Unnecessary division: A modern ecommerce policy is the need of the hour

The retail sector in India has faced multiplicity of rules for decades, and that issue should be addressed fast at a time when newer formats, such as quick commerce, are emerging as a driving force

The Union government last week allowed foreign direct investment (FDI) in the inventory-based model of ecommerce in the case of exports of domestically manufactured or produced goods. It’s a welcome step. It would help boost India’s exports and empower manufacturers, especially smaller enterprises, to access global markets.  The measure, expected to contribute to India’s exports, has been in the works after the steep tariffs imposed by the United States last year.  While the latest decision may help push India’s ecommerce exports, estimated at $4 billion-5 billion annually, it’s not enough when it comes to easing rules in ecommerce. FDI in the inventory-based model of ecommerce should be extended to the entire spectrum of business, irrespective of whether it’s meant for exports or domestic consumption. The ecommerce sector — expected to grow from $90 billion-100 billion now to around $250 billion by 2030 — needs a more comprehensive reform to move the needle in a meaningful manner.

 

The retail sector — both online and offline — in India has faced multiplicity of rules for decades, and that issue should be addressed fast at a time when newer formats, such as quick commerce, are emerging as a driving force. A simpler retail policy with fewer categories and divisions will help ease of doing business in a real sense. In most parts of the world, inventory- or marketplace-based formats are a choice left to the industry. The current ecommerce guidelines framed by the Department for Promotion of Industry and Internal Trade permits FDI in business-to-business and marketplace formats only. FDI is not allowed in business-to-consumer and inventory-based ecommerce. In other words, foreign ecommerce players such as Amazon and Walmart-owned Flipkart are debarred from owning inventories and selling to consumers directly, unlike the home-grown brands. While protecting Indian retailers and kiranas (neighbourhood stores) may arguably be at the centre of differentiated rules, such a policy creates barriers in the way of a level playing field. Also, complex rules, with ecommerce companies having to engage with eight to nine ministries and departments for different purposes, is seen as a hurdle for investors.

 

Even as the change in specific FDI rules for exports may look beneficial on paper for certain categories of enterprises, its execution can face bottlenecks. Infrastructure creation and the supply-chain ecosystem could be among the problematic areas while adhering to the amended rulebook. For instance, a foreign-owned ecommerce company, seeking to avail itself of the revised rules, will have to have a separate set of warehouses, with their own inventories, to cater to exports. And, it will need another set of warehouses and dark stores for reaching domestic consumers through the marketplace route. The company’s dealings with sellers and the supply-chain companies will also alter under the new arrangement. Increasing complexity could also result in room for loopholes in the system and, therefore, compliance gaps.

 

Domestic traders and distributors have already been at war with foreign companies for long over alleged violations of rules. Further categorisation and multiplicity of rules run the risk of making the industry more acrimonious, harming the prospects of a promising ecommerce industry. Having uniform rules for all players in the sector is the right way forward, for which a well-thought-out ecommerce policy is needed.