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The Wrong Approach

Union Minister for Commerce and Industry Piyush Goyal has been forced to clarify certain remarks he made at the end of last week at the Raisina Dialogue in New Delhi. Mr Goyal had said there, in the context of Amazon Chief Executive Officer Jeff Bezos’ visit to India, that the online retailer was not doing India any favour by investing a further $1 billion. Mr Goyal’s point was that, if Amazon was making a billion-dollar loss every year, a cash infusion of a further billion dollars was no particular privilege for India. The minister subsequently clarified his point, saying that anyone was welcome to invest in India as long as they followed all domestic rules and regulations.

The minister is of course entitled to his own views on Amazon but nevertheless what they reveal on the subject of the investment climate and indeed the government’s view of business in general are disquieting. The fact is that at the moment not many foreign companies are willing to take a bet on India, so if Amazon has decided to stay invested through another major cash infusion, that is not something to be contemptuous of. Worse, perhaps, is the notion expressed that making losses is somehow something for the government to be wary of and that it implies possible rule-breaking or predatory pricing. Many sectors — such as the state-controlled banking sector — are prone to making losses, but does this mean predation or rule-breaking? This fallacious notion has been repeated in various ways by the ruling establishment lately, and Mr Goyal’s own statement came on the back of news that the Competition Commission of India (CCI) was going to investigate some selling practices of online marketplaces including Amazon and Walmart-controlled Flipkart. The CCI says that deep discounts on the platforms might be anti-competitive.

Such claims betray a lack of understanding of predatory pricing in economics. As the Federal Trade Commission, in the United States, points out, “consumers are harmed only if below-cost pricing allows a dominant competitor to knock its rivals out of the market and then raise prices to above-market levels for a substantial time … Pricing below your own costs is also not a violation of the law unless it is part of a strategy to eliminate competitors, and when that strategy has a dangerous probability of creating a monopoly for the discounting firm so that it can raise prices far into the future and recoup its losses”. But India is very far indeed from any such situation. Not only is there competition in the e-commerce space, but as a percentage of total retail, e-commerce remains very low in India. According to the World Bank, online commerce itself is only 1.6 per cent of retail sales in India — well below, say, the 15 per cent in China. In other words, deep discounts as a method of growing the market cannot be claimed at this point to be anti-consumer. Indeed, the infusion of cash into the Indian market is a net bonus for the country, given that it creates logistics infrastructure and jobs, as well as opening up new avenues for consumer welfare. The government should rethink how it approaches e-commerce — the hostile environment it is creating for e-commerce platforms hurts its foreign relations and the domestic economy. Business Standard

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