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India’s draft e-commerce policy looms large on Chinese cross-border companies

The Chinese companies have been in the government crosshairs for the past few months over evading customs duties and taxes.

Feb 28, 2019 by Moulishree Srivastava
India’s draft e-commerce policy looms large on Chinese cross-border companies

The latest draft of e-commerce policy, if implemented in the current form, would make India a costly affair for Chinese cross-border e-commerce firms and by extension, could mean curtains for some of them.

The Chinese companies have been in the government crosshairs for the past few months over evading customs duties and taxes. The suggested measures, including data flow restrictions, in the policy will make life difficult for Chinese firms doing business in India.

Aliexpress, Shein, Club Factory, Romwe, LightInTheBox, Banggood, JollyChic and GearBest are the major Chinese e-tailers in Indian market. Most of the cross-border firms have negligible business in China, but count India as one of the top markets.

The Indian government has taken a long, hard look at the cross-border data flow and has proposed conditions to comply with “if the data is generated by users from various sources including e-commerce platforms, social media activities and search engines”. The processing and storage of data in India would hurt the bottom line of Chinese e-tailers, said experts.

“It will be difficult for them to share data across the border under the new regulatory framework. They will have to invest in India to collect and process data here,” said Satish Meena, analyst at Forrester.

The policy mandates all e-commerce websites and apps available for download in India to have a registered business entity for doing transactions here. The move would bring the companies under India’s tax net and legal framework.

“The intent is to make sure apps with decent user base in India to have a registered entity here,” said Meena. “At some point, such apps will make money through advertising. With a physical entity, they would come under GST (Good and Services Tax).”

The policy stipulates shipments from other countries to go through the customs route, mandating MRPs on all packaged products, physical products and invoices, disclosing the purpose and use of data collection upfront, furnishing details of all sellers on the platform and entering into an agreement with each of them to guarantee the authenticity of the products. The new framework also demands e-commerce firms to put in place a mechanism to respond to all consumer complaints within one week.

This comes on the heels of government increasing custom duties on categories like electronics and accessories.

Currently, Chinese e-commerce firms import products from the home country where they enjoy economies of scale and hence low production costs. Overall, depending on the category, it may translate to 3-5% extra margins for Chinese e-tailers as compared to the US or Indian e-commerce platforms, said Meena.

Not having physical presence in India also help keep expenses at the minimum for Chinese companies. And the savings are passed on to customers in the form of deep discounts, offers etc.

“We are happy that the draft policy addresses cross border e-commerce issues. It will regulate the misuse of India’s postal gift channel for commercial e-commerce shipments from overseas," said Sachin Taparia, founder, chairman and CEO of LocalCircles, an online consumer forum.

LocalCircles, which lobbied to create a level playing field for Indian online retailers, initially took this issue and reported its finding to the Ministry of Commerce & Industry.

In 2018, the Chinese marketplaces did about 1.5 lakhs order per day, as per Forrester. They are mostly targeting apparels and accessories segment in the price range of Rs 500-1500 denting the businesses of Myntra, Jabong and Amazon, said the analysts.

“They have been growing at a high pace in the last few months without any checks and balances, because they do not have add-on costs for local staff and warehousing like Myntra and Amazon," said Meena. "The new framework would put roadblocks in the scale they are doing at present.”

If the cost of operations goes up, the companies will lose the price advantage.

“This would cut into their (profit) margins,” said Meena.

The new framework also puts Chinese online retailers in a catch 22 situation. Chinese online retailers need money to scale up in India. But to raise capital, they need to show scale and the new rules could come in the way of that.

“If (Chinese) e-commerce companies are not able to hit the (order) critical volumes to justify the cost of investment required for local presence, then they might also exit the market,” said Meena. “It would depend upon how serious the company is for the Indian market. Unlike Amazon and Flipkart, they do not have deep pockets, and they may not be interested in investing in India without enough backing.”

Santosh Pai, Partner at Link Legal India Law Services, said the recent policy measures on cross-border e-commerce are in line with the industry’s expectations.

“This was all sort of expected, because it was very obvious that a lot of business practices adopted by Chinese e-commerce players were not sustainable,” said Pai. “Their business strategies were based on the fact that there were some loopholes in Indian regulations and they took advantage of that.”

“The Chinese firms’ - which entered Indian market for quick bucks by exploiting loopholes - businesses are neither sustainable nor profitable. These kinds of players may be forced to exit,” he said.

He said Chinese e-commerce firms should come forward and give feedback to the new draft policy, if they want to build a profitable business in India.

“If the company is mature, they should have the capacity to engage with the government,” he said. “Silence on the part of Chinese companies will look like they were stealing from the jar of cookies and they have been caught with their hands inside and now they want to keep quiet.”

(Mengjuan Li contributed to this story)

Moulishree Srivastava

Moulishree Srivastava is a Bangalore-based tech journalist. She focuses on emerging Indian startups and unicorns. She can be reached at

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