'Smells of predatory pricing': Piyush Goyal red-flags e-commerce boom

Questions Amazon's India investment strategy, says it is to make up for losses

Giant e-commerce firms’ “predatory pricing” and the sector’s rapid growth are a matter of “concern”, and not pride, as it may lead to employment loss in traditional retail, Commerce and Industry Minister Piyush Goyal said here on Wednesday.

Goyal accepted e-commerce is crucial but emphasised there is a need to “think cautiously” about what role it can play in a “more organised” way, considering the sector’s benefits and drawbacks.
 

“Are we going to cause huge social disruption with this massive growth of e-commerce? I don't see it as a matter of pride that half our market could possibly become a part of the e-commerce network 10 years from now. It's a matter of concern,” Goyal said at the launch of a report called 'Net Impact of E-Commerce on Employment and Consumer Welfare in India'.
 

 

According to the minister, e-commerce is eating into the share of small retailers by offering high-margin products, such as consumer electronics and apparel, at discounted rates. As such “more than 10 million retail stores in cities, and a possible 100 million small retailers across the country” are likely to be impacted, he said.

 

“I’m not wishing away e-commerce. It's here to stay… but we have to think very carefully and cautiously about its role. Is predatory pricing good for the country,” the minister asked.
 

Goyal also criticised the investment strategies of large e-commerce companies such as Amazon, suggesting that their losses caused by significant payments to professionals and top lawyers are offset by new investments.
 

“When Amazon says we are going to invest a billion dollars in India, we all celebrate (but) we forget the underlying story that a billion dollars is not coming in for any great service or any great investment to support the Indian economy. They made a billion dollars loss in their balance sheet that year. They have to fill in that loss,” he said.
 

“And how did that loss get caused? They paid Rs 1,000 crore to professionals. Unless you're paying all the top lawyers to block them so that nobody can fight a case against them…If you make Rs 6,000 crore loss in one year, does that not smell of predatory pricing to any of you? What did that loss come on? They are up to all the e-commerce platforms. They are not allowed to do B2C,” said Goyal, referring to business to commerce.
 

The report by Pahle India Foundation highlighted the significant contribution of e-commerce to employment, with e-commerce vendors found to have generated 16 million jobs. According to the study, 60 per cent of vendors in smaller cities reported increased sales and profits since they began selling online, with more than two-thirds of these experiencing an increase in online sales value and profits in the past year alone. This number was even higher in Tier-III markets, with 71 per cent of vendors reporting additional sales in their businesses.

Goyal said he wanted to dissociate from the report and did not agree with some of its findings.

Further, the minister drew comparisons with the Western countries and said that the decline of traditional “mom and pop” stores in countries like the US and Europe is due to the rise of e-commerce. He pointed out that even countries such as Switzerland have a cautious approach to e-commerce.

The commerce minister also claimed that large retailers have an advantage when it comes to facing competition from e-commerce. “How many mobile stores do you see now in the (street) corner? And how many were there 10 years ago? Where are those mobile stores? Will only Apple or the large retailers sell mobile phones and their accessories,” he questioned.

(With inputs from Shikha Chaturvedi)