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Source: Live Mint
Relevance: This article highlights the importance of big e-commerce companies for Indian economy.
Synopsis: Proponents of ‘capital dumping’ conveniently ignore the role that e-commerce plays in economic growth.
Background
- Currently, foreign e-commerce marketplaces are allegedly indulging in ‘capital dumping’. Such allegations are leveled by some interest groups.
- However, the allegation will be detrimental to the interest of India. Because India needs more foreign capital to create jobs, strengthen infrastructure and empower Indian SMEs with tech innovation to accelerate economic growth.
Significance of Foreign Capital and e-commerce for India
- One, to achieve rapid economic growth
- India has set an ambitious target to grow GDP at 9% per annum and for this capital investment is needed to drive economic growth.
- The incremental capital-output ratio (ICOR) for an economy refers to the units of capital needed to drive one unit of growth.
- India’s ICOR is about 4.5, which translates to a capital investment requirement of 40% of GDP. Further, India’s domestic savings rate hovers at around 28% of GDP (World Bank).
- Domestic sources thus cannot fully supply the capital we need for growth. A large part of this deficit of 12% of GDP must be funded by foreign capital inflows.
- Two, to create jobs.
- In India, about 8-12 million youth enter the workforce every year.
- A NASSCOM study projects that e-commerce (including partnerships) will create 12 million new jobs between 2020 and 2030.
- Whereas even for small businesses to flourish, we need capital and technology to build physical warehousing and transport infrastructure, as also a robust digital payments set-up.
- Three, Further, contrary to the common man’s mindset that e-commerce will impact Kirana shops, e-commerce will complement the growth of Kirana shops.
- Nasscom-Technopak study shows that while e-commerce will grow from $34 billion to $208 billion, general trade will grow from $699 billion to $1,088 billion from 2020 to 2030.
- Moreover, with the size and diversity of India, e-commerce and kirana stores serve complementary needs and are hardly in conflict.
- Four, besides creating jobs, e-commerce companies help small businesses. It widens their customer base at low cost, boost tax collections, foster a technology economy, drive exports and fuel consumption.
- Notably, e-commerce promotes digitization that helps Kirana shops modernize and stay resilient.
Additional restrictions on foreign capital in e-commerce could retard the modernization of the Kirana shops and slow down offline-online partnerships, which are likely to account for the bulk of employment creation in the coming decade. Hence, Regulators must beware of the notion of ‘capital dumping’.
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