Identifying the growing potential of sectors that have adopted technology in India, Competition Commission of India (CCI) has said that even though there are several concerns, lawmakers should make careful interventions through policy in these sectors, which have thousands of active startups.
Addressing the gathering at CII Mergers Acquisitions and Restructuring Summit 2019 in Mumbai, Manish Mohan Govil, adviser and head of mergers and acquisitions, CCI reportedly said that India is a fast-growing internet and ecommerce market. He said that with rising internet penetration and greater digital maturity of internet users, the startup and internet economy of India is bound to grow faster. And at the same time policy around the Indian startup ecosystem also needs to take a balanced approach.
Govil said the unique features of tech-dominated sectors in the Indian startup ecosystem include the ‘network effect’, which creates a winner-takes-all atmosphere. And this also aids expansion of Indian internet companies, but the network effect can come at a price, which policy needs to curb. “While efficiency is a positive externality of network effect, monopoly has also become a norm in these technology-driven markets,” he reportedly said.
Ecommerce Discounts Creating Imbalance?
Govil singled out ecommerce as a sector that follows a growth-over-profit model of startups, where showing profit is less important than increasing user base in order to raise capital in the Indian context. “These markets offer deep discounts. However, these discounts erode the value of the goods and services in the long run in the mind of the consumer,” he said.
He pointed out issues such as conflict of interest, which could impact consumers and smaller retailers and producers that use these networks operated by startups in India. “Most initially start as a platform to connect buyers and sellers but eventually transform into suppliers on their own platform. This dual role leads to conflict of interest,” said Govil.
He said such challenges call for the right policy features to preserve the balance in the market and protect consumers and smaller producers. However, he believes that many new-age sectors are nascent and evolving. Emphasising that CCI is taking a nuanced approach to these issues, Govil spoke about the rise of the startup ecosystem.
Indian Startups Need Clearer Policy
Prime Minister Narendra Modi has been called the startup Prime Minister of India, and over the past 5 years, India has seen the rise of over 40,000 startups who have created more than $130 Bn of value from January 2014 to September 2018.
With 31 unicorns, Indian startups have hit the turf running globally – with OYO gaining ground in China and Southeast Asia, Ola beginning operations in London and Australia, and with Zomato having expanded to over a dozen countries.
As CCI identifies the need for careful intervention, it is notable that various startups in the country have been facing regulatory hurdles despite the Startup India policy. From e-cigarette ban to unclear epharmacy rules to lack of bike taxi rules, the country’s policies have been stifling the innovation. With CCI at helm of competition issues, the careful and timely interventions are needed from government on a larger scale.