July 05, 2020
Home  »  Magazine  »  Business  » Marketwatch »  Come Feb, New E-commerce Rules Could Shake Up Indian Market

Come Feb, New E-commerce Rules Could Shake Up Indian Market

From February, a new chapter would be written in the history of e-commerce in India. One that will not be consumer-driven.

Google + Linkedin Whatsapp
Follow Outlook India On News
Come Feb, New E-commerce Rules Could Shake Up Indian Market
The new e-commerce rules are likely to hit market leaders Flipkart and Amazon.
Photograph by Nilotpal Baruah
Come Feb, New E-commerce Rules Could Shake Up Indian Market

In early 2015, two years after Amazon’s entry into India, Reddit tweeted a photograph of a delivery box of the US online giant at a Flipkart office reception. The photo sparked a barrage of twitter exchanges between Amazon and Flipkart, then India’s largest e-commerce firm, and also signalled the start a fierce business rivalry that continues to the day. The next few years brought a bonanza for Indians as the two e-tail giants ramped up their rivalry with eye-popping discounts and “sales” that appeared to defy gravity. But the story is about to change from February 1.

In a recent notification that could change how e-commerce functions in India, the government has barred online retailers from offering massive discounts, and also limits the amount of sales a single company can give. The move is seen as an attempt toprevent predatory pricing and deep discounts which have hit millions of small shopkeepers, especially in areas like mobile phones and electronics. According to market data, around 60 per cent of mobile phones were sold through the online channel last year. These businessmen have been lobbying for government support in the face of the cut-throat rivalry between Amazon and Flipkart, which was acquired by Walmart for $16 billion last year. The local traders fear that Walmart’s entry could drive the mom-and-pop stores out of business.

Amazon and Flipkart dominate India’s e-commerce market, which is expected to rise to be worth over $32 billion by the end of the decade. Other players include Snapdeal, backed by Japan’s SoftBank, Paytm E-Commerce backed by SoftBank and Alibaba Group, and Tiger Global-backed ShopClues. People with knowledge of the market say that the new rules could have a telling impact, not just on Indian consumers but also impact company-owned sellers, especially Amazon and Flipkart.

Amazon sells a number of products through its subsidiary, Cloudtail, a joint venture between Amazon and N.R. Narayana Murthy’s Catamaran Ventures. It also has another joint venture, Appario Retail, with the Patni Group, which has emerged as one of the largest sellers on Amazon India. Similarly, Flipkart till recently had WS Retail, promoted by the founders of Flipkart. Though the company has been spun off from the parent and is an independent seller now, it is still the largest seller on Flipkart. The new rules will bar these companies from selling on their parent platforms.

The rules, effective from next month, will bar e-commerce companies from selling products from companies in which they have an equity interest. Besides, commerce ministry notification said, companies will not be able to enter into exclu­sive arrangements with online retailers. This will end mobile phone deals by companies such as Motorola and OnePlus who have been selling their products exclusively through retailers. However, market analysts say the new announ­cements would be detrimental to not just the functioning of the larger companies but also Indian consumers who have been getting better deals on these online retailers as compared to brick-and-mortar shops. “In essence, it is against consumer interest. The government has to ensure a level playing field and not meddle through pricing. The government should not get into pricing at all,” says Lloyd Mathias, former HP, A-PAC marketing head.

Also significant is the rule that a vendor will now not be able to sell more than 25 per cent of its products on an online channel. This is certain to affect small businesses who have taken to online channels to avoid distribution and retail costs. Says Ankur Pahwa, partner and national leader, E-Commerce and Consumer Internet, EY India, “While providing a level playing field and supporting MSMEs is the intention of the government ; pricing, discounts, private label mix are equally relevant for brick-and-mortar retail businesses as they are for e-commerce companies. So, it will certainly be interesting if we see similar stringency being applied to brick and mortar stores as well, especially if the inte­ntion of this is to protect small vendors and suppliers, who would be seeing the same impact irrespective of online vs offline.”

Arvind Singhal, chairman of retail consultancy Technopak, points out that while louder clamour is coming from small traders, whose objection is only against international retailers, today the biggest retailers are all Indian. This includes Reliance with a turnover of Rs. 100,000 crore, Future Group with a turnover of Rs. 40,000 crore across formats, DMart with Rs 20,000 crore and Tata with over Rs. 20,000 crore across all its formats. “The government should see how many small traders are actually shutting down shop. That would be difficult to establish as they are all thri­ving. In the UK, organised retail has decimated small traders but that is not the case in India and will not be for the next 10-15 years,” he says. “It’s a red herring that has been thrown…This is a game being played by big (Indian) businesses to create obstacles for international players. There is nothing called deep discounting. In mobile phones, even a five per cent discount can look big while in clothing, a 60 per cent discount can also be called less.” Also, the total e-commerce market is just about two per cent of the $700 billion overall retail market in India, analysts say, adding that any claims of that affecting overall retail may be far-fetched.

What the government and traders are not looking at is the amount of investment brought in by international online retai­lers. Flipkart has already invested $6-7 billion in India and Amazon has also invested around $5-6 billion in the last 6-7 years. How many sectors in India have attracted that kind of investment? Of the $25 billion FDI coming into India from venture capital and private equity, a large part is coming from online retail, shows market data. “Because of the political reve­rses in the five states, a lot of politically sensitive decisions are coming up which will not be economically logical, sensible or rational. Now playing to the gallery has begun. Also, the old trader lobby is feeling alienated having come under GST. It is a step to appease the offline retail trade lobby and counter consumer interest,” adds Mathias.

One of the grey areas in the new rules could be the 25 per cent limit for online sales. Mathias says this could bring back the licence raj with companies forced to share data to the government on how much of their products have been sold through online channels. Online companies will also have to re-work their business strategies. The net imp­act of all this will fall on consumers for whom prices will increase as retailers, in the absence of getting exclusive deals with online companies, will have to spend on distribution and publicity which will be passed on to consumers.

Some experts like K. Vaithe­eswaran, who set up India’s first e-commerce company India­plaza and considered father of Indian e-commerce, feels that none of the rules are new as they were already in the country’s retail policy, which governs e-commerce as well. The government statement has just reiterated what was already in the policy. “This means that all this while, all the e-commerce companies in India have been breaking the law. The government kept quiet when Amazon was competing with Indian companies and Flipkart was breaking the law for the last 10 years. It also allowed Wal­mart to spend such a huge sum of $16 billion to acquire majority stake in Flipkart before reiterating the rules and limitations on online retailers operations. Walmart and Amazon are easy targets in an election year,” he says.

What is interesting is that large Indian companies who are waiting to launch their online initiatives, Reliance for one, will largely not be affected by these rules. Because the policy is only for e-commerce companies in the marketplace model with FDI in them. Larger Indian companies will not have FDI. But one thing is certain. From February, a new chapter would be written in the history of e-commerce in India. One that will not be consumer-driven. It could very well end the golden age of consumers and give unfair advantage to a section of Indian business.


  • New e-commerce rules, effective from February 1, bar online retailers from offering massive discounts.
  • E-commerce companies will not be able to sell products from companies in which they have an equity interest.
  • Companies will also not be able to enter into exclusive arrangements with online retailers, commerce ministry rules say.
Next Story >>
Google + Linkedin Whatsapp

The Latest Issue

Outlook Videos