Over the last few days, over multiple conversations, I’ve heard rumors about significant layoffs in e-commerce in India, and e-commerce companies being shopped around. Funding has dried up, and because businesses are not yet profitable, there is “consolidation” in e-commerce in India, with investors pushing for businesses to combine operations, with the idea of cutting costs and combining user base, and mostly with the objective of weathering the storm that hit Indian e-commerce after the Indian government announced that it was allowing foreign direct investment in multi-brand retail, but not allowing any investment in e-commerce.

This has forced businesses to change business models in India – from direct-to-consumer retail to a marketplace model (since marketplaces are allowed under the current FDI norms). Many e-commerce businesses have shut shop. I’m hearing of large e-commerce companies that have two to six months of capital left, and while it might be good that speculative e-commerce ventures that were created just to be sold might not make it, there is a worry that even large ventures which are highly leveraged will have to take certain decisions for lack of capital.

As K. Vaitheeswaran, Founder of IndiaPlaza, and someone who has spent around 12 years (maybe more) building an e-commerce business, told MediaNama a couple of days ago, even marketplaces are collateral damage, because investors are spooked:

Even though we have a model which is above board, we are struggling to convince investors because many investors are saying that they want to see how the investigations play out before they start writing cheques. Most companies are not getting follow on capital for growth, and there is collateral damage. (read more)

In all of this, Minister of State of Commerce & Industry, Dr. S.  Jagathrakshakan has reiterated to the Indian Parliament:

Some representations to remove the ban on retail trading through e-commerce have been received. 

As per the extant Foreign Direct Investment (FDI) policy, FDI, up to 100%, is permitted under the automatic route, in business-to-business e-commerce. Retail trading, in any form, by means of e-commerce, is not permissible for companies with FDI. No proposal for amendment of this policy, is under consideration.

What really gets my goat is the statement above in bold – that no proposal for amendment of this policy is under consideration. Why is that? Why is the government so opaque about the decisions it makes, and why it makes them. Why is there no explanation from the government about why, explicitly, e-commerce is not permitted. Is it because of politics? Is it because of the need to safeguard certain business interests? Is it because e-commerce players often sell at a discount to physical retail? Or does someone not like the idea of multi-colored socks being sold on the web?

Yes, it appears that the industry used loopholes in the FDI law to build e-commerce businesses, but what it has done is identified that there is consumer demand for both digital goods, and goods and services online. E-commerce has made great products available in areas that where they wouldn’t otherwise be available because of distribution or retail issues/costs. There’s a wider variety available online even to those buying in big cities, because physical retail has limited shelf space. E-commerce is a superior form of retail – it brings consumers greater choice.

Yes, there are many non-serious players in the space, and there are times when goods don’t get delivered, the banks payment gateways suck so orders don’t get processed, but you can’t kill an industry just because of that. Frankly, even if they did flout FDI norms, what are the norms there for? To protect some vested interests or to help create better, more efficient models that serve consumer interest? I’d be the first one to say that if they broke the law, take them down, but really – what is the rationale behind this law?

If Indian capital was unwilling to help build this industry, but foreign venture capital was, what’s wrong with allowing an open and competitive market, among investment firms, and e-commerce players? The consumer benefits!

What the government – and I’m not sure if it’s just the government, but given how the opposition was opposing FDI in multi-brand retail as a whole, it’s our entire polity – has ended up doing is send a message out to entrepreneurs that the Indian market isn’t one for you because regulations can screw you over (like the RBI did in mobile payments space a few years ago), and you’re better off relocating to San Francisco (some have, and some I know are considering it). And don’t even get me started on how they’ve screwed up telecom.

Over the next new months, we expect more bad news from e-commerce in India. You know whom to blame, but there’s not much anyone can do about that, it seems. Representations after representation, as we’ve seen with the draconian IT Rules and Section 66A which impact freedom of speech online, are falling on deaf ears on stubborn heads.

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