Draft national e-commerce policy: More pain in store for Amazon, Flipkart

Data localisation

Business models of ECMs are significantly centred around data. Key data points collected in India by ECMs are used by their foreign-based parent companies (ie. Amazon Inc for Amazon India, Softbank for Flipkart) to take decisions on the following fronts:-

- Amount of funding to be infused periodically in ECMs
- Terms of engagement of ECMs with buyers
- Product/brand launches, modifications and withdrawals to be undertaken
- Investments in retail and logistical infrastructure

Unlike ECMs, unorganised small retailers don’t have access to such data and cannot invest heavily in technological infrastructure because of limited resources. Leakage and/or transfer of sensitive data could also expose Indian markets to probable trade manipulation by international players (such as trade bodies, exporters and holding companies of ECMs, among others).

The draft states that ECMs wouldn’t be able to share data with third parties (even if a consumer consents to it) or with foreign stakeholders (unless approved by the Indian government).

If a customer’s data is collected upfront, full disclosure regarding the purpose needs to be made by the ECM on its interface. Simultaneously, ECMs must address security concerns relating to such data.

By virtue of these norms, ECMs would be staring at an increase in compliance costs. It would be hard to pass these on to the buyers considering the high competitive intensity in retail.

Supply chain transparency

ECMs need to ensure that all product shipments from other countries to India are undertaken through the customs route. The draft provides for integrating Customs, RBI and India Post systems to improve tracking of imports. Additionally, ECMs must have a registered business entity in India (which will be the importer on record) through which sales are transacted domestically. Such regulations will curb tax/regulatory loopholes.

Supplier and product authenticity

ECMs must publicly share all relevant details of vendors (who use the ECM's platform to sell products). Vendors would be required to furnish an undertaking of the genuineness of products to the ECMs, which should also be accessible by consumers. Vendors who fail to do so cannot have their products listed on the ECM.

ECMs should seek authorisation from trademark owners before listing any high-value products, cosmetics or sensitive goods (particularly those that impact public health) on their portals. ECMs should clearly mention MRPs (maximum retail prices) on all packages and invoices in Indian rupees. Barring life-saving drugs, gifting of parcels shall be forbidden.

All customer ratings for verified purchases must be published, except those found to be promotional, abusive or inappropriate. ECMs should also watch out for fraudulent reviews by vendors and their affiliates.

Better accountability and easier grievance redressal processes should attract the attention of buyers who’ve been paranoid about online shopping.

The impetus towards smaller players

To promote “independent” selling, i.e. sales by entities not controlled or influenced by ECMs, the ECM will have to focus more on getting new domestic producers, manufacturers, traders and retailers on their platforms. Even more so, since ECMs are disallowed from storing, controlling or owning any inventory that is sold through their portal. This works in favour of small retailers.

Unsolicited marketing and advertisement strategies by ECMs will be monitored closely by regulators to prevent monopolisation.

These measures should prevent pricing discrimination between ECMs and their offline counterparts, thus creating a level playing field for all.

Last mile connectivity

Data centres, servers, towers, optical wires, signal transceivers, antennae etc. will be accorded ‘infrastructure status’. ECMs would be able to avail finance, power supply and connectivity solutions at reasonable rates. This should help ECMs tap remote areas in India, which would also augur well for the unorganised retailers in such regions.

In conclusion

While the draft aims to tackle challenges faced by smaller retailers, ECMs, apparently, have little to cheer about. For Amazon and Flipkart, losses aren’t the biggest cause of concern since both are backed by cash-rich holding companies.

However, for India, the worrying factor is the negative perception that policies/drafts like these create in the minds of present/prospective foreign investors. Such rules have an adverse bearing on FDI inflows in a sector that offers immense growth potential.

So, should the above-mentioned provisions see the light of the day, the sigh of relief for small retailers would come at a big price. Donald Trump's plans to end preferential trade treatment to India, that were on the agenda since quite some time, could have been probably triggered by the restrictive policies for global e-commerce players (Amazon, Walmart) in India. This may have been the first of the many reactive steps that would follow.

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Disclaimer: Moneycontrol Research analysts do not hold positions in the companies discussed here