E-commerce businesses in India seem to be enjoying a market free-for-all and growing fast in absence of any well-defined regulatory policies. Leading e-commerce companies in India have, in fact, grown in a policy vacuum wherein 100% foreign direct investment was allowed under the ‘marketplace model’.
No wonder then, with just a 1-2% share about 10-12 years back of an overall domestic retail market of US$300bn, that online retailers since have managed to carve out a comfortable 7-8% share and pose a serious threat to offline retailers, which are mostly small family-run businesses, such as street-corner retail outlets.
Facing the heat of the competitive challenge from the mega online retailers like Amazon India, with Walmart in line to be the next giant, the large bricks-and-mortar retailer More has already exited its retail chain-store business. Today, the e-commerce and online market business is touching $18-20bn and growing at 10-12% a year, with expectations that it will reach $200bn by 2025.
Policy thrust
With the introduction of a Goods & Services Tax (GST) – one tax across the whole country – and observing the serious threat to small, local area retail outlets, the Indian government has understood the need to place all business-to-consumer transactions under one ‘omni-channel’ policy. At the end of July 2018, it thus proceeded to issue a ‘draft’ e-commerce policy, which effectively seeks to regulate all aspects of the online retail marketplace and to impose strict restrictions – in particular, with curbs on heavy discounts, so as to protect the much smaller offline stores and retailers.
This has upset the applecart for the online ‘biggies’ such as Amazon India, Flipkart, Paytm, Snapdeal and others, who are finding their smooth run disrupted. With Flipkart having fallen into the lap of Walmart in a $16bn takeover, the game is now a three-way competition between the very established Amazon India, Walmart and Alibaba-supported Paytm. They are planning to all come together and make a joint representation to the government to scrap the new draft policy, but that approach could be in vain.
India’s e-commerce marketplace has seen phenomenal growth, especially in the last five years, moving from $14bn in 2014 to a reported high of $50bn in 2018. This has shadowed the parallel growth of the internet, with the number of broadband/Wi-Fi users passing the 500 million mark in mid-2018 and expected to touch 830 million consumers by 2022. It might also be noted that apparels and home textiles as second account for 38% of all online sales, second only to electronic goods, at 48%. No wonder online retail has given wings to a host of medium and smaller brands.
While, domestically, the government has been seeking to make India’s retail business transition into the online spaces smooth and free of disruption, it has been facing a lot of heat at World Trade Organization (WTO) negotiations on cross-border and trade related aspects of e-commerce. While India tacitly maintained that it was open and amenable to the WTO’s multilateral rules, the e-commerce players in the country were enjoying free rein to keep on evolving, with exponential growth.
Road map
With this new draft e-commerce policy, the government is clearly wanting to establish a regulatory regime that will investigate mega-mergers, like that of Flipkart with Walmart, and will prevail upon the online retailers to phase out the heavy discounts that are pulling the rug from under established offline retailers.
The biggest apprehension among e-businesses is that, with this policy of control, the government might return to the earlier pre-reform era of licencing and overt controls.
In addition to affecting online-retail mega-companies such as Amazon India and the Flipkart-Walmart combine, India’s new e-commerce policy might hit all types of sellers in the online marketplace and might negatively impact the flow of investment into this sunshine sector.
