Friday, August 15, 2014

Indian e-commerce

On my recent trip to India, one of the big stories in the newspaper was the rise of consumer good e-commerce.  Flipkart, an Indian company founded by the ex-Amazon Bansal brothers, recently announce that it had raised over one billion dollars of funding for expansion projects.  A day later, Amazon announced that it would be investing two billion dollars in its Indian subsidiaries.  Of course, this is unsurprising.  India is modernizing quickly, and IT is one of the lead drivers of economic growth.  I was in Palo Alto, the northern end of Silicon Valley, a few years back, and waiting for my flight in the Kolkata domestic terminal a few weeks ago, I was struck by the number of IT nerd look-alikes sporting the flat combed hair, short-sleeve shirt, pants and laptop look. I was in stark contrast to the traditional party clothes of Eid, which was two days before.  So the rush into this business is no great surprise.  But what worries me is how the social consequences of this particular business expansion might be.

In Australia, e-commerce has finally cut into traditional retail no a broad scale, with retail growth flat, and employment and tax revenue falling.  This has contributed to social dissatisfaction and hand wringing, but even with the recent cuts to Australia’s economic safety net, the effect on the overall way of lie has been modest. This is because Australia is a wealth y country, and has a relatively intact safety net.  So even with these employment disruptions, everyone has food to eat, safe drinking water, health cover, etc.

However, this is not the case in India, where native startup Flipkart and internet giant Amazon have recently announced more than 3 billion dollars of investment, with the intent of growing their sales by billions of dollars per year.  India has a lot of retailers; with an estimated 40 million of them, they outnumber Australia’s entire population by almost a factor of two.  And unlike the corporate-dominated retail scene in Australia, 95% of the Indian retail sector is owner-operator family style shops.  In general, these are businesses with limited training and financial means.  There isn’t much of a social safety net, as a number of these folks are barely getting enough to eat as is. 

So what will happen when Indian internet shopping comes of age, and customers no longer have to brave the dangerous dirty, difficult streets of their megapolii to buy consumer goods?  In rich countries, people displaced by technological change have retrained using the educational system, fallen back on the social safety net, or managed to simply get by with less.  But never has such a vulnerable segment of the population been targeted by such an efficient set of competitors.

I hope development allows India to grow its way out of this potential pitfall.  But I am not optimistic.  The same paper announcing the new Amazon investment also reported that Indian Overseas Bank was suffering from an unexpected loss in microcredit loan repayments. It would be unfortunate if the geeky rivalry between Bezos and the Bansal brothers resulted in the first iFamine.

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