India’s new draft e-commerce rules have kicked up a storm ever since the government proposed a ban on flash sales on e-commerce platforms and prevented their affiliate entities from being listed as sellers. While the government looks to issue the e-commerce policy anytime soon, there is need for greater clarification as it will impact the booming online commerce space going forward.
Offline vs. online battle
For one, the new draft e-commerce rules would not only hit major online retailers, Amazon and Walmart-owned Flipkart, who are notably market leaders, it will also be detrimental to Indian customers who are increasingly embracing online shopping. In that sense, it can adversely impact the industry’s growth and hit the country’s ecommerce on the whole.
In recent months, India’s ecommerce sector has been on turmoil. The proposal unveiled by India’s Ministry of Consumer Affairs on June 21 also comes at a time when offline retailers are battling with e-commerce majors, complaining that the latter has been taking away their business via ‘unfair’ means.
Offline or brick-and-mortar retailers in India have raised concerns about e-commerce majors Amazon and Flipkart alleging that they employ unfair practices in selling and are expanding their operations in the country, eating into their revenue. Both etailers -Amazon and Flipkart – are the subject of an antitrust probe in India.
Ban on flash sales and more
In its proposal, India’s Ministry of Consumer Affairs said that e-commerce firms should not be allowed to hold flash sales in India. These flash sales, just like Black Friday and Cyber Monday sales in the US, are very popular during festive season in the country. During flash sales e-commerce firms have observed the biggest spikes in customer orders as brands offer heavy discounts on their products.
The statement said that certain e-commerce entities are engaging in limiting consumer choice by indulging in ‘back to back’ or ‘flash’ sales wherein one seller selling on platform does not carry any inventory or order fulfillment capability but merely places a ‘flash or back to back’ order with another seller controlled by platform. This prevents a level playing field and ultimately limits customer choice and increases prices.
Until now, Amazon that has invested over $6.5 billion in its India business said it does not give favorable treatment to any seller, while Flipkart, whose majority stake Walmart bought for $16 billion in 2018 also denied those charges.
But even though the companies deny any wrongdoing, a special report published by Reuters in February revealed that online retailers – Amazon and Walmart’s Flipkart – have always given preferential treatment to a small number of its sellers and bypassed foreign investment rules.
Stricter rules to hit business
As the new rules are applicable to both Indian and foreign players, experts believe it would not only hurt the future prospects of Amazon and Walmart’s Flipkart but also impact other bigger players including Reliance Industries’ JioMart, Tata’s BigBasket, Softbank-backed Snapdeal and Future Retail.
The new rules certainly add layers of compliance akin to the recent IT rules that also created ripples, for instance, one clause states that the e-commerce firm “shall be subject to a fall-back liability” where a seller fails to deliver goods or services resulting in loss to the consumer.
Further the government has proposed that e-commerce firms appoint a chief compliance officer, a nodal contact person as well as a resident grievance officer for redressing of the grievances of the consumers on the e-commerce platform and will have 72 hours to respond to legal requests.
The new proposal may also prohibit Amazon, Flipkart and other e-commerce players from running their in-house private labels and ensure that none of their related and associated parties are listed on their platforms as sellers for selling to customers directly.
Amazon argued that Covid-19 had already hit small businesses and the proposed rules will have a huge impact on its sellers, arguing that some clauses were already covered by existing law, according to Reuters who quoted officials aware of the developments at a meeting held on July 3, where CII, Ficci and Nasscom were present alongside the ecommerce majors – both global and domestic players.
Tata argued that the rules would stop Starbucks – which has a joint-venture with Tata in India – from offering its products on Tata’s marketplace website. A Reliance executive reported agreed that the proposed rules would boost consumer confidence, but some clauses needed clarification.
Need for greater clarification
It needs to be mentioned that while this is the first time the government has targeted flash sales, the sole intention is to curb the growing power of these behemoths. Back in July 2018, the government recommended setting a maximum duration for differential pricing and deep discounts. The foreign direct investment (FDI) rules in February 2019 restricted e-commerce companies from entering into exclusive deals to sell at deep discounts, and barred them from procuring over 25% of the inventory from a single vendor, especially from sellers in which the companies own a stake in.
A food for thought: While India’s e-commerce is huge, unlike China, where e-commerce accounts for over half of all retail sales, e-commerce comprises just 4% of overall retail in India. It is nonetheless one of the fastest growing markets in the country that’s expected to grow to $200 billion by 2026 from $38.5 billion as of 2017.
For now, the draft e-commerce proposal is open for public consultation until July 6. And Union Commerce Minister Piyush Goyal said it will soon issue certain clarifications on foreign investment rules. But there is a need to take a relook at the draft e-commerce rules for progressive regulation. Unless there is clarification on this area, the intended fair and level-playing field will remain elusive. In the coming days, it’ll be interesting to see how India’s e-commerce story unfolds after Reliance and Tata scale up their operations and start competing vigorously with Flipkart and Amazon.