Ecommerce in India

What draft e-commerce policy means for India’s retail sector

Apart from online retail firms such as Amazon and Flipkart, the India e-policy may also hit sellers on e-commerce platforms

India’s e-commerce space has seen an exponential growth over the past few years in a policy vaccuum. Graphic: Mint

India’s e-commerce space has seen an exponential growth over the past few years in a policy vaccuum. Graphic: Mint

New Delhi: Just a day before her retirement on 31 July, commerce secretary Rita Teotia tabled the draft e-commerce policy before a panel headed by commerce and industry minister Suresh Prabhu. Little did she know that her last act will draw severe criticism. The draft e-commerce policy, which effectively seeks to regulate all aspects of online retail and recommends strict restrictions, including curbs on discounts, may impact not just e-commerce companies, but also countless sellers working on those platforms.

Amazon and Flipkart, which make the majority of the $18 billion online retail market but were not part of the deliberations, are now lobbying to get the government to scrap the draft and consider fresh regulations instead.

The background

In 2015, two brick-and-mortar retailer bodies, Retailers Association of India (RAI) and the All India Footwear Manufacturers and Retailers Association (AIFMRA), had approached the Delhi high court arguing that e-commerce companies had undue advantage as they were allowed to access foreign direct investment (FDI), through which they can provide deep discounts that traditional retailers cannot match.

In 2012, the then Congress-led United Progressive Alliance government had allowed 51% FDI in multi-brand retail in some cities. However, the current Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) government announced that it will not implement the policy fearing job losses in kirana stores, although it has not formally rescinded the policy itself.

The two retail associations had also alleged that the government’s existing retail policy does not allow e-commerce firms to directly sell to customers, but in the garb of the marketplace model they are directly selling to customers, thus violating rules.

To legitimize the existing businesses of e-commerce companies operating in India, which so far have grown in a policy vacuum, the government in March 2016 allowed 100% FDI in online retail of goods and services under the so-called “marketplace model” through the automatic route.

It also notified new rules through Press note 3 (of 2016 series) which could potentially end the discount wars, prohibiting e-commerce marketplaces from offering discounts and capping total sales originating from a group company or one vendor at 25%. However, this only remained in files while e-commerce companies continued to offer heavy discounts, much to the anger of offline retailers.

Eye on WTO

While domestically, the government was seeking to make India’s retail business transition smoothly to the online space without much disruption, at multilateral fora such as the World Trade Organization (WTO), the government was facing pressure to negotiate rules facilitating cross-border e-commerce. It was virtually facing isolation at the WTO ministerial conference in Buenos Aires last December, with 71 members led by China, Japan and the US, in a joint statement, saying that they would initiate exploratory work towards future WTO negotiations on trade-related aspects of e-commerce.

While India maintained that it was not ready for any such multilateral rules, as the e-commerce space in the country was still evolving, difference on key issues within various wings of the government, such as data localization, and source code, were the key reasons for the reluctance.

The government has now tried to build consensus on such key issues within its various ministries. India has now proposed to mandate data localization with a two-year sunset period for the industry, while keeping the policy space to seek source code.

The return of Licence Raj?

With the government planning an e-commerce regulator, seeking the Competition Commission of India to look into mergers in the sector below the threshold limit and asking e-commerce companies to phase out discounts within two years, some have feared the return of the Licence Raj.

RAI chief executive officer Kumar Rajagopalan said he is unable to decipher the key objectives of the policy for e-commerce. He also thinks that the government is surreptitiously allowing multi-brand multichannel retail FDI. “It’s time the government understands that all business to consumer transactions are retail and we are in an omnichannel world,” he added.

Source: https://www.livemint.com/Industry/DjRaxows878f4ZP22TxiaP/What-draft-ecommerce-policy-means-for-Indias-retail-sector.html