Draft e-commerce policy: Investments by large players may take a hit

Big e-commerce firms may have increased compliance requirements in comparison to smaller ones, depending on their turnover, market size, active users, registered sellers, sale of merchandise value, among others, according to a draft e-commerce policy prepared by the Department for Promotion of Industry and Internal Trade (DPIIT).

“... distinction would be made separately for e-commerce operators of significance who may be required to have additional compliance requirements,” the draft policy said. Business Standard has seen a copy of the draft. The draft, however, did not spell out the finer details of the compliance requirements.

Currently, online retailers such as Amazon and Flipkart are the dominant players in this space, capturing around two-thirds of the market share, experts said. Over the past decade, as the e-commerce space evolved and grew manifold, the government has also taken measures to protect small retail traders, while trying to provide a level playing field for all players in this space.

An inter-ministerial panel on Saturday deliberated on the draft e-commerce policy, which suggested ways to boost exports, handle data, and promote fair competition among sellers and vendors in marketplaces as well as ways to meet regulatory challenges.

A senior government official told Business Standard the policy would be finalised after a few more meetings with the government departments concerned. Thereafter, the DPIIT will seek the Union Cabinet’s approval. E-commerce players will be required to ensure transparency and treat sellers equally on their platforms. According to the draft, the government can set up an investigation body to inquire into violations of various laws by e-commerce entities and initiate action.

“This may create challenges for firms such as Amazon and Flipkart, which are often accused by physical retailers of predatory pricing and offering discounts secretly through the sellers on their platforms in violation of FDI rules,” said Salman Waris, managing partner at technology law firm TechLegis Advocates and Solicitors. “But these e-commerce firms have denied such charges.”

Many industry executives have said the draft e-commerce policy is being perceived as nationalistic but not overly protectionist and it is providing preference to Indian players against foreign companies.

This might have an impact on investment by large players such as Walmart and Amazon in the country, said the executives. They said e-commerce was a very small portion of the retail industry and at a nascent stage and did not require heavy hammer regulations.

Though the policy talks about being equally applicable to foreign and domestic players, it mentions that foreign direct investment (FDI) takes precedence over the e-commerce policy in any area of overlap. “This can provide differentiated treatment for domestic players like Reliance and be harsh on players such as Walmart and Amazon,” said an industry executive.

According to the draft, e-commerce operators must ensure equal treatment for all sellers or vendors registered on their platforms and not adopt algorithms that result in prioritising select vendors or sellers. There are references related to the need for the algorithms used on the marketplaces to be transparent and prove there is no specialised treatment.

Executives say when consumers go to physical stores, they can see that there are also certain products that are better placed. Also, there is a concern for e-commerce firms for providing access to the algorithm, which is their IPR (intellectual property rights). They said there were vague references to future policies on data sharing for economic interests, which can be a concern for companies. “By placing restrictions on cross-border flows of the data pertaining to Indians and the transactions taking place in the country, the draft e-commerce policy could indirectly help Indian payers big and small, including Reliance,” said Waris of TechLegis. “This is purportedly done to stop misuse of data. However, the responsibility to do sufficient audits further increases the compliance burden and is another hindrance to players such as Amazon and Flipkart.”

Atul Pandey, partner at Khaitan and Co, said: “The policy aims to bring transparency in operations of online retailers. It will prevent sales of counterfeit products, which is a step in the right direction. According to the draft, the government could appoint an agency that would identify e-commerce entities indulging in hosting sales of pirated products through their portal.”