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Navigating e-commerce: What Alibaba can teach Indian businesses

PUBLISHED:22:18 GMT, 3  October 2013| UPDATED:22:18 GMT, 3 October 2013

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Adam Smith once wrote that “to widen the  market and to narrow the competition is always the interest of the dealers,” and  that therefore any proposal for a regulation or policy that flows within this  order, must be “carefully examined”. Adam Smith lived in simpler times.

As the Prime Minister Manmohan Singh  concludes his trip to Washington DC, there is palpable pressure on the Indian  government to open up the e-commerce space to foreign players.

Large American e-commerce companies are  already knocking on the door and reports suggest that one of the senior-most  functionaries reporting to the Prime Minister has been given the task of  shepherding this process and is seeking response from the DIPP on the underlying  issues.

 
What Alibaba can teach Indian businesses

 

E-commerce

There are three popular narratives on the  opening up of the Indian e-commerce sector to FDI and all of them are somewhat  simplified, facetious and misleading. One perspective is that the opening up of  the sector will be an Indian payback, a veritable payout, for US support in the  civil nuclear mainstreaming of India.

Another is that delay in allowing FDI in  e-commerce is part of the policy clutter created by this government, an  unintended situation, to which the only suitable response is unencumbered  liberalisation.

And the third is that FDI in online space is  a matter of national priority, and sovereignty over the e-commerce space must  not be ceded to multi-nationals.

The narrative on paying back the Americans is  easily refuted. India must be sure enough to bargain for only what is in  consonance with its core self-interests. Surely, stable and resilient growth of  domestic manufacturing and industry is a core interest.

India is as at a crossroads. Policy decisions  taken now are likely to determine whether the country is able to harness the  transformative power of SME’s using the access and reach of e-commerce, or  whether a haphazard and hurried policy framework is going to hinder the organic  growth for the largest employer in the country.

The narrative on the policy clutter can be  cross-examined through the growth story of the Chinese e-commerce giant, the  Alibaba Group. Alibaba was established in China in 1999, initially funded  through a Venture Capital infusion of $5 million by Goldman Sachs.

Prior to China’s WTO ascension, FDI in the  sector was not allowed and even now, a local partner is a prerequisite to  entering the e-commerce space. However, this has not limited Alibaba’s growth,  which has been predicated on a larger state-run economic strategy centred on the  SME sector and domestic industrial competitiveness.

China has over 40 million SMEs, many of  which are sellers and buyers on the Alibaba platform. The company’s innovative  products have created shared value, supporting the SME ecosystem. Through its  finance arm, the company has deployed loans to over 10 million Chinese SMEs,  therefore facilitating core policy objectives of the Chinese state such as  financial inclusion and timely credit provision.

In all of this, of course, the consumer  benefits, with lower transaction costs both in terms of average time spent in  sourcing products and cost competitiveness. Sales through Alibaba’s online  marketplace are expected to surpass those of the total e-commerce market in the  United States by the end of the year. Last year, two of its portals handled  around $170 billion in sales.

Alibaba’s much publicised and imminent IPO is  now likely to be in New York. The company is likely to be valued at around $70  billion. This is significant value creation given its modest beginnings – and  indeed value creation must be the strategic objective of any enabling industrial  policy; a lesson for India.

In the outlined context, the third narrative  on sovereignty over the e-commerce space also appears to be a conflation of hazy  opinions. There is no doubt that as India integrates into the global economy  with its incumbent need for long term capital formation, opening up various  growth sectors to FDI is not an inevitable option.

Regulation

This does not change the fact that there are  a number of technical operational issues that require careful examination, not  just by the bureaucrats at DIPP, but also by the legal fraternity, the tax  collector, SME sector stakeholders and representatives from allied sectors  including telecommunications and banking.

Indeed, an inclusive consultative process is  an unfulfilled prerequisite. This must be steered by organisations such as the  Competition Commission of India, a body which is supposed to function on a  proactive mandate in order to obviate the need for a convoluted or retrospective  regulatory ring-fence.

Growth

India represents a nascent e-commerce  market, which is certain to grow exponentially as internet penetration rates  improve and consumption patterns evolve. Estimated revenues from online  retailing in India are expected to be at $15 billion by 2015 and $125-160  billion by 2025.

While many home-grown Alibabas can be  created, in the absence of a robust legal framework, particularly around  warranty, fraud and data protection issues, the consumer, is left vulnerable to  the metaphorical ’40 thieves’ as the industry expands.

The IT Act is certainly insufficient and  clarifications are required in the Competition Act, on among other things,  unfair trade practices or restrictive trade practices, before the FDI question  is resolved.

To sequence Indian priorities on the FDI  question is fairly simple. Consumer-centrism is paramount. Competitive SME  sector growth, which will lead to job creation as well as value addition, is a  strategic economic priority, which in turn can be aided by a strong e-commerce  industry as has been witnessed in China. While e-commerce must eventually  resemble a highway without speed limits, the lanes leading up to the highway  must be strengthened to allow for unfettered access.

The writer  is senior fellow, Observor Research Foundation

Kerry’s Indian visit and Afghanistan

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This column is about US Secretary of State John Kerry’s recent visit to India and the new peace initiative for Afghanistan. Kerry visited India to participate in the fourth round of the India-US strategic dialogue. The dialogue was held soon after the opening of US-Taliban peace talks in Doha. The Indians were not too happy at this development, as they found themselves sidelined. The US Secretary of State had to do some explaining to them and seek to dispel their apprehensions. There would be no compromises, he said, with the “red lines” meaning certain conditions, which the Taliban must adhere to, viz Taliban’s break with al-Qaeda, renouncing violence and accepting Afghanistan’s constitution. Kerry was not quite right as after an earlier exchange, it was agreed by the State Department that these would not be “preconditions” but “outcomes”.
During his stay in India, Kerry called upon New Delhi to play a vital role in the next Afghan elections and help “improve its electoral system and create a credible and independent framework for resolving disputes.”
Mention may he made of a video message to the Indians sent on the eve of the Secretary’s visit, in which he assured of US backing of Indian’s inclusion as a “permanent member of a reformed and expanded Security Council.” “The US,” he declared, “welcomes India as a rising power,” adding that, “a strong India is in American’s national interest.”
More from the message: “The friendship between our two nations is one of the defining partnerships of the 21stcentury. Today, the US and India collaborate closely in almost every field of human endeavour. Together, we are tackling shared challenges and making the most of new opportunities. From higher education to clean energy, from counter-terrorism to space science, we are seizing new opportunities to work together, and in doing so, we are increasing the prosperity and security of both of our peoples. The US and India share a strong and enduring commitment to Afghanistan’s peace and prosperity. And we also welcome India’s leadership in the Asia-Pacific region.”
Despite the various agreements and partnerships inclusive of nuclear status and supplies, space, health, clean energy, defence, counter-terrorism, etc, New Delhi has not been too keen to acknowledge the favours done to it by Washington.
Just read how an Indian columnist, Indrani Bagchi, assesses Kerry’s visit to India in Economic Times/Times of India: What did one make of John Kerry’s whirlwind run-through of the India-US strategic dialogue? ‘Well, we didn’t expect much, so we were not disappointed’ runs the dominant response in this city.
On paper, the bilateral relationship is almost universal in its reach. Innovation, space, health, clean energy, defence, counter-terrorism. The US too has moved from the extensive vision of the Bush years to becoming a transactional power under Obama.
Possibly, the only worthwhile conversation at this point is the dialogue on defence technology that NSA Shivshankar Menon is holding with Ash Carter. Menon has to steer the defence-strategic relationship from a buyer-seller one to one that is more equitable……In their haste to turn off the lights in Afghanistan, the US will find another way to talk to the Taliban to bring them on board in Kabul, with a “ruinous deal” with Pakistan. Look closer home. India should push an investment treaty with the US, using it to straighten out its internal investment strategies and launch the next round of economic reforms. Strategically, let’s look at the Indo-Pacific as the theatre for the next big deal. Notwithstanding China’s categorisation of the Xi-Obama meeting at a ‘New Type of Great Power Relationship’, India and the US have the greatest strategic alignments there. Let’s not get spooked by G-2 either – the bald truth is ‘rebalancing’ is a China-hedge strategy.
As for Afghanistan, the Indian view has been, thus, well-expressed by Samir Saran and Abhijit Mittra in Economic Times/Times of India: “While John Kerry lauded India’s role in his June 23 speech in New Delhi, events of the last 90 days tell a very different story; one in which the US disregards the concerns of both India and the Afghan government and continues to woo the Pakistani military establishment. The US actions have allowed the Taliban to formally open an office in Qatar for direct negotiations, which the Taliban see as the first step towards a new emirate.
“The victory of Nawaz Sharif in Pakistan, in collusion with fundamentalists, allows radicals in that country certain influence over the civilian government and the military’s shadow over foreign policy looms larger and stronger as the US consolidates General Kayani’s pivotal role, established by a hurried and reckless K-3 meeting (Kerry, Kayani, Karzai).
“India’s Afghanistan policy has historically always been long-term and more than capable of absorbing reverses in the short to medium term. It cannot be coy in providing soft and hard military support to its friends, and it must not be seen as an unreliable and indecisive partner. India has in the past succeeded in maintaining Afghanistan as a viable partner for over 60 of 67 years of bilateral history.
“After 1997, India continued to support the Northern Alliance in the hope of better times. That time came in 2001, when, following the US invasion, a government whose core elements had been supported by India, were installed in power. India in 2014 is not the economic cripple it was in 1991; a $290 billion reserve buys more loyalty and battle resilience than 15-day currency reserves.
“Over the last 12 years, India has worked exceptionally hard to win over significant pockets of support among the Pashtuns. Unlike the 1990s when India’s support base was the ethnic minorities, support for India is now deeper and wider. Afghanistan post-2014 must not by default become a neutralised backyard of Rawalpindi and its proxies.”
So, while framing an Afghanistan policy, Pakistan has to keep the following factors in view:
1. After the return of the combat forces in 2014, the US will continue to keep a certain number of well equipped troops in Afghanistan. And the Taliban will continue creating difficult conditions for them.
2. The post-American exit scenario looks murky and uncertain. Pakistan must devise well thought out policies in regard to different emerging situation.
3. The initiative to forge an understanding with the Northern Alliance must continue with a view to securing positive results.
4. India has invested billions of rupees in Afghanistan. Both Kabul and Washington want it to play a significant role in the post-2014 Afghanistan. Karzai has already sealed a strategic partnership with India and Afghan army personnel are being trained by Indian military experts. India’s interests just cannot be ignored. These, to some extent, may have to be accommodated with Islamabad safeguarding its own interests.
5. It is time that a settlement with the Pakistani Taliban is negotiated jointly by the civil government and the military.
6. A competent retired diplomat should be immediately appointed as a special envoy for Afghanistan. He may pilot Pakistan’s case and look after its interests in the US-Afghanistan-Taliban negotiations.
The writer is an ex-federal secretary and ambassador, and a political and international relations analyst

As the US exits, New Delhi must adopt a gutsy Afghanistan policy to safeguard its interests

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SAMIR SARAN & Abhijit Iyer Mittra Jun 27, 2013, 12.00AM IST

While John Kerry lauded India’s role in his June 23 speech in Delhi, events of the last 90 days tell a very different story; one in which the US disregards the concerns of both India and the Afghan government and continues to woo the Pakistani military establishment in search of its elusive salvation.

The US actions have allowed the Taliban to formally open an office in Qatar for direct negotiations, which the Taliban sees as the first step towards a new emirate. The victory of Nawaz Sharif in Pakistan, in collusion with fundamentalists, allows radicals in that country certain influence over the civilian government and the military’s shadow over foreign policy looms larger and stronger as the US consolidates General Parvez Kayani’s pivotal role, established by a hurried and reckless K-3 meeting (Kerry, Kayani, Karzai).

Consequently, India has nowhere to hide. Three eventualities have to be prepared for in Afghanistan, possibly unfolding concurrently. The first is a Karzai government under severe pressure from a heavily armed Taliban backed by the new mandate available to the civilian and military leadership in Pakistan. The second is a Taliban takeover of Kabul. The third is some form of dismemberment of the country again. Each of these eventualities leads to India having to shoulder a greater share of the blowback, than the western countries that seek to drive the current agenda.

India’s exclusion is symptomatic of the short-termism that has plagued western policy that has sought to create a closed information loop to filter out inconvenient truths. The problem is, as history repeatedly shows, an unstable Afghanistan destabilises the region. Importantly, as 9/11 showed, it also has the potential to threaten western power centres. Yet it would seem nothing has been learnt and India would need to very quickly write its own script again.

India’s Afghanistan policy has historically always been cold, calculating, uncompromising, long-term and more than capable of absorbing significant reverses in the short to medium term. Its response today must also support those who it does business with in Afghanistan. It cannot be coy in providing soft and hard military support to its friends and it must not be seen as an unreliable and indecisive partner.

India has in the past succeeded in maintaining Afghanistan as a viable partner for over 60 of 67 years of bilateral history. Wading through the precarious years starting 1989 and through the economic crisis of 1991, India still managed to support one dispensation or another that held inimical forces at bay till 1997. After 1997, India continued to support the Northern Alliance in the hope of better times. That time came in 2001, when, following the US invasion, a government whose core elements had been supported by India, were installed in power.

Pakistan, in spite of its advantageous geography, had succeeded in pacifying Afghanistan for just four to six years at best. Anybody with a cursory knowledge of the region will know that it takes a lot more than common borders to manage bilateral relations.

Going into a winning war is easy but wading into uncertain waters to safeguard vital interests is the true test of realpolitik. That is why India’s Afghan gambit must be gutsy and counterintuitive. Given the high stakes and high probability of failure, too much talk is counterproductive and blueprints for the post-2014 chaos that will be Afghanistan are urgently needed.

India in 2014 is not the economic cripple it was in 1991; a $290-billion reserve buys more loyalty and battle resilience than 15-day currency reserves. Over the last 12 years India has worked exceptionally hard to win over significant pockets of support among the Pashtuns. Unlike the 1990s when India’s support base was the ethnic minorities, support for India is now deeper and wider.

Taliban 2.0, therefore, will find a house divided, facing the enemy without and also within. India has four consulates in addition to the embassy in Kabul. These are the prime nodes of aid dispersal, which is counted as the most effective of any country’s efforts there.

The nearly $2 billion dispersed so far have gone to infrastructure, agriculture and education, especially self-sustaining schemes at the village and micro levels in Pashtun areas. It is precisely these schemes that connect India directly to the Pashtun’s day-to-day life and make India a friend in their view. It will be Pakistan’s inability to deliver — systemically and financially — on this score that will make Pakistan the outsider.

Afghanistan post-2014 must not by default become a neutra-lised backyard of Rawalpindi and its proxies. Any interference must necessarily require significant injections of Pakistani treasure and blood. India could lay for Pakistan the same trap that the US laid for the Soviets in Afghanistan.

If Pakistan marches in directly or by proxy it gets bogged down and alienates any residual western sympathy. If Pakistan does not, it loses the prize. Win or lose by default Pakistan loses and win or lose by default India is likely to succeed.

The writers are vice-president and programme coordinator, respectively, at the Observer Research Foundation.