India reviews draft e-commerce policy after criticism

The draft e-commerce policy received a pushback, including a proposal on FDI in some areas and one requiring Indian consumer data to be held locally

Saritha Rai and Archana Chaudhary, Bloomberg
Updated14 Aug 2018
Only over a third of India’s current 390 million users transact online, , suggesting massive untapped opportunity for e-commerce in India. Photo: Bloomberg
Only over a third of India’s current 390 million users transact online, , suggesting massive untapped opportunity for e-commerce in India. Photo: Bloomberg

India is reworking proposed e-commerce rules after a draft, which had signalled a shift toward boosting domestic startups, sparked criticism, according to people familiar with the matter, who asked not to be identified as the discussions are private. Commerce minister Suresh Prabhu tweeted on 11 August that his ministry had received a “few concerns” on the draft e-commerce policy and will reach out to stakeholders to address them. The initial document received pushback, including a proposal on foreign investment in some areas and one requiring Indian consumer data to be held locally, one of the people familiar said.

The discussions may lead to an overhaul and a fresh draft e-commerce policy will be posted in a few weeks on the ministry’s website, the person said.

The 19-page draft e-commerce policy, a copy of which has been seen by Bloomberg, underscored India’s intent to examine every aspect of e-commerce regulation from data localization to antitrust rules. The changes would tighten restrictions on global giants like Inc. and Google and may bolster local startups such as digital payments provider Paytm. The nation’s interest in stricter norms for an Internet market that’s been largely open for decades reflects the pitched battles being fought in segments like online retail, cloud services and digital payments.

Broadly the draft had signalled “some kind of protectionist thinking,” said Nandan Nilekani, chairman of Infosys Ltd. “It may stem from a feeling that Indian startups should be given a boost, something on the lines of the China model.”

Unlike its neighbour, India has allowed Silicon Valley giants like Facebook and Google to dominate entire segments including search, social and messaging.

The draft called for creating a “fair environment for domestic digital firms to find their rightful place,” and “levelling the playing field for foreign players and domestic startups.” It proposed a single legislation to encompass all aspects of e-commerce and a single regulator to govern the industry.

It also outlined measures that would make local data storage mandatory, curb discounting in online retail and allow founders to keep control of their startups even with a minority stake. Continuing the theme of boosting domestic players, it proposed allowing foreign investments up to 49% in companies that use the inventory model to sell locally-produced goods on online platforms.

Untapped opportunity

Over half a billion Indians will come online in the a next wave of internet users and shoppers, said a new report released jointly by Bain & Co., Google and Omidyar Network this month. Data consumption on the mobile is already at par with developed markets at 8 GB per month per user. Yet, only over a third of India’s current 390 million users transact online, the report said, suggesting massive untapped opportunity.

The draft had suggested strengthening regulatory vigilance for payments systems, a move that would bring more stringent oversight for the likes of Google Tez and WhatsApp’s payments service. It also discusses adopting anti-competitive norms by curbing discounting by online retailers, which would impact not just Amazon but also Flipkart Online Services Pvt. Ltd., which was recently acquired by Walmart Inc. in a $16 billion deal.

Some retailers are backing the move as it may help large players be more disciplined on meeting foreign investment regulations.

“The lack of adherence has disadvantaged millions of genuine small online sellers, who are unable to compete as large marketplaces themselves behave like sellers by controlling inventory and influencing price,” said Kunal Bahl, co-founder and chief executive of New Delhi-based Snapdeal.

Global mood

One of the biggest debates will probably be over data localization, which complicates the operations of companies involved in everything from maps to search to social media, potentially impacting the likes of Apple Inc., Uber Technologies Inc. and China’s Alibaba Group Holding Ltd.

While the draft now looks set for changes, it still points in the direction of government thinking. “What’s happening in India is only a reflection of the global mood where after decades of globalization and trade, we are seeing tariff and non-tariff barriers emerging across the world,” said Infosys’s Nilekani.

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