Quick commerce on Govt radar; ministries assess impact on kirana stores

Companies like Zomato-owned Blinkit, Swiggy Instamart, Zepto, Tata's BB Now and Flipkart's Minutes are key quick commerce players

Several government ministries have initiated a plan to assess the impact of the rapid expansion of quick-commerce on traditional mom-and-pop stores or kiranas, a government official said on the condition of anonymity. While the assessment indicates heightened scrutiny of the sector, the official emphasised that the government does not plan any immediate policy interventions.

“The Centre is looking into it (the rise of quick commerce) to see if there is any direct impact of quick commerce on kirana stores. More than one ministry to look into this given the subject -- commerce, consumer affairs, etc. It will be seen from the perspective of overall policies in place that could pertain to e-commerce from quality standards to other policies in place,” the person mentioned above told Moneycontrol.

The Centre has only recently started looking into the matter and discussions are still at a nascent stage.

“The issue is being seen at a bureaucratic level for now and is at an initial stage,” the person added.

The move is not entirely surprising. In August alone, government officials and stakeholders have gone after the e-commerce and quick commerce sector. While speaking at an event in New Delhi earlier this month, trade minister Piyush Goyal said the massive growth of e-commerce is not a “matter of pride” but “a matter of concern”.

Goyal, the Union minister for Commerce and Industry, also highlighted that there is an imbalance between small traders and large retailers and rued the decline of the former.

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Not just the minister, even the All-India Consumer Products Distributors Federation (AICPDF), the distributors’ body that decides the maximum retail price (MRP) of fast-moving consumer goods (FMCG), said the growth of quick commerce companies, like Blinkit, Swiggy Instamart, Zepto, BigBasket (BB Now) and Flipkart Minutes, is impacting the lives of millions of small retailers. It urged the government to scrutinise the rapid and unchecked growth of quick commerce. 

Existential crisis

Even as the government source told Moneycontrol that the quick commerce vs kiranas issue is at an early stage, industry executives said that in a worst-case scenario if ministries decide to go after the quick commerce model, the companies will have to either shut shop or revamp their business model entirely.

That can potentially disrupt the $5 billion industry which has players like Blinkit, Swiggy Instamart, Zepto, Big Basket (BB Now) and Flipkart Minutes is preparing for more giants to enter the space.

“If the government decides to probe quick commerce companies, then an existential crisis will come from the foreign direct investment (FDI)-related issues. The consumer affairs department will only ask companies to be more transparent, clearly mention expiry dates, make return processes simpler and other smaller bits which are all still manageable,” an industry executive told Moneycontrol.

There was no response to a mail sent to the commerce ministry for comments till the time of publishing the story.

The Department for Promotion of Industry and Internal Trade (DPIIT) in the Ministry of Commerce and Industry largely looks at FDI-related violations, while the Ministry of Consumer Affairs, Food and Public Distribution looks at the other parts like quality control.

In India, global e-commerce companies can operate independently as marketplace businesses. However, foreign direct investment (FDI) regulations prohibit global retail companies from operating independently in offline retail. FDI in multi-brand retail is allowed only up to 51 percent and that too with local partnerships. Even then, government approval is required.

However, 100 percent FDI is allowed in food retail (under the government approval route) to run and operate both online and offline for food produced and manufactured in India.

Companies still tiptoe around these regulations. Several quick commerce startups procure products from manufacturers and then sell to other businesses which later list and sell on the app/platform because of which a quick commerce company projects itself as a B2B (business to business) company, instead of a B2C (business to consumer) company, and stays away from the government’s lens.

Even e-commerce major Flipkart had this arrangement during its initial days.

The workaround is because the government mandates that if there is FDI, then companies can only run marketplace models and not hold inventory.

“So, the government can simply pick on the FDI loophole, say B2C is illegal and tell companies that the model is ultrawire,” the industry executive cited above said.

If push comes to shove, the government can also mandate, in the interest of larger social interest, companies to work with the kirana ecosystem, help them advance technologically and increase assortment in partnership with manufacturers – that solves two problems at once. “Basically, reinvent kiranas from a tech view point and help them survive but also let quick commerce operate and thrive. That model could emerge by regulatory design,” the executive added.

Unwarranted

Several stakeholders, including internet sector analysts and industry executives, concur that any government action at the moment is unwarranted because the industry is still very nascent.

“Quick commerce is only growing in certain pockets of the top 8-10 cities, it is too small for government intervention for now. There will be comments from the government here and there but expect nothing serious. Even in e-commerce, there was intervention after Flipkart and Amazon grew to a certain scale and there was visible impact,” Satish Meena, an independent ecommerce analyst and advisor at Datum Intelligence.

Let’s not forget, quick commerce companies are creating jobs and also bringing in foreign investments, Meena added.

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Any premature action will curb innovation “Kiranas don’t have to be protected. There needs to be a blended strategy because customers are getting products in minutes, overall economic activity is growing, and the overall job environment is becoming positive. Naturally there will be transformation when there is technological advancement,” a quick commerce industry participant said.

“When automobiles came, we did not continue to hold on to bullock carts. We migrated because it helps. When mobiles came, we did not say mobiles will not be allowed because PCO operators have to keep their jobs. There needs to be reskilling. India cannot be exporting DPI (digital public infrastructure) to the world but at home say we will use birds for communicating,” the person concluded.