What do India’s minister of commerce and industry Piyush Goyal, US secretary of state Mike Pompeo, and the heads of the largest retailers in the world have in common? They all can’t agree on how much of a discount you get on your next online shopping spree.
India’s ecommerce industry has been in the middle of a seismic shift since February. What started as a small but persistent protest by seller groups and retail brands against deep discounting in June last year, has now developed into a no-holds-barred slugging match with the industry caught between the punches of foreign retail giants, India’s cabinet ministers, US trade lobbyists and state representatives. The latest entrant into this free-for-all? World leaders of the G20 group of countries.
While the government refuses to stand down from its data protectionism and FDI policies, it has squared up against most of the G20 nations over universal ecommerce rules, Newly appointed commerce and industry minister Goyal’s first order of business has been to meet ecommerce industry stakeholders on June 24 to understand their needs and demands. Meanwhile US secretary of state Mike Pompeo will be in India to iron out trade and ecommerce issues with government leaders from Tuesday (June 25).
For an industry that accounted for just 1.5% of the overall retail market in India in 2016-17, is the ruckus over ecommerce rules mere optics, political grandstanding or is there more than meets the eye?
(Image courtesy: IBEF Ecommerce Report Dec, 2018)
The Lure Of Untapped Markets
Currently, the Indian ecommerce market is way too young to merit comparisons with the Chinese or US markets. Its annual turnover — $33 Bn — is still significantly lower than what Chinese eco online sellers on Singles Day ($45 Bn) alone. However, the real driver seems to be future possibilities and the untapped audience. Despite a flagging GDP growth, India’s consumption story has continued unabated. In 2018-19, India’s consumption growth outstripped China’s for the first time according to market watchers. In fact, India is expected to surpass the US to become the second largest ecommerce market in the world by 2034.
So clearly corporations and the government have a lot to gain (or lose) in terms of revenue and taxes depending on how they play their cards. But that is just one side of the whole issue.
(Image courtesy: CBRE)
The deeper cause for contention is the current government’s stand on data and the promotion of ecommerce as a way to spur the country’s flagging industrial growth. The BJP government since coming to power has weaved in its “Make In India” initiative into its ecommerce policies, and many believe that the government is doing all it can to boost local manufacturing, even at the cost of global trade agreements.
This was clearly visible in the first draft of the ecommerce policy which was released in early 2018. Apart from a rider on foreign investment in inventory-based ecommerce marketplaces, it mandated companies to sell only Indian-made products and also proposed that the government-backed Rupay payments architecture be made mandatory for all ecommerce payment gateways.
The perplexing bill was panned by both industry players and other government departments and was soon abandoned.
Towards the end of December 2018, the government came out with clarifications on the existing FDI policy on ecommerce. Two key points that were enlisted in the clarifications were:
- To keep a tab on inventory ownership, it has been mandated that an ecommerce platform cannot purchase more than 25% of the total value of goods (of the vendor) from a single vendor / its group of companies. In other words, a vendor can only sell 25% of its total goods by value to a single e-commerce player.
- Any entity that has an equity participation by an ecommerce player cannot sell its products on the platform that is run by the ecommerce player.
This was supposed to put a stop to the backdoor method being employed by Amazon and Flipkart to circumvent the FDI rules by acting as sellers on their platforms. At the time of releasing the amendments in December, 2018, the government had said it would give the companies until February 2019 to comply with the rules.
But when February arrived, the draft ecommerce policy was floated, not only did it carry the FDI policy issued before, but also laid special emphasis was laid on data sharing. Data was termed as a ‘National Asset’ and a legal and technology framework was proposed for imposing restrictions on cross-border data flow.
‘Regressive And Restrictive’ Says US
This is the point where the issue truly blew up. While the Indian government was acting tough on data storage by foreign financial institutions like Visa and Mastercard, the proposed data laws asked ecommerce companies to store their data on servers located in India. With Amazon and Walmart (which had bought Flipkart in August) sending out distress signals, the United States government, soon got into stand-off and told officials in New Delhi that the revised regulations will slow down investment plans of US-based retailers Amazon and Walmart. An not-so-veiled threat to the Modi-government, which has long prided itself for its ability to pull in foreign investment.
The situation has escalated to the point where it is said that ecommerce will be high on the list of priorities for U.S. Secretary of State Mike Pompeo during his current visit. Pompeo is expected to prepare some common ground for the upcoming meeting between U.S. President Donald Trump and Modi later in the week at a G20 meeting in Japan.
And this is where the India’s resolve will be tested. The country has so far fought a lonely war against agreeing to any form of uniform global framework on ecommerce at the World Trade Organisation meet earlier this year. However whether it can hold its own at the G20 meet to be held in a few days in Japan, remains to be seen.