The draft e-commerce policy goes India First

The new draft e-commerce policy is promoting India first and this move could seriously undermine sale strategies of major e-commerce players and is a matter of concern to foreign companies like Amazon and Walmart who have actively invested in Indian e-commerce sites.

The time when you could get your favourite items at maximum discount might come to an end.  The new Draft National Policy Framework on e-commerce released by the commerce ministry on July 30 aims to promote Make in India and ‘Indian’ online enterprise and create a level playing field for home-grown companies in India.

The key recommendations of the draft mentions excluding group companies of e-commerce players from “directly or indirectly influencing” sale prices. The policy also suggests Indian-owned and Indian-controlled online marketplaces be allowed to hold inventory as long as products are 100 pc domestically produced. This relaxation is not for entities managed by foreign investment.

In addition, the draft policy intends to have a single regulator and legislation to address all issues related to e-commerce in the country. Foreign companies like Google, Facebook and Amazon that generate user data through e-commerce platforms, social media and search engines have to store data exclusively in India. This move is done in order to give incentive to domestic data storage in India, make domestic data storage economically attractive and grant infra status to data centres.

The draft is proposing policy space to impose customs duties on electronic transmission as well as for granting preferential treatment to digital product created within India. This might be against the World Trade Organisation (WTO) norm as at present, under a WTO moratorium, countries do not impose customs duties on cross-border e-commerce transactions. The draft also speaks about the adoption of RuPay cards as payment technology. This too is seen to be against the WTO norm as experts believe that the move to mandate RuPay as a payment solution on e-commerce sites may be seen to be discriminatory unless a similar facility is also sought for others such as Mastercard or Visa.

A two-year sunset period has been recommended by the draft policy for the industry so that it gets used to localisation rules before they become mandatory.

End for cheap online shopping?

The policy has made suggestions on prohibiting bulk purchases of branded goods like mobile phones, white goods, fashion items “by related party sellers which lead to price distortions in a marketplace”.  This move will undermine sale strategies of major e-commerce players.

The government has proposed a sunset clause for “deep discounting” (any discount more than what is deemed normal) suggesting a “maximum duration” be set for “differential pricing strategies”. According to the e-commerce companies it is the sellers, and not the online market place, who are offering the discounts. “This will definitely impact our business, as the basic tenets of e-commerce business – such as not spending on physical infrastructure – enables us to pass on the cost savings to our consumers in the form of discounts,” an executive from a major e-commerce firm said.

The “deep discounting” policy has managed to gain mixed reactions. Some analysts say that it might be a good decision as it will help offline sellers. Indian traders welcomed the government’s move to formulate an e-commerce policy that mandates local storage of user data, and hoped the policy will help build robust reform. Commenting on the initiative, the Confederation of All India Traders (CAIT) said that they are demanding a policy and a regulator for the sector.

“The think tank should address a national framework on e-commerce for a robust internal reform,” Praveen Khandelwal, secretary general, CAIT was quoted as saying in a statement.

Is it too late for the decision?

According to a report by marketing research firm eMarketer, e-commerce sales in India will climb about 31 pc to USD 32.7 billion in 2018. The e-commerce market in India is expected to grow to USD 200 billion by 2026, the report said.  With the increasing penetration of internet and smartphones in India the digital transformation is going to increase India’s total internet user base, from 445.96 million in 2017 to 829 million by 2021, according to the Indian Equity Brand Foundation (IBEF).

Indians are very much dependent on online market these days. India’s e-commerce market has plenty of foreign investment. The decision to bring in the draft e-commerce policy is a little late, say analyst.

Since the major players in the e-commerce sector in India are foreign, it will be challenging for the government. Indian company Flipkart is now under Walmart; Amazon has a huge presence in the Indian market, and Paytm is backed by Alibaba. Amazon and Flipkart control nearly three-fourths of India’s online market. The American and Chinese companies have already invested majorly in the e-commerce sector in India.

Will the FDI policy be effected?

The draft has recommended permitting 49 pc Foreign Direct Investment (FDI) in the inventory-based business-to-customer e-commerce model. Currently, FDI in such businesses is prohibited and it is allowed only in the marketplace model.

Kumar Rajagopalan, chief executive of Retailers Association of India (RAI) has criticised the decision and said, “There are many issues and ambiguity with the policy, including the definition of e-commerce. There’s no clarity on who is an e-commerce player now. Almost every retailer in the country uses technology and supports online buying and delivery. Can everyone be called e-commerce then? The new draft suggestion seems to be dividing retail by channels that are creating confusion even from an FDI angle.”

Foreign company woes

According to reports, American firms like Amazon and Walmart are likely to ask the Donald Trump administration to reach out to its Indian counterpart if the final policy is “not moderated”, two industry executives familiar with the development told an Indian newspaper.

“We expect a barrage of letters to be exchanged between the United States of America’s authorities and the Indian government, in case the policy doesn’t become more even-handed,” foreign officials who did not want to be named, informed Indian media.