The Indian government has decided to shelve its draft ecommerce policy for the time being and will instead put in place a set of rules arrived at in consultation with the country’s top two ecommerce companies, Flipkart and Amazon, according to two senior government officials.

The ecommerce policy, which was supposed to be out by the end of the year had already reached the draft stage after discussion with various internet companies, think tanks, and industry associations. “It seems that the (ecommerce) industry doesn’t need a policy, but a set of rules will help in taking the industry to the next level,” said a senior commerce ministry official.

The official added that inputs need to be taken from Amazon and Flipkart, as they are the two largest companies in the space in India. This is a volte-face from the initial stance of the proponents of the policy — widely seen as an attempt to safeguard interests of Indian ecommerce players against the dominance and onslaught of foreign-owned ecommerce platforms. When the discussions of the policy began, Flipkart (77% owned by Walmart) and Amazon were kept out of the discussion.

The policy’s aim was to look into matters of predatory pricing, discounts, data localisation, promotions of Indian entrepreneurship, among other aspects of ecommerce and online-aided retail. “Some of these will be tackled in the new rules, but it doesn’t require a composite policy,” said a senior official of the department of industrial policy and promotion, or DIPP, the government department tasked with overseeing matters related to foreign direct investment.

While the government will continue the data localisation debate and what should be the optimum FDI, the government is likely to drop forming rules on discounts. “What will the rules be, that is yet to be finalised… we have started the consultation,” said the DIPP official.

Indian ecommerce, a $25 billion industry, is merely 4.4% of total retail sales in India, according to research firm Statista. By 2022, it is expected to more than double to $52.3 billion. “A composite policy might water down the growth of a fast-changing industry,” the DIPP official said.

The American stronghold

More than 70% of the Indian ecommerce industry, at least in product retail, is dominated by the two US-controlled companies: Flipkart and Amazon. The government doesn’t want to ignore their presence. “Huge investments are coming into the country from these companies… (The government) doesn’t want to let go of the money that comes in form of taxes,” said Raghu Viswanath, CEO and founder of Vertebrand, a Bengaluru management consultancy.

At the same time, he added, the government doesn’t want to antagonise smaller merchants crying foul over heavy discounts offered by the biggies. “Elections are around the corner… The government is leaving it a little loose,” he said.

Meanwhile, the government has opened a dialogue with Flipkart and Amazon to understand what will help in growing the industry further. It recognises that investments are getting consolidated with a few big players. Most among the smaller rivals, who were looking at the ecommerce policy as a way the government would help in keeping company ownership Indian, will either get acquired by larger companies or slowly cease to exist.

The first source said that as the importance of Amazon and Flipkart will increase as they onboard more sellers and, in turn, create more downstream employment.

Why a policy?

Not many people think that an ecommerce policy is required. “Ecommerce is a way of life, just like the internet. You cannot have an internet policy. Why regulate it which is the way of life,” asked Arvind Singhal, founder and managing director of consulting firm Technopak.

He argued that all the rules are already there like the way things are governed in the physical retail. Ecommerce is just another channel of selling goods, he insisted. As far as discounts and artificial distortion of prices are considered, he adds that neither Flipkart nor Amazon is dominant enough to influence the market. “How can ecommerce, which is 2% of total retail spending, be dominant,” he asked. (The share of ecommerce is estimated slightly larger at 3.6%.)

The first source also said that most of the rules that are applicable to physical retail will be applicable to online retail. “India already has those in place and there are government bodies to take care of any mishap if it happens,” the commerce ministry source said.

Data localisation, on the other hand, has elements of national security as also privacy and security embedded in them as it pertains to financial or banking information. “It is not an ecommerce-only issue,” said the DIPP official. That will be addressed in a new set of rules that will come out in the next few months.

For consumer or competition-related issues, bodies like Competition Commission of India and the department of consumer affairs are already tasked with dealing with abuse of any kind.

For now, rules pertaining to FDI will remain the same. Marketplaces will continue to work with sellers and will not be able to hold inventory. “There is some discussion of rules on the marketplace and inventory-led business but it is too early,” the DIPP official said.

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