While the draft policy itself may be a result of the retail lobby’s pressure to regularise e-commerce space, it does very little to that effect, experts say.

Draft e-commerce policy trying to cover too many bases fails to impress ExpertsImage source: Tech In Asia via Flickr
Atom E-commerce Wednesday, August 01, 2018 - 11:36

The government has unveiled a draft of the e-commerce policy aimed at streamlining the digital economy and specifically the rapidly growing e-commerce sector in India.

From recommending prevention of predatory pricing and deep discounting to allowing a hybrid e-commerce model where 100% Indian-owned companies can own inventory to data localisation and more regulation, the policy seems to promote Indian entities and bring in a level-playing field.

But does the draft address all the important issues plaguing the industry?

Amarjeet Singh, Partner at KPMG, co-leader, e-commerce and startups, believes that the draft policy attempts to do too many things at once. “It’s dealing with FDI, consumer protection and more… trying to cover too many bases, and in that process, giving more instructions to ministries that already deal with these aspects. They are cutting across too many horizontals, which is not practical.”

He also holds the view that in a context where the Indian e-commerce and start up market is dynamic and needs to be encouraged, a policy affecting them should have been broader, and only recommendatory in nature.

While the draft policy itself may be a result of the retail lobby’s pressure to regularise e-commerce space to create a level playing field, Kumar Rajagopalan, CEO of the Retailers Association of India (RAI) says that the policy does very little to that effect.

“There is no information about how many e-commerce companies are there, how many transactions and of what value are happening there… There is no record of this,” he points out.

FDI in e-commerce

One of the major recommendations made in the draft policy is recognising that several e-commerce companies are violating or circumventing the Press note 3 guidelines.

Press Note 3 regulations state that an e-commerce firm providing a marketplace cannot own inventory and that more than 25% of sales cannot come from a single vendor.

However, the draft policy allows a limited inventory-based B2C model for goods made in India and has also called to create a separate wing in the Directorate of Enforcement to handle grievances related to Press Note 3.

Kumar says that this is not new. Press Note 3 already sought to disallow FDI in B2C e-commerce unless the products were 100% Indian made. “But there was no effort from the government to ensure that this translates into a level playing field,” Kumar adds.

Referring to the single regulator that the policy intends to set up to look into legal fragmentation seen across the various laws governing the e-commerce sector, Kumar says, “This regulator will help only if it is empowered. If it does not have any teeth, then it will only add to the complexity of implementing existing laws on the e-commerce sector.”

The draft policy further states that an inventory-based model will only be allowed if the platform company is controlled by Indian management and foreign equity does not exceed 49%.

K Vaitheeswaran, author of ‘Failing to Succeed’ and founder of India’s first e-commerce company, says that the draft policy addresses the issue of FDI in e-commerce years too late. “Everyone knows that FDI is not allowed in B2C models unless the goods are entirely made in India. However, companies have been circumventing and breaking the law for years together and substantial FDI has already been pumped in,” he points out.

That said, Vaitheeswaran says ideally, FDI in retail should be allowed. “However, as long as the law prohibits it under whatever circumstances, it is wrong. But it has been happening for years,” he says.

Kumar further adds that the government should have allowed 49% foreign equity cap in all retailers, including those selling products online to facilitate a level playing field.

And not just RAI, seller associations such as the All India Online Vendors Association (AIOVA) too have pointed out that their inputs were not sought and prior inputs to e-commerce committee of Niti Aayog were ignored.

"Current issues being faced by sellers are completely left unaddressed. Violations of FDI policy will keep on happening as the government is turning a blind eye. We will not allow a hybrid model of marketplace regardless of ownership structure. Either it has to be 100% marketplace or 100% retailer,” a spokesperson from AIOVA said.

Currently, several e-commerce companies including Flipkart group companies and Amazon own private labels that are sold on the platform. Moreover, startup founders tend to own a very small part of the company, especially with foreign investors including SoftBank, Alibaba, and most recently, Walmart owning substantial stakes in e-commerce companies such as Flipkart and Paytm.

However, Amazon, Flipkart and MakeMyTrip did not respond to queries over how the policy, once implemented, may affect them.

Price influencing

The draft policy recommends imposing restrictions on e-commerce marketplaces to not directly or indirectly influence the price of sale of goods and services. This will also be extended to group companies of the e-commerce marketplace.

“A sunset clause, which defines the maximum duration of differential pricing strategies (such as deep discounts) that are implemented by e-commerce platforms to attract consumers, would be introduced,” the draft document states.

This is being touted as a move that could potentially end deep discounting by e-retailers, something that have been their USP right from the beginning. But Vaitheeswaran says that this might be an impractical move.

“Because at the end of the day, the vendors are giving the discounts, not the platforms. So, does the policy also control vendors? If not, how do they plan to implement this? Further, in retail, there are physical stores which are trackable. The online space is trickier,” he says.

Amarjeet also agrees. “The discounts are only benefitting the customers in terms of affordability. They are not significantly affecting physical stores,” he says dismissing concerns of retailers about not having a level playing field.

“A majority of the market is dominated by physical retailers even now. E-commerce and e-retailers only make about 6% of the market. It’s just that earlier, no one controlled the retailers’ margins. Now they are feeling the pinch, but it is not a do-or-die situation for sure,” he adds.