Introduction To Draft E-commerce Policy

Introduction to Draft e-commerce policy

Draft e-commerce policy:

The draft e-commerce policy, which was implemented from 1st feb 2019 lays down several norms for e-commerce companies. These norms primarily address the problems of unrealistically high discounts offered by major e-commerce players, thus securing markets for brick and mortar stores and MSME sector.

Ecommerce companies in India have been criticized for predatory pricing, but the revised e-commerce policy plans to make deep discounts a thing of the past. Thus demoting anti-competitive behavior and subsidized pricing.

 

The need of an e-commerce policy:

  • India’s e-commerce sector, currently estimated to be worth around $25 billion, is expected to grow to $200 billion over the next 10 years. This necessitates better policy response and coordination among various wings of the government.
  • Much of the growth in the sector is on account of cheaper smartphones and data tariffs, along with enhanced connectivity.
  • The next phase of growth is expected to come from tier-II and tier-III towns
  • This can result in job creation, productivity improvement, and increased consumer presence on online platforms
  • For India to fully benefit from these opportunities, it is important for policymakers to have clearly laid-down rules for e-commerce in the country.
  • Traditional retailers had voiced concerns about large e-tail players with deep pockets pricing them out of the market, and have been seeking a level playing field.
  • Many of the rules currently exist in some or the other form, and are enforced by a multiplicity of government departments and regulators. A national e-commerce policy will be an attempt at creating a one-stop shop for the norms and regulations under which online retailers will be covered.
  • An India e-commerce policy will also enable better negotiations on multilateral issues with the World Trade Organization

The changes, which will take effect on 1 February, are five-fold:

 First, marketplace entities cannot buy more than 25% from a single vendor;

 second, marketplaces will not directly or indirectly give discounts on products;

thirdly, entities in which there is equity participation by the marketplace entity cannot sell their products on the platform run by the marketplace;

 fourthly, e-commerce marketplace entity will not mandate any seller to sell any product exclusively on its platform only; and

 fifthly, marketplaces will have to submit a compliance report to the Reserve Bank of India (RBI) by 30 September every year.

Way ahead for Amazon:

It is the American e-tailer which will be most affected by this policy. Let us look at what changes will Amazon have to make, in order to comply with the latest norms:

The norms for foreign direct investment (FDI) in e-commerce put out on Wednesday bars e-commerce firms from selling products of entities in which they have an equity stake.It has been mainly with the help of these entities that Amazon offers deep discounts. Such kind of barring may effectively lead to Amazon offloading its investment in Cloudtail and Appario, which forms majority of its sales.

If Amazon plans to sell its stakes in the two companies, for the first time these sellers will be valued on an independent basis, providing an insight into the valuation of these large sellers on the platform, whose sales itself account for hundreds of millions of dollars every year.

While Cloudtail is a joint venture between Amazon and N.R. Narayana Murthy’s Catamaran Ventures, Appario is a joint venture between Amazon and the Patni Group.

Analysts say that while Amazon has been slowly and continuously diversifying sales from Cloudtail and Appario, the e-tailer may have to offload its stakes if it wants to work with these entities.

 

 Impact of Draft e-commerce policy:

 The draft policy makes a strong case for championing ‘Indian’ online enterprise and creates a level playing field for homegrown companies.  It may have major implications for foreign-owned  ecommerce majors operating in India.  Heavy discounts offered by shopping portals may soon become a thing of the past.  Having a regulator, e-consumer courts may better address complaints about online financial frauds  In the long run, it helps the country and Make in India.  Millions of micro, medium and small enterprises (MSMEs) have a better chance to go online.  It will also help large companies build a viable business rather than just depend on discounts.