The Department of Industrial Policy and Promotion (DIPP) on 26 December amended the Foreign Direct Investment (FDI) policy in e-commerce, making it more specific and with the objective of creating a level-playing field between offline and online retailers in long term.
The proposed changes will be effective from 1 February. The genesis of these amendments was to address the concerns raised by small traders, offline retailers and trade bodies against the practices of online players, which have been viewed as detrimental to trade and consumers in general.
There has been a lot of focus on private label, group transactions, etc., in the context of e-commerce. However, even large offline players have their private labels, which are sold at brick-and-mortar stores along with third-party brands and merchandise. If the intention here is to help small businesses, how does restriction placed only on online retailers help, if offline players continue to have private labels and pricing power, as also arrangements such as SOR and ESS contributions?
The amendment puts the responsibility on the marketplace to ensure no seller sells more than 25% of its products on its platform. This new rule appears to impose a limit on how much one vendor can sell on a particular portal, which will discourage many small entrepreneurs, especially home businesses, that thrive only because of online sales without brick-and-mortar operations.
These small vendors will need to enhance production capacity and invest in inventories to meet the new requirements, which is likely to give rise to other challenges for small businesses. There are also a lot of first-time vendors who have got into the system only because they have the ability to sell via e-commerce platforms; social commerce has created many first-time entrepreneurs who should ideally be encouraged to grow without having to worry about the quantum of sell on individual platforms.
E-commerce has revolutionized buying in India with a recent report by Nasscom estimating that the sector is likely to grow three times to cross $100 billion by 2022. Sellers in remote parts of India now access consumers due to the infrastructural and technological advancements courtesy e-commerce. It has and will help create innumerable jobs across the socio-economic spectrum.
However, even then, Indian e-commerce’s penetration is relatively small and is expected to increase from 2.1% in 2017-18 to around 6.2% in 2022-23; certainly growing fast, but relatively small in the context of total retail spends.
If the perception is that people flock online only for discounted pricing and that e-commerce players may monopolize and decide to increase prices subsequently, then it’s only a matter of time before the offline retailer stands to benefit as he can cater to this demand.
Of importance here (unlike some other countries) is, India has 2-3 key e-commerce players in each segment (with many upcoming ones), thus propelling a healthy competition, which would invariably keep the prices in check.
There is certainly greater clarity needed on some of the key definitions/aspects within the proposed law, be it with respect to control and consistency of it between various laws, parameters to meet the 25% limit, including when in case of independent MSMEs, who only sell their products online and who breach this 25% limit, among other aspects. Any law should holistically address the core issues and should be such that it is fair for all; it may do more good to have an inclusive dialogue on some aspects with all key stakeholders to understand the diverse points of view and related implications on the e-commerce ecosystem.
The key for the policy has to be to make sure that the ecosystem, especially the consumers, are not negatively impacted; be it for choice of products, pricing or service quality.
Ankur Pahwa is partner and national leader, e-commerce and consumer internet, EY India