Quick Commerce Giants Under Fire For Violations Of FDI!

In a fall of quick commerce in India, confederation of all India traders launched damaging allegations of widespread violations of Foreign Direct Investment(FDI). On November 13th, releasing a white paper on the issue, CAIT exposed how Blinkit, Instamart, and others had allegedly been manoeuvring FDI regulations to establish market dominance at the cost of traditional retailers.

These violations are mainly linked to the wrong use of foreign capital. CAIT claims that these sites have attracted an astronomical sum of over Rs 54,000 crores in FDI, but instead of making use of this money for the purpose for which it was siphoned in, long-term assets such as infrastructure development, they used it to implement a predatory pricing strategy and win favourable exclusive arrangements for marketplaces.

National Chairman of CAIT Brij Mohan Agrawal posed the question of how such platforms are circumventing FEMA with indirect inventory control through preferred sellers, thus contravening existing FDI policies in principle.

The Mechanism Of Market Manipulation

These quick commerce platforms have an operational strategy that reveals calculated approaches for market domination. Far from building sustainable infrastructure, foreign capital has allegedly been tapped into by the companies to subsidize deep discounts, thereby giving the market a non-competitive level that cannot be matched by smaller retailers. As much as this practice violates the spirit of FDI regulations, it also brings about an unlevel playing field in the retail economy.

The other area of conflict is that these platforms limit entry into the market through shrouded deals with the sellers, forming a closed ecosystem that discourages competition and independent retailers. “This is not market economics,” CAIT Secretary General and Chandni Chowk MP Praveen Khandelwal had condemned such practices, pointing out how systematically these are pushing small retailers out of the market by what he terms as unfair market practices.

Beneath the accusation is the overreliance on FDI to undertake operations rather than investing in long-term infrastructure capital improvements or building out their physical retail networks. What these platforms end up doing is using FDI-backed discounts to undercut local sellers, indeed hastening the consolidation of market share and the creation of monopoly dynamics in retail.

The white paper attacks the apparent opaqueness of these platforms and further alleges that they hide vital information on terms by sellers, thus depriving consumers of the chance to decide correctly. That opaqueness escalates the power inequality where giant platforms have an edge over small businesses.

Destruction Of Kirana Stores

The far-reaching impact on Kirana stores does not only damage them but actually threatens to control the retail market, making them a ubiquitous threat to mom-and-pop stores.

These have gone on to unleash rather severely repressive effects on India’s traditional retail sector. The data, the latest available from Datum Intelligence, hardly offers any hope: it shows that quick commerce platforms will siphon over $1.28 billion away from traditional Kirana stores alone in 2024. The cut is not just the amount of money but the changed order of consumer behavior-46% quick commerce buyers say that they buy less from local Kirana stores.

The data shows rapid transformation, with consumers favoring quick commerce platforms for their immediate needs, not a minute shift in consumer preferences but a major one with consequences for the survival of India’s neighborhood stores, with the upsurge in demand for instant deliveries and digital convenience.

Next, it is an existential threat to India’s 30 million kirana shops, which form the spine of the retail business. Many are family-run units where many have been continuously serving their communities for generations by providing personalized service and deep local knowledge. But with QC platforms that can deliver groceries and daily essentials in minutes, the advantages that Kiranas had—being able to give personal attention and instant access to goods—are quickly being lost.

As the white paper reveals, QC platforms have captured as much as 30% of the market share of Kirana stores. More disturbingly, it has been reported that 67 per cent of Kirana stores have experienced a downhill sales trend since these portals sprung up, unveiling the immediate and direct implications for small and regional enterprises.

Apart from finance, there are other commercial implications. The way the QC platforms changed the equation between the supplier and the retailer is also changing. Since Blinkit and Instamart can command huge volumes and deep pockets, they can provide better terms to a supplier than Kirana. In many cases, tie-up contracts between sellers mean that the offering range of goods to Kiranas is curtailed further, which also impacts their competitive advantage.

What Is The Future of Indian Retail ?

India’s future retail landscape is fast becoming the most competitive as quick commerce platforms continue to expand their influence. The latest success of Swiggy’s IPO, with a listing at a 5.6% premium on its IPO price of Rs 390, is surely a sure sign of much more capital into the sector. Much of this funding is likely to accelerate India’s new retail transformation at the expense of old-line retailers.

This IPO is very well-timed and marks a key moment in the evolution of the QC space. Success and subsequent valuation of Rs 1.02 lakh crore of Swiggy’s IPO show that investors are resting assured of prospects in quick commerce. That is the reason such a success will fuel further investment in platforms like Swiggy Instamart, Blinkit, and Zepto, which will allow them to increasingly capture the retail market.

According to Datum Intelligence, the quick commerce market is projected to reach a staggering $40 billion by 2030, compared to about $6.1 billion in 2024. This explosive growth trajectory poses existential questions for the survival of traditional retail formats that may increase pressure from more deeply funded players.

This is very worrisome because quick commerce platforms are now diversifying out of the grocery and essentials category into other categories of products, cutting right into both Kirana stores and modern retail outlets. Non-grocery items like electronics, personal care products, and books are being quickly diversified by quick commerce players like Zepto. This diversified model by the quick commerce players is a new challenge for established e-commerce platforms like Amazon and Flipkart, as the former are expanding their offerings directly, competing with the latter.

The Need For Regulatory Action

Against this backdrop, CAIT called out for regulatory action right away. The demands by the trade body resonate with recent statements by Union Commerce Minister Piyush Goyal. According to him, the quick commerce platforms will have to ensure fair practices and be placed in alignment with local Kirana stores for quicker deliveries.

On the other hand, while it appears it finally recognizes that the intervention is necessary if regulatory action in the nation comes in timely, it will save India’s traditional retailing ecosystem remains to be seen. The organization points out that it is unchecked growth led by foreign capital that is a big threat to India’s small retailing ecosystem and might result in irreplaceable loss to the million Indians employed in the sector. The white paper calls for tighter oversight of FDI flows into the quick commerce space, urging the government to enact clearer rules that mandate fair competition.

Even with the significant ongoing supports from important policymakers including Piyush Goyal, the regulatory response has been quite slow up to now. One argument in this respect is that the government has been reluctant to consider strong actions since it fears that extreme measures may push down innovation and investment into India’s fast-growing digital economy. Another argument is that more stringent measures are required to protect the interests of traditional retailers while ensuring a level playing field for them.

The quick proliferation of the QC platforms – which has also attracted foreign capital has sparked a popular debate into balance between encouraging technological innovation and local business protection. Critics of the current approach argue that the government must move fast and act quickly to prevent the QC platforms from monopolizing the market and forcing small retailers into final decay.

Alternative Solutions And Future Directions

These are some recommendations that experts give to protect local interests without stifling innovation:

Strengthen FDI Regulations: The government can regulate how foreign capital is being used in quick commerce by putting stricter oversight. Stricter oversight may require FDI fund utilization for infrastructure development rather than solely to subsidize losses or for predatory pricing.

Seller Agreement Transparency: The QC platforms should be forced to make the seller agreement public so that all parties- and especially the consumers—get unbiased information. The conclusion is a boon for avoiding other exclusive agreements that may be likely to frighten competition.

Support to Kiranas: The government can take the initiative to help kiranas prepare for the new retail environment – for example, providing subsidy support for embracing new technology, easier logistics assistance and partnership with QC platforms without undermining their business.

Incentives to local retailers: To have an unlevelled playing field, the government can try to extend incentives to small retailers such as tax benefits or even discounts on logistics services to level the playing between big platforms and small local retailers.

And looming on the horizon is India’s retail future, poised in the balance. Even as quick commerce platforms offer obvious convenience to consumers, the cost of this convenience is taken in terms of market distortion, regulation violation, and the survival of traditional retail may be too high to ignore. The resolution of the conflict between modern convenience and traditional retail will likely define the future of India’s retail sector for decades to come.

Balancing the need to adopt technological innovation with the interests of millions of small retailers who are the backbone of India’s retail economy is the situation at stake. While this will require not just more effective oversight of FDI violations but the comprehensive framework offering fair competition and sustainable growth for all in the retail ecosystem, according to the white paper put forth by CAIT. With such high stakes, the Indian regulatory response in the next few months will decide the future of both quick commerce and traditional retail.