The e-commerce model serves the same function as the current efforts to bring farmers closer to the consumers by linking them digitally. Also, e-tail discounts bring down prices for consumers.
The draft e-commerce bill needs to be critically viewed, as it seeks to shift the stance, once again, away from the consumer to the intermediary. The ideological issue in all cases of pricing is that, in a free market, pricing should be determined by the players when interacting through the invisible hand. This will be more so when the products concerned are not essential commodities and come under the category of lifestyle. Distribution is always a challenge in India given weak logistics, which leads to cost escalation that widens the gap between the price at which the manufacturer produces and the consumer pays. The question really is whether or not the consumer should get the best price?
The e-commerce model works efficiently as it puts buyers and sellers on a platform and deals are struck based on the mutually-accepted price as well as the comparative offering that saves time and money. It should be a Pareto-optimal situation where both sides are better off in this marketplace. Or probably not, as such a transaction has created an externality that affected another constituency—the bricks-and-mortar shop. The choice to sell or buy lie with the two parties that take rational decisions when getting into a transaction, as there is no pressure to go through with the deal.
The problem has arisen as bricks-and-mortar outlets do not offer the same prices as the e-commerce sites as they have to cover their overhead costs that include staff and establishment. Also, given their financial condition, they would also have to work on their higher margins, which, though subsumed in the MRP, are still higher than what the competition offers. With an e-commerce company, these costs fall drastically. This is the best solution for the consumer, driving demand growth in future.
Is there anything wrong here? There exists a similar scenario if one looks at the agricultural markets. The mandi is the place where the farmer sells his produce, and when the product traverses through the entire value-chain and reaches the consumer, there could be various layers involved, and that ends up driving a wedge between the two prices—at the mandi and at the retail outlet. These costs are considered to be superfluous and efforts have been on to bring the farmer closer to the consumer so that the former gets more and the latter pays less than in the present situation. This idea can be translated to the market for retail products.
The e-commerce model does the same, since a seller—who could be a dealer or the producer—is selling directly to the customer on this platform, at a price that is lower than the retailer’s in a bricks-and-mortar shop. The model here is one that works on lower margins and on quick and high turnover, which ensures that capital is not stuck in inventory. There are added services, viz. returns, that are not normally allowed in the traditional outlet. It is a win-win situation for all and, hence, should be welcomed. But, we always like to take sides and play the game from one constituency, which, here, is the bricks-and-mortar shop.
Any transformational change in the country would mean asking existing players to reinvent themselves. So should the bricks-and-mortar outlets if they are to survive. It is worth recollecting that when domestic organised retail was proliferating, there were objections raised to this on the grounds of the kirana stores getting affected as prices offered by organised retail were lower because of ‘bulk purchase and quick turnover on lower margins on higher volumes’. Ironically, e-commerce has gotten the larger branded stores to be on the same side as the smaller physical shops as it disrupts their model.
If there is predatory discounting, where the seller is selling at a loss, it is a commercial decision being taken; there should be no interference here. Also, this is not sustainable, and, hence, can only be a periodic phenomenon. Merely taking up the cause of the bricks-and-mortar retailers because they are a big constituency is just not right. FDI is already not permitted in an inventory-based B2C model, and the marketplace structure operates. Goods being dealt on the platform are Indian and can also be procured from anywhere in the country. The bone of contention is the deeper discount that e-commerce offers where break-even takes time but deep pockets permit such patience.
Interestingly, even today, there tends to be cartelisation inadvertently, where all dealers sell, say, mobile phones at the same price—the MRP. There has been no objection when discounts are offered in the ‘chain establishments’ periodically where the larger ones can crowd out the smaller ones. Here, differential pricing is permitted. However, when the scale has increased to a new level where even the larger physical chains face competition from more efficient e-commerce platform, umbrage has been taken.
The government has always been looking at prices from the consumer’s side as inflation is a constant worry. There is always the concern that prices are being pushed up in certain segments and action is often taken to ensure fair play. The e-commerce story is unique because, here, the government seems to be against the idea of deep discounts. While the telecom episode is about getting the telecom companies to lower rates, the 20% discount being offered on, say, medicines through the e-commerce mode has not raised any objection even though the bricks-and-mortar chemists charge MRP, which, in a way, is ‘overcharging’. The entire edifice of GST was built to ensure that more efficient reckoning of taxes will lead to prices coming down. In fact, the latest grievance with the GST regime is that there is profiteering in several cases, and these are under investigation.
Therefore, it appears that the present grievance against e-commerce companies that have FDI backing is a result of lobby groups that are not able to compete in this setting. Teaser prices have been permitted in telecom and, hence, the analogy in the foreign trade canvas relating to ‘dumping’ where products are dumped at lower than cost is not valid. If the commerce system is to progress, the market should be the best judge and price intervention from above is certainly not desirable. More important, the products dealt with are in the comforts/luxury segment where competition means bringing down prices which helps to push up sales, production and, at the limit, GDP growth. Where is the problem then?
No comments:
Post a Comment