Why Piyush Goyal's criticism of e-commerce giants is not fully valid

There is a significant concern that e-commerce growth threatens the livelihoods of around 100 million small retailers in India. In fact, Goyal pointed out that the rapid expansion of e-commerce could lead to social disruption.

While the government's concerns about pricing strategies and their effects on small traders are valid, the current approach risks overlooking these platforms' substantial benefits to India's economy.

Nuanced approach

E-commerce giants have played a crucial role in digital empowerment and job creation. A more balanced perspective that recognises the challenges and opportunities presented by these platforms could lead to more effective policy-making.

Goyal's vocal criticism of Amazon and other e-commerce companies, particularly regarding their pricing strategies, may inadvertently downplay these firms' positive impact on India's digital landscape.

A more nuanced approach that addresses concerns while also fostering innovation could better serve the diverse needs of India's evolving economy.

Crucial role

Goyal’s perspective needs to recognise the broader context in which these companies operate. E-commerce platforms like Amazon and Flipkart have played a crucial role in digitising small and medium enterprises, providing them with access to a much larger market than they could ever reach through traditional retail channels.

The argument that these platforms drive small businesses out of existence is overly simplistic. It ignores that many of these businesses have seen unprecedented growth by leveraging the reach and resources of these digital marketplaces.

While it is true that Amazon reported losses of ₹6,000 crore in a single year, what is being overlooked is the complex nature of their business models.

These platforms invest heavily in infrastructure, technology, and logistics to create a robust digital marketplace. These investments are not just for short-term gains; they build the backbone of India’s digital economy, benefiting millions of consumers and small businesses in the long run.

Growth of small traders

Moreover, the data does not support the notion that e-commerce giants are inherently detrimental to small traders. Many small traders have scaled their businesses and reached new customers by selling on these platforms.

For instance, according to various reports, small traders on Amazon have reported average monthly sales ranging from ₹8,200 to over ₹82,000, depending on the product category and business strategy.

These figures illustrate that small businesses are not just surviving but thriving, thanks to the opportunities provided by these digital giants.

Regulatory overkill

The Centre's regulatory approach, which includes restrictions on flash sales, bans on affiliated entities selling on platforms, and the requirement for e-commerce companies to appoint compliance officers, has been inconsistent and often counterproductive.

While these measures are ostensibly designed to protect small traders, they fail to address market dynamics and consumer behaviour issues.

The Open Network for Digital Commerce (ONDC) initiative, proposed by the government to create a more equitable e-commerce environment, is a step in the right direction.

However, its success is not guaranteed, especially given the lack of substantial support measures for small traders to adapt to the rapidly changing digital landscape. With concrete incentives and support, such initiatives may serve as symbolic gestures rather than practical solutions.

Dynamic sector

One of the most glaring oversights in the government’s stance is the failure to recognise the role of e-commerce in job creation and economic growth. Platforms like Amazon and Flipkart are not just marketplaces; they are ecosystems that support millions of jobs across the country, from logistics to customer service to digital marketing.

Since its inception in India, Flipkart has created around 100,000 jobs, while Amazon has created approximately 700,000 jobs and plans to add another 1 million by 2025. Targeting these companies, the government risks stifling one of the economy's most dynamic sectors.

The government should be well aware that the e-commerce industry is galloping, leaving several other industries behind by a few billion dollars.

Leaps and bounds

The Indian e-commerce market is estimated at $112.93 billion in 2024. It is expected to reach $299.01 billion by 2029, growing at a CAGR of 21.5 per cent from 2024 to 2029, fuelled by 500 million shoppers and robust, low-cost internet and smartphone adoption, and increasing online shopping adoption across the country, especially in smaller cities and rural areas.

It reached a GMV (gross merchandise value) of $60 billion in fiscal year 2023, a 22 per cent increase from the previous year.

Instead of working along with e-commerce giants to iron out the deficiencies in the system, the government is trying to muzzle their growth, which could wipe out the industry’s gains for the economy.

It would be prudent to examine the efficacy of its employment generation programmes and compare them to the substantial job opportunities created by the industry. This comparison could reveal that the private sector, mainly e-commerce, has potentially outpaced government initiatives regarding employment generation.

Path forward

The government could even look at including these e-commerce companies in rolling out its employment-linked incentive schemes, which it announced during the Union Budget.

The path forward should include enforcing existing regulations more vigorously to prevent genuinely harmful practices and support measures to help small traders adapt and thrive in the digital age.

By taking a more nuanced approach, the government can ensure that India’s e-commerce sector continues to drive economic growth and digital empowerment rather than becoming a battleground of outdated regulatory battles.