By seeking an annual statutory audit of compliance with foreign direct investment rules for online marketplaces, the government is addressing recently aired concerns by local traders that e-commerce companies may not be following changes that came into force in February. The marketplaces were barred from holding stakes in sellers using their platform and from exclusive product sale deals, which had been identified as reasons for deep discounts being offered in the online retail sector. The additional disclosure the government is now seeking follows brisk festival sales reported by Amazon and Flipkart, as much of the cheer was missing in brick-and-mortar stores.
Commerce Minister Piyush Goyal had last month flagged the issue of predatory pricing by e-commerce companies, and the government has now tightened compliance requirements. Although e-commerce has only a minuscule share of the overall retail market in India, it has been making rapid gains as the reach of the major players extends far beyond large cities.
Online services have a significant comparative advantage over traditional retail outlets, and the government has declared on more than one occasion its commitment to protecting the livelihood of India’s small shopkeepers. With China having closed its market to global e-commerce players, India offers the only country with a scale large enough to justify heavy and sustained investment by the likes of Amazon and Walmart. The government is well within its rights to insist that if they want to do business here, they must do it according to our rules. It’s just that these should be fair to all.