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In That Direction!

The idea behind the draft e-commerce policy is to protect indigenous small retailers from the onslaught of deep-pocket e-tailers


There is no doubt that in the coming decade, the volume of business transacted via e-commerce portals will cross the $200-billion mark thanks to growing income, cheaper data rates and falling prices of smartphones and other gadgets. But the traditional brick and motor shops may not enjoy the same benefits as their counterparts in the e-commerce space, many of which with deep-pockets and the ability to offer attractive discounts, are luring more consumers to the online market place. Therefore, the draft e-commerce policy framework, curated from hours of consultations between the commerce ministry and the stakeholders including the e-commerce players, consumer bodies, lawmakers, among others, outlines the government’s intent to support homegrown small and medium scale businesses while imposing curbs and spelling out dos and don’ts subject to wider consultations and feedback from one and all.

Before examining the draft proposals, let’s understand the e-commerce market in India as it exists. Today, the size of online shopping is pegged at $20 billion with 95-100 million Internet shoppers. If online transactions for ticket sales (movies, air, rail, bus and cabs) and online home services are added to it, the size of the e-commerce business in India swells to over $53 billion. At the outset, the draft proposals seems to be targeting the likes of and Walmart-Flipkart, the two e-commerce giants with foreign backing. But let us not forget that the so called ‘Indian’ e-comm platforms such as Paytm, Ola, Makemytrip and several others too have significant foreign funding.

The draft policy limits inventory based business-to-consumer e-commerce in India for products made outside India. Which means e-comm players cannot bulk order from China/Taiwan (particularly mobile handsets, gadgets, electronic goods etc.) and store, thereby offering discounts to consumers. No such restriction is imposed on procurement and storage if products are bought from local manufacturers. The message is clear: government wants to promote ‘Make in India’ on e-comm portals. Aahaa Stores CEO Rajaraman Sundaresan says: “Millions of MSMEs now have a better chance to go online. This will result in more promoters seeking funds and not worrying about losing control. The policy is a complete win-win for Indian B2B e-comm companies as they will now have better control over pricing and inventories. Pricing will no longer be controlled by group companies.”

Offering attractive discounts is the mainstay of e-comm portals. Today you can expect to buy your favourite digital camera online 20 per cent cheaper than the market price. This may not be the case tomorrow as the draft policy suggests a ‘sunset period’ (of two years) for every discount and offer, beyond which no e-comm portal can be allowed to provide discounts. Hypothetically, if the draft policy becomes a law today, all e-commerce portals will have to end their discounts and offers within the next 24 months. Experts expect a lot of comments and feedback to come in on this point when the draft policy framework is opened for public consultations.

Among other things, the draft strongly pitches for protection of user data stored with e-comm firms in any form. It mandates that all data pertaining to Indians should be stored within India. The issue of data protection has gathered steam after the Cambridge scandal and recently Trai informed all digital companies and telecom operators that the user data only belongs to the users, and no one else.

Mixed reaction
Under the draft policy, the government is clearly seen to favour Indian e-comm ventures (where the foreign direct investment is well under 49 per cent and the founders/management is Indian). Clearly, the intent is to discourage big e-comm portals funded by foreign investors. The draft rules have found big support from Swadeshi Jagran Manch, whose national co-convener Ashwani Mahajan said, “We cannot allow big companies to eat up small ones.” Kishore Biyani, CEO, Future Group, calls it “a step in the right direction” but adds that the government should take a holistic view as the retail space is evolving in both physical sales as well as digital sales. “We need a policy for that,” he says.

Vidhya Shankar, executive director at Grant Thornton India LLP, says the draft policy indicates strong intent to create a level playing field for all e-comm players. “It is also helping to accelerate the growth of the sector by widening the base of manufacturers and traders, simplifying GST and taxation, migrating towards high standards of data protection, digitalising the supply chain rather than disintermediation thus moving closer to realising the goal of a digitally enabled New India,” he adds.

Whatever may be the final outcome of this exercise, it is clear that the debate and discussions on the matter will continue for several months and the implementation may take even more time as it entails several amendments to existing laws under nearly a dozen central ministries, which obviously means going before the Parliament, a tall order in itself.

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Magazine 4 August 2018 e-commerce

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