China’s ‘Taobao’ model is worth emulating by Indian policy-makers to revitalise the e-commerce industry and harness multiplying effects of digital technology in rural areas
Soon, the din of a bitterly fought, fractious election, where the discourse veered around some of the most irrelevant issues, will recede and the focus of the new Government will revert to policy interventions and formulating the forthcoming Budget. Economic policies of an elected Government have the single largest bearing upon the destiny of its polity. An increase in per-capita disposable income is one of the most vital indicators of successful governance and one that invariably favours the incumbent. Undoubtedly, the predominant electoral issue, which was relegated to the background, hinged on declining rural and urban income, decreased savings and slowing consumption. Conversely, closer to voting, poll dynamics showed that by March 2019, “net future expectations about the economy clocked a positive 48.6 per cent” as people were more optimistic about the larger economic course of the country in the likely event of Modi’s second coming.
With the median age of India’s population being 30 years, this aspirational demograph has gone past the roti-kapda-makaan basics of the last century to mobiles, internet and entrepreneurship. As forward planning yields results only after gestation periods of a three to five year lag, policy-makers will have to find ways to leapfrog job creation once the new regime is in place by June. India’s consumption story has been losing momentum in major sectors like FMCG, cars and two-wheelers and services activity — slipping to multi-quarter lows as income stagnates — which is reflected in declining rural demand. The next Government will be confronted with the challenging task of lifting investment sentiments by remonetising the economy as consumption fuels jobs and income from job-earnings fuels consumption in turn.
Policy-makers have a key role to play in fostering an enabling environment that supports innovation for both agri-entrepreneurship and micro-entrepreneurship. Consider this: The combined market cap of the three largest IT companies of the US — Apple, Microsoft and Amazon — equals India’s GDP and importantly, just the Chinese e-commerce major Alibaba’s m-cap equals 20 per cent of our GDP. These growth models necessitate that policy-makers fire on all cylinders with newer paradigms to kick-start innovation and growth in the IT enabled sectors as also focus on the nascent digital platforms as job-creators.
The focus of this article is specifically on rural e-commerce as a propeller for job-creation. This will need public private-partnerships with the likes of Amazon, Walmart, Reliance Retail and other e-commerce platforms on a national scale. The nascent e-tail market in India is projected to grow at 30 per cent annually, targeting $73 billion by 2022. Herein lies the biggest untapped job-creation potential, a prerequisite for which is deepening electronic payments through smartphones in order to reduce cash payments and encourage digital mode of transactions for online commerce.
China embarked on creating rural jobs a decade ago by implementing the ‘Taobao’ model for expanding employment avenues, alleviating poverty and vitalising the rural economy by harnessing multiplying effects of digital technology in rural areas. Consequently, e-commerce grew rapidly in China as trade volumes increased from less than 1,000 billion yuan ($120.8 billion) in 2004 to nearly 30,000 billion yuan ($4.44 trillion) in 2017.
The prototype has thrown surprising results for India to emulate: Though e-commerce is always more developed in urban areas, surprisingly online retail sales in rural areas grew faster than the national average. From 2014 to 2017, online retail sales in rural China increased from RMB 180 billion to 1.24 trillion, a compound annual growth rate of 91 per cent, compared to 35 per cent nationally. So, replicating this model in India, we can just imagine how this surge can alter the rural job-scape, which is in need of policy interventions. The experience in Taobao villages has sparked strong interest among policy-makers to tap the potential of e-commerce as a tool for poverty alleviation, financial empowerment for stay-at-home employment and rural vitalisation. The breakthrough was seen most in the ratio increase of women-to-men entrepreneurs in e-commerce being at near parity, compared to a ratio of 1:3 in traditional businesses.
The Alibaba Group initiative of the Rural Taobao Programme, in collaboration with the Government, supported rural clusters with real-time access to a wide range of goods and services, replacing the expensive brick and mortar shop-floor business model. This helped farmers earn more for their produce as they could directly sell their produce to urban consumers in online platforms. The programme required job-stepping multiple initiatives to streamline cross-country linkages in infrastructure by laying the ground work for service networks in counties and villages; providing training in e-commerce and promoting entrepreneurship; and developing rural financial services through the Ant Financial subsidiary of Alibaba.
The Rural Taobao Programme has now expanded from 212 villages in 12 counties in 2014 to more than 30,000 villages in 1,000 counties in 2018, spreading from the coast to inland. It focussed on improving rural e-commerce supply chains, promoting connectivity between agriculture and commerce and enhancing e-commerce training. The scheme grew rapidly and by 2018, had supported 1,016 demonstration counties, covering 737 poverty-stricken counties (89 per cent of the total), including 137 counties with extreme poverty (41 per cent of the total). The experience in China offers a compelling model to pursue as a ‘Global Best Practice’ prototype for India. The report demonstrated how digital technology has the potential to harness inclusive growth, unlike previous revolutions, especially when policies and public-private sector work in synergy. Experience in other developed countries has made for a compelling case to adapt and integrate digitally enabled ecosystems as an engine for transformational growth in providing jobs and enhancing livelihoods to the rural population at their doorstep, without the need to migrate to bigger cities.
Achieving inclusive growth is a vital pillar to achieve Sustainable Development Goals of the United Nations. To achieve this, digitisation has been proven to have had a multiplier impact on inclusive growth in China as its e-commerce market has become the largest in the world within a span of just 10 years, moving millions out of poverty. To further this model, it needs collective collaboration with best research minds globally to work together and evolve paradigms that will optimise the power of digitisation in order to bridge income and opportunity inequalities.
The data coming out of the Chinese model offers great insights into how India can integrate open e-commerce platforms with mobile payments and digitally based financial services “in order to support SMEs access larger potential markets than the gravity model for trade in the physical world.” Why this model is best adaptable in India is because the platform-centered ecosystem has low entry barriers for capital requirements and also because education and digital skill requirements are minimal, which is a perfect fit to India’s rural demographics, where people with low literacy levels can be gainfully employed.
China, too, was earlier a high-cash economy until the mobile payment revolution happened. Before the advent of digitisation, in the pre-digital commerce era, only proximity to a well-developed commercial area afforded residents access to an array of physical marketplaces and consumer products. Now through Alibaba’s Taobao and Tmall e-platforms, the average shopping distance on these platforms is close to 1,000 kilometres, compared with a few kilometers in traditional retail markets. And in less developed regions, people are buying a wider variety of consumer goods online, offsetting the disadvantages of their local markets. This has enabled 10 million SMEs and start-ups in remotest of villages to start businesses from home and work on flexi-timings, shrinking urban-rural income disparities.
As China leads the world in mobile payments and online money transfers with 1.25 billion internet users, digital footprints, Artificial Intelligence (AI) and algorithms are helping in risk-assessment in real time. “So now, Chinese startups have access to credit without collateral via the innovative ‘310’ credit model: 3 minutes to apply for a loan, 1 second to get it approved, with 0 manual interference,” signifying speed, precision and efficiency.
Digital platforms have evolved into an institutional form where they act as the nodal institutions to create an enabling environment for SMEs with support in marketing, product management, online operations, customer service, cash management, logistics, business advisory and data analysis, covering essentially every aspect of running a business. The Tao Factory platform on Alibaba connects 40,000 factories from more than 30 industries with Taobao sellers to form an integrated supply chain market. This calls for well-tested pilot-modules if the Chinese experience has to be successfully Indianised. Once disadvantaged groups can participate in the modern digital economy, positive results could follow in a sustainable way.
I personally anticipate unprecedented rapid structural and growth oriented reforms to gather pace under Modi 2.0 because ‘Team Modi’ will be on performance overdrive in his follow-on term. Modi has the pulse of the nation right, knowing too well that emerging India strives to enter the middle-income category, with a per capita income of $2,000, wherein the aspirational classes seek empowerment through an honourable livelihood instead of welfarist handouts by the State.
(Multiple references have been made from the Digital Technology and Inclusive Growth Report of the Louhan Report 2019. The writer is an author, columnist and chairperson for the National Committee for Financial Inclusion at Niti Aayog)
Writer: Bindu Dalmia
Courtesy: The Pioneer