File image of Amazon chief Jeff Bezos
File image of Amazon chief Jeff Bezos | Matthew Staver | Bloomberg
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In most places, government ministers would be happy to hear that someone intends to invest a billion dollars in their country. Not in today’s India. Late last week, Inc.’s Jeff Bezos announced that he would be pumping another billion into the online retailer’s India arm; in response, India’s commerce minister, Piyush Goyal, said that “it is not as if they are doing a favor to India when they invest a billion dollars.”

On one trivial level, Goyal is right. Any business only invests to do itself favors, or it isn’t a business at all but a charity. If Amazon is betting on India, it presumably hopes to eventually make money here. But Goyal didn’t stop there. He pointed out that Amazon was making a loss in India, and added that “it certainly raises questions, where the loss comes from,” and asked if Amazon was indulging in “predatory pricing or some unfair trade practices.”

Given that India’s Competition Commission has just announced an inquiry into both Amazon and Walmart-owned Flipkart Online Services Pvt., the minister’s statements suggest the government has already made up its mind that Amazon’s investments in India are dangerous and distortionary.

This conclusion is somewhat odd, given that the billion dollars Bezos promised were to help smaller retailers get online — something very relevant to its business model in India, where the government prevents it from operating as a retailer and forces it to remain merely a “marketplace” for other sellers. It is even odder, given that e-retail in India is only 1.6% of the total retail market, way below the 15% in comparable markets like China.

You can worry about “predatory” pricing if the company in question is dominant; that is hardly the case here. If anything, getting more of India’s smaller retailers online would help them to deal with the after-effects of India’s botched transition to a new indirect tax regime. The new goods and services tax has hit unmodernized small-sellers particularly hard.

The fact is that India’s government has not just made life unnecessarily difficult for foreign-owned e-commerce players, but it also changed the rules of the game after Amazon, among others, had made big investments in India. It wouldn’t have been surprising if Bezos had cut and run instead of putting in another billion. And that would have been a tragedy: India’s having so much trouble creating jobs for its hundreds of millions of young people that it shouldn’t be looking to throw out a company explicitly promising to create another million jobs by 2025, in addition to the 700,000 it already claims to have created.

So why is the government so determined to make life uncomfortable for foreign investors? In this particular case, one reason might be the nearness of crucial elections in India’s capital city of Delhi — where Goyal’s Bharatiya Janata Party wants to unseat a local challenger. Delhi’s electorate includes a large number of the sort of small retailers that the BJP imagines resent and fear online retail.

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Also read: India needs a lot more policy stability to attract investors: Arvind Panagariya

But a deeper reason is that India has turned inward. Twenty-five years of openness and trade raised hundreds of millions out of poverty and kept growth high; but that era seems to have ended. India now faces a prolonged slowdown, increasing food prices, and a job shortage. In earlier times, reformers within the government might have seized the opportunity to make the case for competitiveness-enhancing reform and more private investment. But today, in government, there are no reformers.

The Indian political and bureaucratic elite was never really sold on markets in the first place; but reform-minded prime ministers prevented them from indulging their worst statist instincts. Many hoped that Narendra Modi, India’s current prime minister, would be another in this line of reform-friendly leaders.

The Indian government continues to say it intends to open more sectors to foreign investment, and to raise the share of FDI in the economy. But in practice Modi seems either unwilling or unable to stop his government from alienating investors, raising tariffs, and generally returning India to the autarkic 1970’s.

All the hallmarks of that dark period are visible today: not just open suspicion of “predatory” foreign investors, but paranoia about imports and public policy that replaces efficiency with tokenism.

Last week, for example, Indians were startled when news broke that Goyal was planning to reduce the amount of alcohol and cigarettes that international travelers may bring into the country free of duty. The amount of additional tax this will net is likely to be so small, and the cost to airport franchisees so disproportionately high, that it makes little sense — but, when a government is seized by the protectionist urge, good sense is rarely on display. Bezos may have invested too much in India already to give up just because the government has turned hostile. Yet others who might have followed him will now probably wonder whether the slog to gain a foothold in the Indian market is worth it.-Bloomberg

Also read: US investors concerned over India’s economic slowdown, social unrest and Modi’s disinterest


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2 Comments Share Your Views


  1. By turning inwards our economy is only going to DIVE DOWN and never wake up. Protectionism is not the answer today when FDI comes in, And no just comes in for free. We should device proper policies to protect the economy and not alter the course of the ship when it is sailing in full Steam. Many foreign investors are very hesitant to come to India, after the recent civil developments and policy changes . Hope Saudi does not cancel its 10bn investment . Hope Modi wakes up to the internal pulse of these development start to spread the disease further. Jai Hind.

  2. But then what did you expect? The pedigree of the new cabinet was a suspect, One can progress only so much in the midst of RSS .Hindutva, Cow cola and ancient plastic surgery dreams……….. Either you are awake and working hard or sleeping and dreaming nonsense. You will pay for this and the record will show 10 years from now.


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