In the last week of July, the Indian Ministry of Commerce and Industry held a meeting with e-commerce stakeholders to formulate a policy that could have a negative impact on foreign owned e-commerce businesses in India.
Following the meeting with representations from major e-commerce players, offline retailers and payment companies, the draft of the policy recommended to put a stop to online marketplaces that influence prices either directly or indirectly.
The draft policy will be made available to the public for further comment and review based on which a final policy will be made. However Foreign Trade Deputy Director General Abhishek Sharma, refused to comment on when the ministry would go public with the draft policy.
Once the draft policy becomes effective, two of the largest online marketplaces, Walmart-owned Flipkart and Amazon will face the maximum impact as both have already pumped billions of dollars in the India market. Walmart had bought majority of the shares in Flipkart for USD 16 billion earlier this year.
"Releasing a draft for policy on e-commerce by the government is a positive step in the direction of abolishing anomalies, disparities and malpractices which has greatly vitiated the e-commerce business of India,” said the Confederation of All India Traders (CAIT). CAIT is an industry body lobbying on behalf of offline retailers in India.
The draft recommendations also bars online sellers from bulk purchasing electronic, white goods and fashion products—the three largest selling categories in online retail. This, the draft says affects “price distortions in marketplace”.
“Funds coming from foreign investors should not be used to create anti-competitive situation,” said Vivek Gaur, CEO and co-founder of online fashion retailer YepMe. “There should be a level playing field for all companies, irrespective of where the money is coming from. If online retailers keep riding on the back of foreign investment to fund their discounts it will create financial monopoly,” Gaur added.
Deep discounts by online retailers and cashback offers by payment companies are taken for granted among online buyers in India. The price differentiation has been a bone of contention for offline retailers for some time now. With more than 97% of the sale still coming from offline retail stores, e-commerce businesses account for less than 2% of the total retail sale in India.
In the list of recommendations mentioned in the draft policy, the commerce ministry favoured Indian owned e-retailers to keep inventory of products as long as they are 100% domestically produced. This is in line with Prime Minister Narendra Modi’s ‘Make in India’ campaign.
As foreign funding in Indian owned e-commerce businesses becomes a norm, the commerce ministry is speeding up the process of bringing some clarity in government regulations in the e-commerce industry. It has been more than two years since the Indian government has been planning to bring robust regulations and guidelines for e-commerce businesses to function. In 2016 the commerce ministry had defined rules for e-commerce marketplaces, giving a nod to 100% FDI in marketplace businesses.
The draft policy also wants Indian founders with minority stakes to have differential voting rights, thus giving such founders better control in their company. “Even China has such a rule and honestly this will give confidence boost to the founders with minor stakes in the company,” Gaur said.
Apart from wanting to put a check on price disparity between online and offline retail, the commerce ministry has also put forward a clause in the draft policy regarding the data storage of consumers. According to the draft policy, online marketplaces can’t store user related data on servers located outside India and wants all online marketplaces to share such data with the government for “national security and public policy objectives.”
It lists specific data types required to be stored exclusively in India. Data such as, "community data collected by IoT (Internet of Things) devices in the public space; and data generated by users in India from various sources, including e-commerce platforms, social media, search engines etc.”, would have to be stored in India.
According to Gaur it’s practically impossible to audit where the data is stored as the whole data infrastructure is cloud based. “It will waste a lot of time for both the regulator and businesses to answer such non-criminal questions. Government should put the clause defining who will own the user data instead of dictating where it will be stored,” he said.
Once implemented, the draft policy will benefit new and small e-commerce players by bringing e-commerce behemoths almost at par with them. “The policy aims to particularly benefit young entrepreneurs like us as it offers ease in terms of both pricing strategies and inventory model for the e-commerce companies. The policy would be highly beneficial for our business as we hold inventories which are all 100% produced in India,” said Samarth Agrawal, founder and CEO, Max Wholesale.
Moreover, the draft policy also wants e-commerce players to set up a maximum duration to run special discounted sales on their platform. Online marketplaces run festive period sale that runs for three days or so offers discounts as high as 90%. The frequency of such festive period sales has increased from once a year to at least thrice a year.
“The policy when implemented will certainly bring the e-commerce players in line and will impress upon them to do business within specified parameters,” said Praveen Khandelwal, Secretary General, CAIT.