India must be wary of monopolistic e-retailers

Source: Indian Express

Relevance: Impact of monopolistic companies and ways to combat such monopolies

Synopsis: The technological superiority and huge capital have enabled the e-retailers to capture a significant share of the Indian retail market. They may convert themselves into monopolistic entities in the near future which may pose numerous problems for the nation. 

Background: 

• The big e-retail firms like Jio Mart, Amazon, Tata Group etc. enjoy a large share of the Indian retail market. 
• Experts believe that the market would value at $2 trillion dollar by 2030 and would be dominated by few big e-retail companies.  

How would they dominate the market? 

• Big e-retail companies, by being procurers of goods in large volumes, dictate bottom of the pit prices and impose stifling terms on manufacturers.  
• Along with investment in Artificial Intelligence and process systems, their delivery prices to consumers will eventually be less than the procurement price of kirana stores.  
• E-retail companies would become super distributors to kirana stores and will use them as pick-up points for ordered merchandise. Simultaneously, kirana stores will be nudged and compelled to increase the minimum order size, driving up inventory costs and losses for such stores. 
• This would be a temporary arrangement and over the next 10-20 years, a majority of kirana stores will close.  

• • Along with them, interdependent businesses of supply chain intermediaries and hundreds of thousands of medium and small enterprises that supply to these stores will slowly cease to exist.  

• Inevitably, as stores dwindle in numbers, consumers will find single suppliers and face a monopoly. 
• They may also take support of the political class to promote their products. For instance, Paytm flourished as a home grown (swadeshi) brand with active support from politicians during the demonetization. While in reality it has investors from various countries including Alibaba from China.  

• • Furthermore, now politicians have stopped opposing FDI in retail, a deviation from their earlier stance. 

Problems associated with monopolistic e-retailers: 

• First, there would be lost of employment. Many among the 20 million small establishments (the kirana stores) would be closed. Further, the 40 million families spread across every street of the country dependent on the informal and formal retail chain would also lose their jobs. 
• Second, it would deplete the independent entrepreneurial streak that is essential for a nation’s progress. Monopolies reduce competition, strangle innovation and disincentivize smaller businesses that actually create jobs and economic dynamism. 
• Third, it would impact public sector banks and make them lose the lucrative retail segment. 

• • This would happen as E-retail firms have the ability to source and provide cheaper credit to consumers.  
  • They will dictate the terms to credit card companies and e-payment platforms to retain part of the fees collected when customers make a purchase. 

• Fourth, it would reduce the independence of media outlets by taking a larger share of advertising revenue. 

• • Due to their huge presence, brands will be obliged to spend heavily on advertisements to gain visibility for their products.  
  • When Google was founded in 1998, print media collected over 50 per cent of the advertisement revenue. Today, it’s down to about 10 per cent. 

• Fifth, the massive control over data would enable them to become arbitrators of opinion and decide the fate of elections. This would undermine free and fair elections in our democracy  

Way Ahead: 

• Europe is considering legislation to address the monopolistic behavior of big tech companies and to make data anonymous. India can learn from this for improving regulation, enforcement and anti-trust legislation in the country. 
• Further, focus should be placed on augmenting people’s activism that can hold off the oligarchs from having a stranglehold over the nation