What led to Piyush Goyal’s outburst against India Inc.?

The story so far: Union Commerce Minister Piyush Goyal launched a verbal attack last week against Indian corporations, alleging that they were putting their narrow business interests ahead of the larger national interest. At the annual meet of the Confederation of Indian Industry, he targeted the Tata Group in particular for opposing and trying to bypass rules drafted by the government to protect consumers.

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Why is the Minister unhappy with corporate India?

Corporate India and the government have been on a collision course over the draft e-commerce rules released in June. The new rules ban e-commerce platforms from, among other things, conducting flash sales and allowing related companies to sell on their platforms. Companies such as Amazon, Flipkart and the Tata Group have lodged their protests against the rules saying they would fundamentally affect their business models. Amazon, for instance, makes the bulk of its sales through sellers such as Cloudtail, in which it holds an indirect stake. The Tata Group is also concerned that under the new rules it won’t be able to sell goods offered by Starbucks, in which it holds a stake, on its e-commerce platform. The government has banned e-commerce companies from selling their own goods on their platforms and offering attractive flash sales in order to protect small domestic traders from competition.

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Corporate India’s dissatisfaction with the new rules has not gone well with the Commerce Minister. He noted that these companies do not respect the spirit of the law and that they have repeatedly found ways to bypass the law. Mr. Goyal also noted that, unlike foreign corporations, Indian corporations were willing to buy foreign supplies over domestic ones even if that helped them save only a tiny bit on cost.

Is corporate India to blame?

Companies such as Amazon and Flipkart have been under public scrutiny for exploiting legal loopholes and acting against the spirit of the law. The Competition Commission of India is in fact investigating possible anti-competitive behaviour by these companies based on a complaint filed by a traders lobby. The impact of competition from large e-commerce companies on small traders has also been a matter of concern for policymakers. Lastly, there is the public sentiment that businesses should primarily serve the larger national interest.

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Critics, such as Anupam Manur at the Takshashila Institution, however, see the Minister’s comments as unnecessarily treading on the freedom of businesses. They believe that businesses should not be forced by the government to purchase goods from domestic sellers or sell their products abroad to boost exports. When the government meddles with business decisions, it often leads to favouritism and a smaller economic pie. So it is best to leave these decisions to businesses themselves which are primarily influenced by market forces, they say. Other critics, such as Pradeep S. Mehta of the Consumer Unity & Trust Society, also believe that the government’s new e-commerce rules do not really serve the interests of consumers, as the Minister claims. They argue that the new rules instead favour small traders who form a powerful lobby.

What lies ahead?

The Centre has been trying to boost business confidence in order to increase private investment and revive the economy’s “animal spirits”. The new rules tightening the screws on large businesses and the comments from Mr. Goyal may prove to be counter-productive. The Centre’s own Economic Survey has admitted in the past that certain firms face more onerous regulations than traditional stores and that this may affect “animal spirits”. The NDA government under Narendra Modi came to power in 2014 with catchphrases such as “minimum government, maximum governance,” and “the government has no business being in business”. Such rhetoric was welcomed by corporate India in the hope that there would be radical market-oriented reforms and lesser meddling by the government in business affairs. However, these hopes failed to materialise. The government’s policies have turned increasingly protectionist with the growing emphasis on economic self-sufficiency. With large businesses, including the Tata Group, being targeted for not keeping national interest in mind while doing business, corporate India’s love for the Modi government may wane further.