The Great Lockdown Effect
Let's rewind back to March 24, 2020.
The day when the PM Narendra Modi, in his most typical fashion, announced a 21 day nationwide lockdown. I say, most typical, given his propensity to announce big moves in a disorderly and haphazard fashion which can come into effect within hours. Remember, demonetization anyone?
During his speech, he said,
Hence, It is my plea to you to continue staying wherever you are right now in the country. Considering the circumstances at present, this lockdown will last 21 days. The next 21 days are of critical importance for us. As per health experts, a period of at least 21 days is extremely critical to break infection chain of Coronavirus. If situation is not handled in these 21 days, the country and your family could go back 21 years. If situation is not handled in these 21 days, several families will get devastated forever. Hence, you must forget what going out means for the next 21 days. Stay inside your home, stay inside your home, and do just one thing- stay inside your home.
To further emphasize, there was just one request. We were asked to stay at home for the next 21 days and failure to do so might set India behind by 21 years. The fears were rational and the nation required a strong response to control the spread of virus. The lockdown seemed like a good first step.
Unintended Consequences
What followed next was utter chaos and confusion across the entire country. The state governments were clearly unprepared to handle the consequences of a nation-wide lockdown. What really perplexed me is how the GoI responded towards the ecommerce industry during this crisis.
The government's whole agenda for the last 3-4 years has been to accelerate the adoption of technologies to widen the formal economy, go cash free and truly enable a digital India. Covid offered a once-in-a-lifetime opportunity to achieve this vision. If you are content with banning 86% of your currency denominations within a four hour notice to accelerate progress towards some of these goals, then surely, allowing ecommerce to continue during a pandemic where everyone is literally stuck at their home, seems like a no-brainer. Let me explain.
Country wide lockdown → Restricted consumer mobility → Retailers need to adapt to the new reality or perish → SMEs start selling online → Increased formal economy
More and more Consumers pay using cards, netbanking, wallets etc online: Move away from cash
Robust economic activity irrespective of lockdowns: Win-win for consumers and businesses
Setting all of that aside for a minute, it seems prudent to let ecommerce continue so that people have fewer reasons to leave their houses, which in turn controls the spread of the virus.
Ease of Doing Business is a farce
GoI, in its April 16 notification announced that the ecommerce companies can start operations for selling non-critical items across the country (outside the containment zones) from April 20 onward. The government probably realized that there is pent up demand in the economy and a safe and reliable way to fulfil the same might be through ecommerce. Following the order, Amazon, Flipkart, Paytm Mall etc started investing in resuming their operations, along with lining up their inventories of non-essential items and ensuring easy on-boarding of new sellers and small businesses.
During the same time, there was vehement opposition against this measure by Confederation of All India Traders (CAIT) which argued that allowing ecommerce companies to deliver non-essential goods will be "unfair, discriminatory and unreasonable".
On April 19, GoI decided to make a U-turn and prohibited sales of non-essential products by ecommerce companies. Remember that this is just one day prior to April 20, when ecommerce companies were supposed to resume their operations. Piyush Goyal shared the official notification on twitter and wrote that "this will create a level playing field for small retailers".
Now, how can one expect any modicum of consistency while conducting business in India, where the government has a whimsical tendency to change orders within days (sometimes even hours) without thinking about the system-wide consequences.
BTW, Who lost?
The ecommerce companies couldn't sell non-essential items and were restricted to selling essential items in key urban pockets. They definitely lost on some profits here. Neighborhood and standalone shops, including those selling garments, mobile phones, hardware and stationery items were allowed to open but the risks involved in going outside during the community transmission phases of corona virus acted as a major deterrent. On top of that, several states had their own advisories where these shops were not allowed to open until recently in June.
But, the biggest loser in this entire episode was the consumer. Stuck at home, handling work, kids and household chores, with an ever expanding list of essential requirements, includes work and study from home products, but unsure of how to get them.
Story abroad
If we compare the Indian story to other countries, then the picture become much clearer.
While about 70% of retail sales disappeared at the beginning of this crisis, the businesses that were ready have since replaced 94% of the lost sales through online channel. The ones that were not ready left a massive vacuum of opportunities for their competitors. All retail businesses need to be digital by default and treat different sales channels as tactics, not strategy. On Shopify we see 6 month old businesses thriving by selling across 6+ channels. This will never change again.
- Tobi Lutke, Founder, Shopify (Part of their Q1 Earnings)
Shopify sellers, who were ready for online order fulfillment, were able to replace 94% of the lost sales through the online channels. Simply put, whatever sales they lost because of the stores being shut, they were able to replace almost all of it (94%) by selling goods online. Now, given the state of ecommerce adoption in India, I don't think that the retailers and SMEs would have been able to replace all of their sales, but even if 50% of the offline sales is substituted, that's a win-win for both the consumers and SMEs.
Technological progress happens over decades, but black swan events like corona virus can compress the same acceleration into months. This has been a missed opportunity for India to move towards its promised digital avatar.