, you better take into account all the references and facts I have pointed to here.

      • July 7, 2014 10:11 AM

        “Before you reply again, you better take into account all the references and facts I have pointed to here.”

        Applies to you too Aditya.

        Glad to see you acknowledge the marketplace model, which makes it clear that ebay doesn’t NEED FDI in e-commerce. However, do you have anything to indicate that ebay wants to shift to an inventory based model? That is, apart from news reports quoting “sources”, and assuming that this is correct just because ebay is okay with FDI in e-commerce (the affirming the consequent fallacy)

        ebay doesn’t have an inventory based model anywhere else in the world. In India, both ebay.in and snapdeal have a marketplace model.

        • July 7, 2014 5:37 PM

          Nikhil, that eBay lobbied for FDI in e-commerce came from 2 different eminent news sources at 2 different time periods. I will take that seriously.

          As to your “affirming the consequent” argument, the fallacy of using Wikipedia as an authoritative source has been pointed out by myself and Nivedita.

        • July 7, 2014 6:49 PM

          on eBay lobbying for FDI, a 3rd news source, ‘The Hindu’ – “U.S. companies such as Amazon and eBay have been lobbying hard for it both in the U.S. and India, and, in the past, have met Commerce and Industry Minister, Anand Sharma, on the issue a number of times,” the official said.”

          http://www.thehindu.com/business/Industry/commerce-ministry-not-keen-on-fdi-in-ecommerce/article5075758.ece

  9. somnath permalink
    July 7, 2014 11:08 AM

    The differences between “marketplace” model and “inventory based” ones are not relevant from a development choice standpoint. Its only a shift in scale investment from one part of the value chain to another. Interesting from a firm’s business model perspective, but not from the perspective of a policy maker.

    Aditya, I am amazed at the attempt at squeezing out juice from dried oranges! The DIPP paper which you reference (and I ignored earlier because, again I didnt think that could possibly be a reference for a well argued article!) – have you gone through the paper yourself? It is neither an opinion piece, nor an empirical study leading to conclusions. It is a “discussion paper”, which tabulates the various viewpoints across various interest groups on the subject and at the end, ASKS the stakeholders to give their opinion!!! The end of that paper is a format in which stakeholders should give their opinion. The same paper has reams of data giving out the various advantages of FDI as well! You seriously want to use this too buttress your case?!

    Next, that Businesworld article, which I admit I missed reading in the first go. Again, have you read that piece? First, it refers not to Flipkart specifically, but the industry in general. But the substantive point being made was hardly one of “predatory pricing”. It was about the complications in the FDI regulations that are forcing these companies to adopt complex structures in order to be compliant. And some of them maybe landing up on the wrong side of existing regs. The solution would be to make the law simpler! Where is the issue of predatory pricing here?

    You should read the stuff that you reference yourself.

    • July 7, 2014 5:59 PM

      I did mention it as “DIPP white paper”. And what is wrong in using views of some stakeholders to buttress my argument, when a Nobel prize winner and the current finance minister say the same thing.

      When Flipkart and other e-retailers flout FDI rules, it gives them pricing power to undersell the common traders. And CAIT has complained on this issue. Do ctrl+F “complaints from CAIT”

      Anyway, the main point of my article is that BJP has vociferously opposed FDI in multi-brand retail in the past and in the present, but Modi and Nirmala Sitharaman (both with close proximity to Jayant Sinha) have supported FDI in e-commerce. This ought to have generated big news headlines. But the newspapers decided to ignore this. Question is why?

Trackbacks

  1. FDI in E-commerce – Under cover of the ‘honeymoon’ period: Aditya Velivelli | velivelli
  2. Lobbying for a tax-free banana republic: Aditya Velivelli | Kafila
  3. Who is guiding Modi’s economic thinking and what is their background? | Kafila

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