India’s new draft e-commerce policy to rein in related parties

Brahm Buck

Bengaluru: The government is looking at extending restrictions placed on large ecommerce marketplaces such as Amazon and Walmart-owned Flipkart to their associates and related parties, to curb alleged circumvention of foreign direct investment (FDI) norms and anti-competitive activities by these players. A leaked copy of the upcoming draft e-commerce policy, […]

Bengaluru: The government is looking at extending restrictions placed on large ecommerce marketplaces such as Amazon and Walmart-owned Flipkart to their associates and related parties, to curb alleged circumvention of foreign direct investment (FDI) norms and anti-competitive activities by these players.

A leaked copy of the upcoming
draft e-commerce policy, which The Economic Times has reviewed, said the government will, from time to time, notify which parties fall under the definition of associates and related parties. Industry leaders said this will give rise to uncertainty.

“Actions and things that cannot be done by the platform entities can also not be done by any of its associates and related parties,” read the draft e-commerce policy, without divulging any further details.

India’s e-commerce FDI rules don’t allow for online marketplaces to hold inventory of their own or influence the price of goods sold and prohibit group companies or entities in which marketplaces have control of inventory to sell on their platforms, among other things.

“If this new policy goes through, there will be no business certainty (in e-commerce),” said a top executive at a leading ecommerce marketplace who didn’t want to be identified. If the government can, at any time, change its definition of related parties, forcing us to restructure our businesses, that does not create a very conducive environment.”

He added that India should instead use the e-commerce policy to define related parties and stick to that for the next few years at least, giving large marketplaces confidence to continue investing billions of dollars in the country just as they have been doing over the last decade or so.

Government officials refused to comment. They said due process would be followed by making the draft public, and comments would be sought from industry lobby groups, companies and any other related parties.

They didn’t say when the draft e-commerce policy would be put in the public domain.

Addressing Complaints

The draft policy also said marketplaces will need to be impartial to sellers on their platforms. They should not misuse data collected to gain an advantage over vendors. Both of these were complaints raised by groups such as the Confederation of All India Traders, Swadeshi Jagran Manch, All India Online Vendors Association and their affiliates.

In the case of marketplaces fulfilling orders end-to-end, the liability for counterfeits will be jointly borne by the ecommerce company and the seller, something that experts pointed out could be in violation of the
Consumer Protection (E-commerce) Rules that were introduced last year.

The much-delayed draft e-commerce policy comes in the backdrop of the Department for Promotion of Industry and Internal Trade (DPIIT) hosting consultations on changes needed in the FDI policy for e-commerce, which will be held on March 17-19. Several investigations are also ongoing by India’s competition watchdog and the Enforcement Directorate (ED) in the business practices of Amazon and Flipkart.

These issues have been highlighted again after recent reports that Amazon
favoured large sellers such as Cloudtail and Appario on its platform. The company
has denied this. ET also recently reported that Flipkart
was 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 (IPO).

Nonetheless, some welcomed the contents of the draft. If implemented, the policy will curb the dominance of e-commerce players such as Amazon and Flipkart, which is hurting millions of small retailers, they said.

“They (Amazon and Flipkart) are openly flouting norms and have treated India as a banana republic,” said CAIT secretary general Praveen Khandelwal. “I’m pleased to see that things are moving in the right direction now, and final discussions are going to be held with stake holders and others. It shows the government’s intention that it will come out with a new Press Note and a robust ecommerce policy.”

Exceeding Ambit?

Another executive at a large e-commerce firm said that while the latest draft policy clears up some of the confusion the previous draft had created over data sharing and consumer protection, it does introduce new complexities. It also further empowers the executive to frame rules on the sector, he added.

“Given the interdisciplinary nature of e-commerce, the Standing Group of Secretaries on e-commerce shall give recommendations to address policy challenges. The SGoS is an important avenue of ensuring that the policy keeps pace with the digital environment,” the copy of the draft ecommerce policy read.

The company executive cited above said DPIIT may be exceeding its remit by trying to curb creation of monopolies in a sector that still only accounts for a small slice of the business.

“We will need to see if this policy passes the test of well-established competition laws. We hope that people question the role of the government in ensuring there is more competition in a sector that accounts for just 3-4% of trade, versus letting market forces play out and determine that,” said the person.

The leaked draft ecommerce policy said the government will aim to ensure there are more service providers available to consumers and sellers to ensure no monopolies are created, declaring this to be in the interest of “the Indian consumer and the local startup ecosystem.”

The draft policy added that platforms having foreign investment will comply with the FDI policy, which will supersede the e-commerce policy.

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