Indian government's new draft on e-commerce policy, published on Saturday, looks like the thin edge of the wedge for the overseas companies in the country's e-commerce sector. The policy has upheld a protectionist stance and stressed heavily on the data localisation, making the life forward difficult for foreign companies operating in India.
The FDI Policy in e-commerce has been developed in order to ensure that the marketplace provides a level playing field to all participants, while ensuring that distortionary effects, either through means of price control, inventory or vendor control does not happen. A situation of capital dumping is to be strongly discouraged, the draft said.
The draft policy dovetails the ministry of commerce and industry’s circular released on December 26, 2018. E-commerce entity providing a marketplace will not exercise ownership or control over the inventory i.e. goods purported to be sold. Such an ownership or control over the inventory will render the business into inventory based model, the circular said.
Amazon has poured USD 5 billion in India and Walmart has now 81.3% stake (upped from 77%) in Flipkart, the acquisition of which had cost them a whopping USD 16 billion in last May.
E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field. Services should be provided by e-commerce marketplace entity or other entities in which e-commerce marketplace entity has direct or indirect equity participation or common control, to vendors on the platform at arm’s length and in a fair and non-discriminatory manner. Such services will include but not limited to fulfilment, logistics, warehousing, advertisement/ marketing, payments, financing etc. Cash back provided by group companies of marketplace entity to buyers shall be fair and non-discriminatory. For the purposes of this clause, provision of services to any vendor on such terms which are not made available to other vendors in similar circumstances will be deemed unfair and discriminatory. The order took effect on February 1, 2019 putting players like Amazon, Walmart-owned Flipkart on the back foot. The circular nuked the loss leader strategy of the foreign players in India.
According to the data from India Brand Equity Foundation, e-commerce industry in India witnessed 21 private equity and venture capital deals worth USD 2.1 billion in 2017 and 40 deals worth USD 1,129 million in the first half of 2018. E-commerce startups in India received USD 786.87 million of funding in the first half of 2018. Online retail sales in India are expected to grow by 31% to touch USD 32.70 billion in 2018, led by Flipkart, Amazon India and Paytm Mall.