What Draft E-Commerce Policy Means For India's Retail Sector

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 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. 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 US$ 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. To legitimise 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 localisation, 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 localisation 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.