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