India's draft e-commerce policy: A new headache for large players

The draft e-commerce policy, which demands that all sellers be treated equally and blocks the use of algorithms for any seller, could spell new trouble for Amazon and Flipkart

India draft e-commerce policy: A new headache for large players
The draft policy says Amazon and Flipkart should be impartial in their dealings with sellers. Photo: Reuters

(ATF) India is reportedly finalising a new e-commerce policy that could spell more trouble for large players – particularly Amazon and the Walmart-owned Flipkart, according to information 'leaked' over the weekend.

According to the draft policy leaked to the press, operators of internet retail platforms in India will have to ensure they do not use algorithms to give partial treatment to any seller and that all sellers are treated equally.

The new policy also plans to empower the government to periodically notify which sellers fall under the definition of associates and related parties, and stipulates that actions and things that cannot be done by the platform entities can neither be done by any of its associates and related parties.

India’s e-commerce foreign-direct-investment rules don’t allow online marketplaces to hold an inventory of their own or influence the price of products sold. They also prohibit group companies or entities in which marketplaces have control of inventory to sell on their platforms, among other things.

“This will likely spell trouble for players like Amazon and Flipkart that are often accused by brick-and-mortar players of resorting to predatory pricing by offering discounts clandestinely via the sellers on their platforms, in violation of the FDI rules,” Salman Waris, the managing partner at technology law firm TechLegis Advocates and Solicitors told Asia Times Financial.

“The e-commerce players, however, have denied the charges,” he said adding that another sore point would be that the policy also empowers the government to set up an investigation body to “holistically inquire” into the violation of various laws by e-commerce entities and initiate action.

PAST PROBLEMS

India has been debating a new e-commerce policy for months amid complaints from brick-and-mortar retailers who allege online giants like Amazon and Walmart’s Flipkart flout federal regulations.

Several investigations by India’s competition watchdog and the Enforcement Directorate are also underway into the business practices of Amazon and Flipkart.

Many allege that Amazon favours large sellers such as Cloudtail and Appario on its platform, while Flipkart has been restructuring its B2B business, asking its large sellers to source directly from brands and manufacturers to reduce compliance risk ahead of its initial public offering.

Indian offline traders also complain about steep discounts offered by online companies, which smaller retailers have not been able to match.

Amazon and Flipkart, though, have fiercely denied these allegations.

BOOST FOR LOCAL E-COMMERCE

Nonetheless, local retailers have welcomed the contents of the draft, and said if implemented, the policy will curb the dominance of e-commerce players, which is hurting millions of small retailers.

“We appreciate the government’s position on FDI rules governing retail Industry in India. We recommend that the government should ensure better implementation of the policy in letter and spirit. We strongly believe that the FDI rules applicable to retail should be the same across channels to facilitate a uniform consumer experience and ensure market balance,” Shiv Joshi, spokesperson for Retailers Association of India, told ATF.

Experts add that by placing restrictions on cross-border flow of data on transactions that take place in the country, the draft e-commerce policy could indirectly help Indian big and small players, including Mukesh Ambani's Reliance Retail, which is Amazon's biggest competitor in India.

However, they said that while those restrictions would prevent misuse of data, the obligation to conduct adequate audits that may also be carried out by Indian firms at storage locations could further increase the compliance burden and create another barrier to how currently players like Amazon and Flipkart carry out their business.

That aside, the draft policy recognizes the cross-cutting nature of e-commerce and the existence of a plethora of laws and regulations include the Income Tax Act, Consumer Protection Act, IT Act, Foreign Exchange Management Act, Competition Act, Payment And Settlement Systems Act, Companies Act and laws related to the GST, and the presence of multiple regulators for an industry could be an impediment for new entrants as well, critics said.

“A lot of things are lying open-ended, and significant consensus needs to happen between the Government and the players,” Ankur Bisen, the senior vice president of the retail consultancy firm Technopak, told ATF

“In broader terms the policy is not forward-looking. [Besides] whether an algorithm could be used to favour some vendors or not is a business decision that should be left to players. Being a business organisation, a business can always favour one or more vendors. The entire dimension of the algorithm issue is contentious and it is not the job of the government,” he said.

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India E-Commerce Walmart-Owned Flipkart Flipkart Amazon.In Mukesh Ambani Reliance Retail