On Thursday, 9th September 2021, CAIT, The Confederation of All India Traders, announced that it would launch a nationwide campaign against the global ecommerce giants opposing the new ecommerce rules (1). According to those sitting at the top of the trader’s body, the Indian authority should put these companies and small merchants under the same bracket.
As per CAIT and other similar bodies, the big ecommerce entities are negatively impacting offline traders.
CAIT, founded in 1990, is an apex trade body of the country that represents over eight crore Indian traders and over 40k trade associations. It also claims to be the largest non-corporate SME organization worldwide (2).
Last month, unions like CAIT, IMAI, the Internet and Mobile Association of India, the Confederation of Indian Industries, and the Ph.D. Chamber of Commerce and Industry had sent their suggestions regarding the new ecommerce policy to the government.
Notably, the central government is also looking to get an independent regulator for the ecommerce sector like SEBI called ONDC, Open Network for Digital Commerce, which will be a platform to connect sellers and logistics players with buyers.
The traders’ confederation alleges that organizations like Amazon and Flipkart manipulate the Indian government with baseless hues to delay turning the draft rules into law (3).
The “Halla Bol against the overseas ecommerce traders” campaign will commence from 15th September, and over 100 trade leaders with more than eight lakh traders from across the nation will participate.
According to available media reports, CAIT will communicate with political parties across the nation during the campaign to understand their perspective on the rules and then decide on their roles during the Lok Sabha election. At the same time, the traders body will also read out to FMCG conglomerates like HUF, Patanjali, Unilever, and Tata to raise awareness about the plight of small traders and ask their stand.
“Prominent trade leaders from across India have gathered in Delhi to finalize the roadmap for the “Halla Bol” campaign slated to start nationwide from 15th September against the “law violating” ecommerce players who are also pushing for delayed implementation of draft ecommerce rules,” stated the CAIT.
As per CAIT, overseas ecommerce companies are already adversely affecting the Indian economy and retail market (4). “Hence, consolidation of the nationalist forces has become essential more than ever,” it said, while also calling overseas ecommerce players “the new edition of East India Company.”
Ironically, we at TimesNext also showed our concerns about the significant presence of overseas VCs in the Indian startup ecosystem in our previous story, Emerging Indian Startup Ecosystem, Red Flag, Government Role. Yet, when it comes to the new ecommerce rules, there are multiple conflicts.
Are CAIT’s points of view valid? Yes, in a way. Does the new ecommerce policy address their concerns? Yes, definitely. But Would it be beneficial to consumers? To some extent. And is it good for the overall growth of the Indian ecommerce industry? Not really. Keep reading on to know the full story.
On 21st June 2021, the Indian Ministry of Consumer Affairs unveiled a new draft of ecommerce rules amid the multiple complaints and concerns the Indian government received about alleged malpractices exercised by major ecommerce players in the country like Amazon and Flipkart.
The policy talks about a whole range of challenges in ecommerce, including a level playing field for small players, data localization, consumer protection, grievance, prohibition of deep discounts, etc. The new ecommerce rules aimed at market regulation and consumer protection includes:
- Ban on flash sales on everything except smartphones
- Informing local alternatives to consumers buying overseas products
- Grievance officers appointment
- Appointment of nodal contact individual for 24×7 coordination with law enforcement authorities
- Removal of associated and related parties and enterprises listed as sellers on the platform
And it has started a debate among stakeholders. Ecommerce giants like Amazon, Flipkart, Reliance, and Tata have drawn concerns and alleged that the rules would heavily impact their trade. Experts also suggest that these companies would have to review their entire business structures to comply with new plans (5). There are expectations that the new rules will broadly impact the entire Indian ecommerce market, which is forecasted to be worth over 200 billion USD by 2026 (6).
“The new ecommerce rules will have a broader impact on all forms of ecommerce and will increase the cost of businesses. Companies, even beyond big players, are reviewing the policy and will share their concerns with the government,” told Arujun Sinha, a partner at AP & Partners, a law firm based in India (7), to Reuters.
In short, the rules potentially present a huge setback for Flipkart and Amazon since they contain clauses that say ecommerce companies must not have any of their related enterprises listed as sellers on their platforms and that no affiliate entity should sell goods to an online operating on its shopping website. Notably, Amazon carries an indirect stake in two of its top sellers.
For more information about the new ecommerce policy, read our previous stories, India Proposes New Rules To Tighten the Noose on E-Commerce Companies and A TRAI-like regulator for ecommerce: What would it mean for the industry?
In addition, the Indian retailers have also alleged that Flipkart and Amazon use their wholesale units to indirectly list products on their online portals via select sellers, bypassing foreign investment restrictions that prohibit direct sales.
So far, both of them have denied any wrongdoings.
Notably, in February this year, Reuters published an investigative report citing Amazon documents that highlighted that the ecommerce giant gave preferential treatment to some of its sellers and used them to skirt federal law. The report sparked calls for a ban against the company all across the country.
Of course, Amazon denied giving any favorable treatment to any of its sellers and, in a statement, affirmed that online marketplaces enable transparency and promote competition.
To read more details on the alleged circumvention of Indian laws by overseas ecommerce players like Flipkart and Amazon, read our previous story, Amazon and Flipkart Alleged for Circumventing Indian Regulatory.
Last month, CAIT stated that it would oppose any move intended to derail the implementation of the proposed ecommerce laws.
They had sent a letter to Leela Nanadan, the Secretary of Consumer, cautioning that they would strongly oppose any dilution in the new rules (8). They are anxiously waiting for its implementation to liberate the Indian ecommerce business from the “sinister clutches” of overseas ecommerce players.
In the communication B C Bhartia, the National President of CAIT and Secretary General Praveen Khandelwal (9) clarified that they had sent the letter to remind authorities that in the past, whenever the government attempted to regulate ecommerce businesses, many of these big players made illogical cries and hues while hiding their misdeeds under baseless, irrelevant and concocted arguments.
“Hence, we are ensuring that no such attempts are made this time, and the implementation of the ecommerce rules is done immediately with no further delay.”
According to the duo, “it is extremely important for India to immediately implement the rules since many frivolous ecommerce companies are still engaging in fraudulent transactions in the country and cheating the customers. Moreover, many of these global players are blatantly violating our laws and policies by undertaking loss funding, predatory pricing, deep discounting, and multiple other practices which are strictly prohibited under the new policy amendments and cause harm to the consumers.”
The duo further asserted, “these companies have a new fear of law since they have got a free hand to conduct anti-competitive and anti-consumer activities by exploiting the loopholes in the Indian laws, thereby dominating the ecommerce space. So far, no government departments have taken any action against them for their past misdeeds.”
“The Indian business community is quite annoyed with the present state of affairs in formation and implementation of the needed regulation to protect the interest of consumers,” avowed the pair (10, 11).
It is also worth highlighting that Piyush Goyal, the Minister of Commerce and Industry, stated in a webinar on 26th June 2021 that all ecommerce companies must follow the law of the nation and don’t use money or muscle power to hurt the interest of India as many of these big players have come to the nation and have blatantly disregarded the Indian laws in multiple ways (12). Then, why is the authority not taking any actions in that respect?
He further added that many of the practices these companies follow are against consumer interest. Recently, the government of India has come out with draft ecommerce rules applicable to all entities, be it ecommerce websites or marketplaces, including international and Indian.
In January 2020, the minister had also stated that Amazon is not doing any favor to India by investing and asked how the giant is incurring such big losses but for its predatory pricing. He added these companies have invested in using the money to do predatory pricing, subsidize some products, and capture a huge market share to the detriment of small brick and mortar stores. Such practices are not permitted in India.
Moreover, he said, several nations like the US are working on anti-trust laws for ecommerce, and the UK’s competition and market authority have also opened investigations on these big tech giants. It seems that the world is waking up to the realities of these big tech and commerce giants.
“When these large companies talk about generating millions of jobs or giving support to over 100k Indian small manufacturers, I believe they very conveniently forget to mention that there will also be job losses because of their influence,” said Piyush Goyal (13).
What Are Industry Experts Saying?
In July, during a webinar organized by a public-policy think-tank, “The Dialogue” on “the draft ecommerce laws and its influence on the industry,” industry experts stated that the ecommerce industry and the retail industry would have to coexist to be in the best interest for the end consumers and themselves (14).
Deepak Shetty, Zed-Axis Technologies’ Director, noted that the Indian MSMEs are reaching out to the international market today, which would have been impossible without ecommerce platforms. “From the perspective of a small seller, I would have to spend a lot on setting up offices abroad and visiting trade shows. However, today, I can do it at least possible cost.”
Meanwhile, an IAS officer and former GOI secretary, Aruna Sharma, highlighted that consumer behavior is now shifting towards online marketplaces similar to how they shifted to malls a decade ago. As new technologies are taking over, retail and ecommerce must coexist.
Sharma further noted that the ecommerce industry should not be treated differently from the retail industry. Even though ecommerce platforms can’t favor any sellers under the FDI rules, retailers can freely do so. She explained any retailer could set products based on the commission they earn on their sale. Yet, ecommerce companies can’t apply similar strategies to promote products that offer them higher commissions.
Shetty agreed and noted that ecommerce policies are not dynamic but based on practices that even offline retailers follow, “if I remove the ecommerce from the guidelines and put retail in it, everything would still mean the same.”
Meanwhile, the ecommerce rules have their own flaws, which seem to be driven by the desire to handicap the ecommerce industry, especially the foreign ones, and shield the traditional mom-and-pop stores. Instead of welcoming foreign capital, the new ecommerce rules are creating more hoops for it to jump through (15).
Below is an overview of what we found as the ugly parts of the new ecommerce rules:
- There are multiple issues with imported vs. domestic alternatives, which will weigh these ecommerce companies down. Any rational customer will seek to maximize the value for their investment each time they will purchase something. At that time, people will pick Indian alternatives only when they find a better value for money. It has made the requirement burdensome and can undo all the hard work various departments are doing to improve India’s ranking in the World Bank’s ease of doing business index (16).
- Untenable prohibition on dominance abuse doesn’t come under COPRA. It is the sole responsibility of CCI under the Competition Act, 2002. The COPRA’s objective is to protect consumers from business practices with an element of fraud, deceit, or exploitation. Why are our authorities putting such anti-competitive laws under consumer affairs? Why not seek CCI?
- Consumers will be hurt by restrictions placed on ecommerce companies. Proposals made on restricting flash sales, support physical retailers over ecommerce will hurt all involved stakeholders.
- Related and associated entities make everyone an ecommerce entity. This rule addresses physical retailers’ objections to the preferred seller. There will be several unintended consequences if the proposal is accepted. The corporate relations between companies making the entire stack of ecommerce services, including logistics service providers, sellers, payment service providers, technical support, and consumer support, will have to be de-linked. In short, ecommerce companies will have to unravel their business model entirely.
The Way Forward
E-commerce deals with multiple challenges such as domestic trade, international trade, competition policy, information technology, consumer protections. As a rising industry with huge interest from domestic and overseas players, it becomes indispensable to regulating it while regarding the interest of both consumers and entrepreneurs.
Regulators should encourage a conducive environment and a level playing arena. It is time for policymakers to be mindful about shaping a vibrant domestic industry with a comprehensive policy that reflects India’s position in both international and domestic or multilateral panels.
While the Ministry of Consumer Affairs’ consultative approach is laudable, it must associate in wider consultation before rushing in to implement the proposed changes. Their impact on entrepreneurs, consumers, and all other stakeholders would be significant.
At the same, new technologies are coming with each passing day; ecommerce is a decades-old industry; next would be AI, metaverse, blockchain, cryptocurrency. How can Indian authorities keep pace with the new age if they still can’t get the difference between consumer protection and anti-competitive practices? And let’s not forget the fact that we are on the edge of having a 5G transformation, and we are yet to have a solid data protection law.
This section may make the article more political, but we believe this needs to be said. Before doing anything else, our regulatory system should first induce flexibility in turning any policies into law. The fuzzy boundaries between the society and state are defined via the policy-making act, which needs enlightened collaboration of all parties involved, something we rarely see.