The government recently brought out a draft e-commerce policy that gave preference to Indian enterprises over foreign-owned majors. Since e-commerce in the country is backed significantly by foreign investors, the differential draft policy rang an alarm bell in the industry, dividing it into two camps — swadeshi and videshi — in a stark reminder of the Bombay Club protectionism of two decades ago. As allegations flew that the differential policy was meant to help an Indian major entering the e-commerce space, the government did well to shelve the policy pending further review.
The draft policy was differential because it recommended that Indian-owned and Indian-controlled e-commerce firms could be allowed to hold an inventory as long as the products were fully produced in the country. The policy had proposed allowing 49 per cent foreign direct investment (FDI) in inventory-based e-commerce for 100 per cent locally made goods for Indian-owned and Indian-controlled e-commerce ventures. As e-commerce entities controlled by foreign investors were not permitted to hold an inventory, this policy would have been a shot in the arm for Indian-controlled companies as inventory-led models have guided the success of e-commerce globally. Subsequently, companies started experimenting with the marketplace variant, a route shown by China’s Alibaba as against America’s Amazon trusting the inventory format. In India too, e-commerce began based on the inventory model, which later morphed into marketplace to comply with somewhat hazy guidelines for the sector.
The e-commerce sector needs a policy that will enable companies to have clarity on long-term business plans. But so far, the policymakers have failed to give any confidence to businesses on the way forward. In the absence of any consistent regulatory framework, companies have had to change their business models from time to time, based on their interpretation of what is legal and what is not. But the policy should be fair to all. Now that the e-commerce draft is back on the drawing board, the government would do well to make it a simple and unambiguous policy. It should be left to the businesses to decide whether they want to go for an inventory-led or marketplace model in e-commerce. Imposing differential conditions, whether between foreign-owned and Indian owned or inventory-led and marketplace, could jeopardise the future of a promising sector.
E-commerce, which recently saw one of the biggest pieces of FDI come into India through Walmart’s $16-billion acquisition of Flipkart, is growing at 25 per cent and is expected to cross the $100-billion mark by 2020. No policy measure should come in the way of this growth and slow it. If the government wants the e-commerce policy to be in sync with the overall retail policy of the land, it should bring down the barriers in physical retail rather than introducing hurdles for online players. In retail, there are different guidelines for foreign investment in single brand, multi brand and wholesale, creating confusion and blocking big businesses. It’s time to make a single policy for retail and follow the same principle in e-commerce. There is also considerable merit in the suggestion that e-commerce needs a separate regulator. There is a huge confusion at present — for example, while the FDI policy comes under the purview of the Department of Industrial Policy and Promotion, trade falls under the Consumer Affairs Department, leading to a lot of complication. E-commerce players certainly deserve better.