New e-commerce policy to keep a check on huge discounts offered by online retailers

india

Updated: Jun 26, 2019 00:12 IST

India plans to put in place within a year an e-commerce policy that will strive to balance the interests of small mom-and-pop stores as well as global online retailers that are seeking to carve out a bigger share of internet sales, projected to expand to an annual $60 billion by 2022.

At the same time, commerce minister Piyush Goyal told foreign e-commerce firms such as Amazon.com Inc. and Walmart Stores Inc.’s Flipkart that they must ensure compliance with foreign investment rules put in place in February aimed at deterring them from providing steep online discounts.

“We will put in place an institutional framework to bring out a national policy on e-commerce within the next 12 months,” a government official said a day after Goyal met executives from e-commerce companies, telling them that the e-commerce policy was still a work in progress.

All stakeholders in the retail market will get sufficient time to adapt to any changes that may be put in place, Goyal said.

“More importantly, the changes will be prospective and nothing will be implemented with retrospective effect,” an official statement cited Goyal as saying at the meeting which took place late on Monday.

The minister asked the Department for Promotion of Industry and Internal Trade (DPIIT) to form a committee headed by an additional secretary, with representatives of the department of commerce, and ministries of micro, small and medium enterprises (MSME), consumer affairs and law as members. The committee will hear the grievances of stakeholders and provide clarifications on issues related to foreign direct investment (FDI) in e-commerce.

Goyal and e-commerce company executives discussed ways to bring about a convergence of the interests of internet commerce companies and small retailers, the statement said. The meeting was also attended by Union ministers Hardeep Singh Puri and Som Parkash.

India from February 1 imposed new e-commerce FDI rules to help hundreds of thousands of small traders.The rules banned foreign e-commerce platforms from selling products of the firms in which they have equity stakes and restricted foreign firms from forging exclusive deals with online sellers on their platforms, among others.

The rules led to a brief disruption of Amazon’s online operations in February and shocked Walmart, which had just months before invested $16 billion in acquiring control of India’s Flipkart in its biggest ever deal.

Small retailers allege that big online retailers use complex business structures to circumvent federal rules, and still burn billions of dollars to offer discounts.

The restrictions on e-commerce companies have been one point of friction in US-India trade relations. Goyal’s meeting with these companies came during a week in which US secretary of state Mike Pompeo is paying a visit to New Delhi during which the issue may figure at his talks with Indian officials.

Goyal told foreign e-commerce firms that while the government was prepared to listen to concerns about its new foreign direct investment rules (FDI), it was committed to protecting small traders from predatory behaviour by foreign-funded companies, Reuters reported, citing three persons familiar with the discussions whom it didn’t name .

At stake is an e-tail market that can potentially grow at a compounded rate of 30% each year to exceed $60 billion in market size by 2022, fuelled by rising incomes and a surge in internet users, according to an August 2018 report by software industry lobby group Nasscom and consulting firm PwC India.

E-commerce companies are competing with about 70 million domestic retailers who complain that the deep discounts offered by online retailers put them at a disadvantage.

The association of domestic small retailers, the Confederation of All India Traders (CAIT), is not against the entry of global e-commerce companies, but it is apprehensive of unfair trade practices.

“E-commerce policy should be a document which will ensure level playing fields for one and all. Predatory pricing, deep discounting and loss funding...must be stopped forthwith so that our domestic players can compete with them,” CAIT national secretary general Praveen Khandelwal said.

At the interactive session on Monday, Goyal urged e-commerce companies to “always honor the spirit as well as letter of the law”, the official statement said.

“Commerce and Industry Minister reiterated that the Government will ensure that small retailers and kirana shops thrive in the country,” it said.

Amazon and Flipkart say they’ve complied with the rules and deny any wrongdoing. Both companies, and the US government, protested against the new rules in January, saying they would force the firms to change their business structures.

Flipkart CEO Kalyan Krishnamurthy, in a statement, said the company looked forward to working with the government and Goyal had engaged “in a candid, positive & progressive” discussion.

Amazon said it welcomed the “open & candid discussions & the promise of continuing engagement” with the government, adding it was committed to supporting various Indian government initiatives.

(Reuters and PTI contributed to this report)