New draft policy on e-commerce market could slow down job creation

As the government looks at introducing a policy to bring price parity between online and offline retail in India, an unwanted by-product of these regulations could be a slowdown in the job creation machine that e-commerce marketplaces have become.

Government sources told Business Standard on Thursday the new draft e-commerce policy, which is expected in a few weeks, would put an end to practices such as deep discounting and predatory pricing. This is something both e-commerce leaders Flipkart and Amazon have relied on heavily to attract new customers onto their platforms.

Experts say any slowdown in growth of e-commerce companies could result in an adjustment to the number of blue-collar workers they engage. Flipkart and Amazon, for instance, employ tens of thousands of delivery workers each, apart from using third-party agencies for logistics, cataloguing and other functions.

“There are a lot of third parties, which could be impacted because of the regulation. If that happens, there would be some amount of readjustment that will be seen in the workforce,” says Devangshu Dutta, chief executive officer at Third Eyesight. While Dutta says the full impact of the policy changes for the sector cannot be predicted just yet, the government seems to be serious about regulating e-commerce players after coming under fire from the offline retailers.  Earlier this week, the government amended the FDI rules for e-commerce, introducing more detailed descriptions of what online marketplaces couldn't do.

The new rules state that online marketplace cannot sell products from a vendor in which they have a stake, and that they cannot mandate any seller to sell their products exclusively on their platform. Both Flipkart and Amazon have in-house sellers such as WS Retail and Cloudtail, respectively, which are expected to be caught in the crossfire.

Amazon India, which has over 400,000 small and medium businesses listed on its marketplace, said it would remain committed to a long-term investment in its vision of how India buys and sells while generating significant direct and indirect employment. “We have always operated in compliance with the laws of the land and are evaluating the new guidelines to engage as necessary with the Government to gain clarity so that we remain true to our commitment,” it said in a statement.

Pinakiranjan Mishra, partner and national leader at Retail and Consumer Products at EY, said he did not see how the policy could directly affect contractual jobs at e-commerce firms, unless they caused a slowdown in the growth of these businesses. “As a consumer, you buy a product because you like the product and the price. Demand is not related to government policy. The only way it could go down is if the discounting changes and the price becomes higher,” said Mishra.

Kris Lakshmikanth, founder and managing director of Head Hunters India, said the moment the revenues of e-commerce companies come down, the number of people required in managing logistics and supply chain will spiral down. However, it's too early to call if that could happen now.

While e-tailers have driven up demand by offering discounts, insiders say while this certainly attracts customers on to their platforms, their stickiness is driven by convenience. If this hypothesis is true, then they say the changes in policy wouldn't really affect growth, or job creation that the sector is driving so massively for at least the next few years.

Both Flipkart and Amazon claim they are growing sales in the higher-double digits, and don't expect to see growth slowing anytime soon. 

While Amazon has almost exhausted its $5-billion investment commitment in India, Flipkart with the backing of the world's largest retailer Walmart says it's just getting started here.