New rules will harm e-com sector

E-commerce is among the fastest growing business sectors in the country. Improvements in technologies that made new business models possible and changes in lifestyles and habits have combined to give a big push to it. It has made big strides, though government policies have not always been very supportive and encouraging. But the latest rules announced by the government last week will do much harm to the sector. The rules, issued in the form of clarifications on foreign direct investment (FDI) norms, are restrictive and discriminatory and will discourage investment in the sector. Policy changes without a genuine reason put off investors who always look for consistency and steadiness from the government. The new guidelines are an example of erratic decision-making.

The new rules do not allow an e-commerce marketplace entity to own equity in any company that sells goods and services through its platform. At present, Amazon India and Flipkart, which are the best-known e-commerce companies in the country but are owned by foreign companies, are allowed to operate only as marketplaces and not as retailers. The customer is only buying products through them and not from them. The new rule will seriously constrain e-commerce business. If the seller sources more than 25% of the goods from the marketplace entity or allied companies, such inventory will be considered as being controlled by the latter. The intention is claimed to be to discourage predatory pricing and deep discount sales which are resorted to by e-commerce companies to promote their business. But this should not be done through policy changes. It is for the Competition Commission of India to look into such issues and take action, if necessary. The new rules also deny consumers their freedom of choice.

E-commerce companies have made large investments in the country. The market is expected to grow from the present $36 billion to $150 billion by 2022. It is a major job creator. It is wrong to change the rules after the companies have made their investments. They may even have to change their business models now. Instead of creating a conducive business environment, the government has tried to discriminate against the sector and obstruct its growth. The new rules are to come into effect from February 1. The government has probably acted under the influence of offline retailers and traditional traders who consider e-commerce to be a threat to them. It may have wanted to please this section ahead of the coming Lok Sabha elections. Decision-making prompted by politics and aimed at serving only narrow sectional interests is bad for the economy.