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100% FDI in e-commerce exposes BJP's double standard

By Kavita Chowdhury
April 04, 2016 15:12 IST
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'We are opposed to FDI because then the situation shifts to deep finances, deep pockets and multinationals and that can never be a level playing field.'
'Make in India is much spoken about but how will MSMEs survive in the face of competition from those with deep finances and deep pockets?'

IMAGE: FDI announcement paves the way for companies such as Alibaba - the world’s largest e-commerce company with 1.2 million sellers on board - to make a smooth entry into India. Photograph: Aly Song/Reuters.

"Not a single step has been taken by this government to empower small businesses in India," says Praveen Khandelwal, bottom, left, national secretary general of the Confederation of All India Traders (Cait) and former treasurer of the Bharatiya Janata Party’s (BJP) Delhi unit.

Talking to Kavita Chowdhury about the impact of the government’s policy announcement of allowing 100 per cent foreign direct investment (FDI) in e-commerce and why the BJP cannot take its traditional trader support base for granted, Khandelwal wonders why the Modi government is more worried about global retailers, than India traders.

What is so radical about the government’s announcement of 100 per cent FDI in e-commerce? Doesn’t it just offer clarity on the policy that has been in place for 10 years now?

The announcement paves the way for companies such as Alibaba - the world’s largest e-commerce company with 1.2 million sellers on board - to make a smooth entry into India. Indian trade, especially in electronic goods and hardware and mobile phones, has been facing the heat from Chinese companies. This policy facilitates their entry and control over Indian trade.

Alibaba will surely be a major threat to bricks-and-mortar companies and the micro, small and medium enterprises (MSME) sector. Make in India is much spoken about but how will MSMEs survive in the face of competition from those with deep finances and deep pockets?

Till now an Alibaba had not entered the Indian market because there was no predictability; this policy clearance gives that to foreign investors.

Cait’s statement after the FDI announcement says the BJP has done a U-turn on something it was opposed to during the regime of the United Progressive Alliance (UPA). You’ve called it the “death knell for traders”. Are you hitting out against the Modi government?

Of course, there has been a U-turn. Even during the UPA regime, FDI was not allowed in e- commerce. In the Department of Industrial Policy and Promotion notification of September 20, 2012, FDI was not permitted in e-commerce.

At that time, we along with the BJP had vehemently opposed the decision to allow 51 per cent FDI in the retail sector; the BJP didn’t let Parliament function for eight days.

But in the past fortnight, the BJP-led government at the Centre has made three announcements that are against the interests of traders: allowing FDI in food processing, levying excise on jewellery and garments and now this (100 per cent FDI in e-commerce). Even China protects its domestic players; that is why an Alibaba could go on to become the largest global e-commerce company.

Sectoral experts and the government say that safeguards have been built into the policy....

These safeguards are full of loopholes. The 25 per cent restriction on vendors does not prevent an e-commerce platform from creating offshoots.

Take Flipkart, for instance: its offshoot W S Retail’s share is 70 to 80 per cent; other sellers account for a very small percentage. These safeguards can easily be subverted.

As for the restrictions on offering discounts to consumers and disrupting the level playing field, if you read the fine print you will see the bar is on e-commerce entities only; what prevents sellers from offering discounts on goods? I would be convinced about the safeguards, if it was explicitly stated that these were both for sellers and e-commerce platforms.

In the run-up to the 2014 general elections, at a traders’ meet in Siri Fort auditorium where you were present, Narendra Modi asked traders to brace for an e-commerce onslaught. Wasn’t it well known that his government would be pushing for e-commerce?

It was on February 27, 2014. Modiji spoke about competition from the e-commerce sector. At the same time he said his government, if it came to power, would work towards enhancing the capacities and upgrading the capabilities of the traders’ community.

Except for MUDRA (Micro Units Development and Refinance Agency Bank), which is a landmark initiative, not a single step has been taken by this government to empower small businesses in India. We are not against e-commerce. In fact, we are encouraging our members to open shop on e-commerce platforms.

We are also in favour of a cashless economy where debit and credit card use is encouraged. Cait is carrying out a national campaign on this issue. What we are opposed to is FDI because then the situation shifts to deep finances, deep pockets and multinationals and that can never be a level playing field.

When FDI comes in, it would be through the private equity or venture capital route. There, the interest rate at best would be three per cent and here we are paying 12 per cent interest to banks. So there is no level playing field.

FDI in multi-brand retail is still barred to protect the interests of small traders. What is the issue then?

In the retail sector, at least there are geographical boundaries; but here (in the e-commerce sector) it’s much more dangerous - there are no boundaries.

This new policy provides a back-door entry of sorts to global retailers, which will allow them to sidestep the restriction on multi-brand retail.

Also, it will distort the taxation system, as e-retailers would be registered with the taxation department in one state but would be entitled to trade across the country without seeking registration with the tax authorities of other states. They will also be free to deliver goods in another state by paying the local tax of that state.

On the other hand, we traders and MSMEs need to obtain separate registration in each state if we want to conduct business activities in more than one state.

Why is the government more worried about global retailers than us? We contribute 45 per cent to the national gross domestic product. Retail trade in India generates a turnover of Rs 39 lakh crore; it provides employment to about 460 million people. Even the 36 million MSMEs have 80 million people employed in them. Don’t we count?

Sectoral experts have criticised the recent government norms for keeping out inventory based e-commerce platforms....

Globally, the “marketplace” model is more prevalent. So keeping out inventory-based e-commerce platforms will not make much difference. Indian traders will continue to face the heat from global retailers.

Will there be a political fallout of this decision?

The traders’ community is up in arms against this decision. It already feels cheated. We are about to hold our National Traders’ Convention from April 4 to 6 in Delhi. Ten thousand representatives from traders’ associations will take part in it. We will deliberate on this issue. We are also consulting legal experts.

Traders have always been a traditional support group for the BJP. Will their loyalty still be with the party in the wake of these “anti- trader” policies?

Such decisions have made traders aloof to the BJP. There is no mechanism in the government to have a dialogue with traders. It is sad they are not even consulted before such decisions are taken. Of course, it’s bound to impact them; you can’t take traders for granted always.

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