As e-commerce gains momentum from the fortuitous tailwind generated by pandemic lockdowns, an old argument has resurfaced — Capital Dumping.
Capital Dumping refers to the practice of exporting goods at a lower price than the price charged in the home market or the sale of goods below their cost of production.
But is the charge of Capital Dumping vis-a-vis e-commerce backed by sound logic, evidence and is made sans vested interests? No, not really. To decode this scenario, it’s necessary to understand the historical context.
Investments in e-commerce industry
First, to describe a company’s commitment to build the business in India as Capital Dumping is misleading and mischievous.
Allegations that global companies are dumping capital into the Indian e-commerce market also arises from an inaccurate perception that the e-commerce industry is not capital-intensive.
The capital needs of the Indian e-commerce industry are comparatively high, given the nascent stage of the sector and the supporting ecosystem. Therefore, the Indian e-commerce industry has sizeable financial demands that require deep investments.
As opposed to being ‘dumped’, the capital invested in e-commerce is deployed towards building logistics and warehousing capacities that are not mature in India, ahead of scale, to cater to the fast growing transaction volumes; invest in technology to maintain a reliable and sturdy platform to handle very large transaction volumes; to train the million plus sellers/product manufacturers to adapt to the global benchmarks of customer service that the e-commerce customer demands.
To simplify the e-commerce marketplaces to a simple technical platform for listing products, one needs to understand the requirements of the sector to be able to provide services with speed and reliability.
Secondly, the claim of big MNC giants colonising the Indian market couldn’t be further from the truth. All prominent players in the sector are truly global, hence the origin of the company should not matter while shaping the policy ecosystem. And higher the level of competition, the better it is. Moreover, the investment as explained above, is in India, not repatriated abroad.
Third is the fear of e-commerce forcing offline retailers into oblivion. Remember the Luddites? These were groups of workers in England who destroyed machinery in the early 1800s, particularly in woollen and cotton mills. Why? Since they believed that these would threaten their jobs.
Foreign players
Today, workers worldwide are aware of how machines have made their lives smoother, safer and simpler by performing dangerous, monotonous and repetitive tasks. Consequently, while workers lost manual and menial jobs, they greatly benefitted from well-paying roles by upskilling themselves and managing machines offering more productive outcome.
Empirical evidence indicates that outright opposition has always been the trend (or trick?) whenever new technology appears. Recall the computerisation of banks in the 1980s when bank employees held nationwide strikes. Ironically, thanks to computerisation, bank workers operate from air-conditioned cabins rather than hot, musty rooms of the pre-computerisation era.
The same scenario played out when private players entered telecom sector despite the reservations of public sector entities. Imagine how the country would have languished had private competition not been allowed in telecom. Indeed, the telecom revolution transformed the nation from an underdeveloped country to a fast-emerging economy. Other examples exist too.
Now, the same specious arguments are being used by a section of organised retailers – hiding behind the façade of unorganised kirana shops and small stores – to stall proficient competition from global or FDI-funded retailers. Never mind that they are also using foreign funds in other domains!
Amidst all this brouhaha, what’s conveniently forgotten are the customers – who remain extremely happy about buying premium and value-for-money products at affordable prices and with convenience. Moreover, foreign players also contribute in raising overall quality standards through customer reviews, refund and return policies.
Barely 3 per cent of trade is online, as on date. However, these numbers are bound to register a robust rise when the next round of retail data are released. As we know, e-commerce in India is currently thriving – and growing. This is only possible because of sustained customer demand and healthy competition. In such a scenario, when 97 per cent of retail consumer demand is met via unorganised and/or large format traditional retail players, can Capital Dumping actually be an existential threat to such a vast segment of the industry? The answer is a no-brainer.
Artificial distinctions
Let’s not forget that barely a decade ago when organised global retailers entered the country, a hue and cry was raised that kirana shops would be wiped out. However, in 2020, kirana shops entered the supply chains of organised online retailers, boosting their business. Interestingly, the small stores that embraced computers earlier faced minimal disruptions when GST was introduced.
If at all the kirana shops fear any threat, it’s from the large-format traditional retailers who compete directly in their neighbourhoods by offering hefty discounts and ‘Buy 1, Get 1’ schemes. While a large-format retail player has emerged as an online entity too, it’s trying to disrupt quality competition by pointing fingers at e-commerce entities and muddying the retail waters with FUD (fear, uncertainty and doubt).
Moreover, artificial distinctions are being created between domestic players and so-called foreign-funded entities. Let’s not forget that many domestic players in retail and other sectors are receiving FDI and private equity from overseas investors. These are then used to scale up operations, generating a greater percentage of employment and entrepreneurial opportunities.
Additionally, once foreign firms begin operating from India, they don a desi avatar and act as per the local laws. Before long, people perceive such companies as indigenous entities. Take Bata. Most people think it is an Indian shoe brand, not realising its headquarters are in Switzerland. Undoubtedly, it’s only a matter of time before an overseas company merges its identity with the local ethos.
Yet, domestic companies seeking to create a monopoly raise the bogey of foreign origins and Capital Dumping. It’s time that people and policy-makers see through their ploy. Instead, the focus should be on what benefits customers and also across the whole value chain of e-commerce. If a consumer survey was conducted, how many people would oppose buying goods at affordable prices via hefty discounts? Again, that’s a no-brainer.
Incidentally, an offline retail major raking up the Capital Dumping issue itself offers fantabulous festive discounts at different times of the year. Perhaps it’s important to recall the precept of ‘practice what you preach’.
Considering all the above factors, it’s clear that Capital Dumping is a ruse to eliminate vibrant competition — even if this is detrimental to Indian consumers. Before the authorities initiate steps that aid these vested interests, it is essential to keep one core consumer fact at the centre of decision-making: will customers across India benefit from this decision?
In a nutshell, that answer will encapsulate the interests of the people pan-India – particularly during the pandemic.