<p>In the backdrop of complaints by the Confederation of All India Traders (CAIT) regarding violation of the Foreign Direct Investment (FDI) policy by global e-commerce players, Amazon and Walmart-owned-Flipkart etc, the Ministry of Consumer Affairs has proposed a set of new rules called Consumer Protection (e-commerce) Rules, 2020 which the government proposes to implement after factoring in the views of all stakeholders.</p>.<p>The rules require all e-commerce entities that are not established in India, but intending to operate here: (i) register with the Department for Promotion of Industry and Internal Trade (DPIIT) in the Commerce Ministry; (ii) bar affiliated entities from selling on e-commerce platform and restricting ‘flash sales’; (iii) disallow seller from using the name or brand associated with that of marketplace e-commerce entity for promotion or offer for sale of goods.</p>.<p>These caveats are in addition to (a) bar on firms controlled by the e-commerce major from selling on its platform and (b) prohibition on the latter having ‘exclusive arrangement’ with preferred sellers which are already in place.</p>.<p>Juxtapose the above conditions with the situation on ground zero. A few seller firms owned and controlled by e-commerce major account for an overwhelming share of the total sales made on latter’s platform. For instance, just about three dozen firms out of a total of 4,00,000 sellers on Amazon platform account for two-thirds of the sales made on it. Needless to say, Amazon has exclusive arrangement with these firms (preferred sellers).</p>.<p>They also participate in ‘flash sales’ - an acronym for online sales for a very short period of time that offers substantial discounts or promotions. The use of the name or brand associated with that of the marketplace is so deeply entrenched that Amazon, Flipkart etc have become household names.</p>.<p>In this backdrop, some of riders already there (read: (a) and (b)) and yet compliance missing, to expect that this will happen after the new rules are put in place pushes one into a sense of disbelief. Is the government serious now?</p>.<p>To get to the bottom of this, let us take a look at the extant FDI policy under which Amazon and Flipkart have come to India. As per the guidelines issued in early 2016 (Press Note 3), 100% FDI is allowed under the so-called marketplace model. The marketplace is a platform where vendors sell their products to consumers even as its owner merely acts as a facilitator. The marketplace owner provides services such as booking orders, raising invoices, arranging delivery, accepting payments, handling rejections, warehousing and so on. She can’t hold inventory and undertake direct selling.</p>.<p><strong>Policy intent</strong></p>.<p>But this policy intent is not reflected in the fine print. The PN 3 prescribed two conditions (i) “the entity cannot permit more than 25% of total sales on the marketplace from one vendor or its group companies; (ii) it can’t directly or indirectly influence the sale price. Sans any mention as to “who the vendor is”, a firm linked to marketplace either its subsidiary or a Joint Venture (JV) with an Indian company is eligible. As for (ii), it is not easy to establish that marketplace owner has manipulated the sale price. Clearly, these norms permitted e-commerce majors as direct sellers albeit by their subsidiary/JV.</p>.<p>A clarification issued on December 26, 2018, said: “The owner of the marketplace or its subsidiary or its JV with an Indian company can’t have ownership of the seller.” Further, “a seller on the platform can’t source more than 25% of its inventory from a firm connected with the latter.” The owner can get around both; first, by having less than 50% shareholding in the seller firm and argue, s/he has no control (albeit majority) over the latter and second, by its wholesale arm restricting supplies to the seller within 25% threshold.</p>.<p>As long as, the core of PN 3 which gives legitimacy to the presence of e-commerce majors as direct sellers stays, their predominance over Indian retail will continue. If, the Narendra Modi government is really serious about establishing a ‘disconnect’ between the seller and the marketplace, it will have to drastically alter PN 3 to say that “the owner of the marketplace or its subsidiary or its JV with the Indian company can’t have even 1% shareholding of the seller on the platform.” Further, “a seller/firm on the platform can’t source any supplies (not even one unit) from a firm connected with the latter.”</p>.<p>But, it won’t make this change. It should not as it will tantamount to asking the foreign majors to pack up and send a wrong signal. Instead, the government should legitimise direct selling by foreign companies in Indian retail in all forms without any riders. This will enable all retailers, small or big; online or offline have access to FDI and compete with each other on equal terms. It will be a win-win for all stakeholders including millions of small traders and consumers. </p>.<p><em>(The writer is a New Delhi-based policy analyst)</em></p>
<p>In the backdrop of complaints by the Confederation of All India Traders (CAIT) regarding violation of the Foreign Direct Investment (FDI) policy by global e-commerce players, Amazon and Walmart-owned-Flipkart etc, the Ministry of Consumer Affairs has proposed a set of new rules called Consumer Protection (e-commerce) Rules, 2020 which the government proposes to implement after factoring in the views of all stakeholders.</p>.<p>The rules require all e-commerce entities that are not established in India, but intending to operate here: (i) register with the Department for Promotion of Industry and Internal Trade (DPIIT) in the Commerce Ministry; (ii) bar affiliated entities from selling on e-commerce platform and restricting ‘flash sales’; (iii) disallow seller from using the name or brand associated with that of marketplace e-commerce entity for promotion or offer for sale of goods.</p>.<p>These caveats are in addition to (a) bar on firms controlled by the e-commerce major from selling on its platform and (b) prohibition on the latter having ‘exclusive arrangement’ with preferred sellers which are already in place.</p>.<p>Juxtapose the above conditions with the situation on ground zero. A few seller firms owned and controlled by e-commerce major account for an overwhelming share of the total sales made on latter’s platform. For instance, just about three dozen firms out of a total of 4,00,000 sellers on Amazon platform account for two-thirds of the sales made on it. Needless to say, Amazon has exclusive arrangement with these firms (preferred sellers).</p>.<p>They also participate in ‘flash sales’ - an acronym for online sales for a very short period of time that offers substantial discounts or promotions. The use of the name or brand associated with that of the marketplace is so deeply entrenched that Amazon, Flipkart etc have become household names.</p>.<p>In this backdrop, some of riders already there (read: (a) and (b)) and yet compliance missing, to expect that this will happen after the new rules are put in place pushes one into a sense of disbelief. Is the government serious now?</p>.<p>To get to the bottom of this, let us take a look at the extant FDI policy under which Amazon and Flipkart have come to India. As per the guidelines issued in early 2016 (Press Note 3), 100% FDI is allowed under the so-called marketplace model. The marketplace is a platform where vendors sell their products to consumers even as its owner merely acts as a facilitator. The marketplace owner provides services such as booking orders, raising invoices, arranging delivery, accepting payments, handling rejections, warehousing and so on. She can’t hold inventory and undertake direct selling.</p>.<p><strong>Policy intent</strong></p>.<p>But this policy intent is not reflected in the fine print. The PN 3 prescribed two conditions (i) “the entity cannot permit more than 25% of total sales on the marketplace from one vendor or its group companies; (ii) it can’t directly or indirectly influence the sale price. Sans any mention as to “who the vendor is”, a firm linked to marketplace either its subsidiary or a Joint Venture (JV) with an Indian company is eligible. As for (ii), it is not easy to establish that marketplace owner has manipulated the sale price. Clearly, these norms permitted e-commerce majors as direct sellers albeit by their subsidiary/JV.</p>.<p>A clarification issued on December 26, 2018, said: “The owner of the marketplace or its subsidiary or its JV with an Indian company can’t have ownership of the seller.” Further, “a seller on the platform can’t source more than 25% of its inventory from a firm connected with the latter.” The owner can get around both; first, by having less than 50% shareholding in the seller firm and argue, s/he has no control (albeit majority) over the latter and second, by its wholesale arm restricting supplies to the seller within 25% threshold.</p>.<p>As long as, the core of PN 3 which gives legitimacy to the presence of e-commerce majors as direct sellers stays, their predominance over Indian retail will continue. If, the Narendra Modi government is really serious about establishing a ‘disconnect’ between the seller and the marketplace, it will have to drastically alter PN 3 to say that “the owner of the marketplace or its subsidiary or its JV with the Indian company can’t have even 1% shareholding of the seller on the platform.” Further, “a seller/firm on the platform can’t source any supplies (not even one unit) from a firm connected with the latter.”</p>.<p>But, it won’t make this change. It should not as it will tantamount to asking the foreign majors to pack up and send a wrong signal. Instead, the government should legitimise direct selling by foreign companies in Indian retail in all forms without any riders. This will enable all retailers, small or big; online or offline have access to FDI and compete with each other on equal terms. It will be a win-win for all stakeholders including millions of small traders and consumers. </p>.<p><em>(The writer is a New Delhi-based policy analyst)</em></p>