New draft  policy  widens scope of e-commerce business

  • The nine-page policy document also called out that the governance will include entities, natural or legal with foreign and domestic investments.
  • The individuals aware of the discussions told Mint that this is the definite version of the policy from the government's end.

Tarush Bhalla
Updated15 Mar 2021
The draft policy aims to ensure that network effects do not create digital monopolies.
The draft policy aims to ensure that network effects do not create digital monopolies.(Mint)

Actions prohibited for online retailers will apply to their associates and related parties as well, and the government will routinely identify such entities to ensure compliance, the draft of India’s new e-commerce policy said.

The policy document, which is expected to be released for public consultations soon, vastly extends the scope of regulation over the country’s growing e-commerce sector.

“Actions and things that cannot be done by the platform entities can also not be done by any of its associates and related parties. Government may, from time to time, notify parties that fall in the definition of associates and related parties,” said the draft policy released by the Department for Promotion of Industry and Internal Trade (DPIIT) at an inter-ministerial meeting on Saturday.

The government may be hinting at India’s foreign direct investment (FDI) rules under Press Note 2, 2018, which prohibit e-commerce companies from holding direct stakes in or controlling the inventory of sellers on its platform. The draft also wants e-commerce entities to “ensure equal treatment of all sellers or vendors registered on their platforms and not adopt algorithms that result in prioritizing select vendors”.

Since e-commerce in India is now governed by several regulations under various ministries, the draft policy makes it clear that a ‘holistic mechanism’ will be created to prevent anyone from capitalizing on this multi-ministry setup, causing delays to issues and address grievances.

It has also asked the Standing Group of Secretaries (SGoS), a working group of secretaries and joint secretaries of different government departments, to administer the e-commerce policy as well as look into the challenges while keeping policies at pace with the digital expansion undertaken by e-commerce companies.

“By ensuring that even related parties share the same scrutiny as the e-commerce platforms, it is clear that the government will ask them to refer to the e-commerce policy to follow the spirit of the law,” said an executive at an e-commerce firm, asking not to be named. “Platforms can no longer issue ‘algorithms’ as a plausible excuse, in case it is found that a certain seller has been given unfair prominence on the platform.”

In the past, physical retailers’ lobbies such as the Confederation of All India Traders (CAIT) have alleged that e-commerce majors, including Amazon India and Flipkart, had found ways to flout rules and own indirect stakes in sellers while giving them preference on their platform.

“The FDI invested in these companies are not being used to create infrastructure in the country, rather being used for cash burning in keeping its ulterior motives of business policy to crush and control not only e-commerce but retail trade as well. It is an open fact that in a very clandestine manner, these companies have developed escape routes in Press Note No.2 of 2018 for flouting the norms; however, now there is an urgent need for replacing Press Note No 2 with a fresh press note plugging all the loopholes,” CAIT said in a statement on Sunday.

DPIIT is expected to begin consultations on the draft policy on 17 March CAIT said.

The draft policy aims to ensure that network effects do not create digital monopolies, which could misuse their dominant market position. This comes at a time when conglomerates like Reliance Retail Ltd, Tata group and Amazon and Walmart-owned Flipkart are strengthening their e-commerce play.

“The direction which the draft policy is undertaking suggests that the industry still needs to overcome a lot of barriers between marketplaces and the government. Solving these barriers are still a work in progress,” said Ankur Bisen, vice-president, retail and consumer products, Technopak, a management consultant.

Bisen added that if the government is keen to ensure that marketplace algorithms should not favour sellers in which they have indirect stakes, it should directly list the clause in the manner or else it continues to be vague on how a marketplace can justify whether its algorithms are not biased.

The new rules could stifle growth, an analyst said.

“The draft is a chat commentary on creating a level playing field. But even domestic players are getting international capital, and the lines are blurring. So, by tightening ownership norms, the government is killing the spirit of ‘free capital’ needed for the growth of the industry,” an analyst said on condition of anonymity.

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