By Suhas Baliga
The effects of the Indian government’s recent shakeup of eCommerce regulations are continuing to ripple throughout India’s eCommerce sector. With Amazon’s largest seller, Cloudtail, scrambling to restructure and Walmart considering an exit from Flipkart, it’s too early to see the full implications of the new eCommerce standards. However, while foreign-owned platforms contemplate how to re-structure their business, Indian-owned platforms with deep pockets are already hard at work establishing themselves in the recently vacated online retail space.
Reliance is poised to take advantage:
The key player in this is Reliance Industries, chaired by Mukesh Ambani. Ambani recently announced that the company would be investing 100 billion rupees ($1.4 billion) in the eastern state of West Bengal. A portion of this amount is intended to fund the company’s new eCommerce venture. According to financial experts, two key factors make Reliance a strong potential presence in the eCommerce space:
The company already has platforms in place for entertainment, financial services, payment gateways, and in-store retail. The addition of eCommerce is a logical next step that the company is well-prepared to take.
As an Indian-owned retailer, Reliance does not have to deal with the same eCommerce restrictions as foreign-owned platforms such as Amazon or Flipkart.
Reliance is captalizing on the gap left behind by the exit of foreign-owned eCommerce retailers. According to Bloomberg, in spite of Cloudtail’s restructuring efforts, which allowed the retailer to return to Amazon.in, “thousands of products remain missing from the virtual shelves of Amazon and Flipkart, which together account for 70% of India’s online retail market.”
Mixing ownership requirements with regulating monopolistic / unfair trade practices:
A survey cited by Money Control showed that Indian residents were experiencing the following issues as a result of the new restrictions on foreign-owned eCommerce platforms coming into force:
● An increase in the overall price of products
● An increase in the cost of shipping
● An increase in the length of shipping time
● A decrease in the discount amounts offered
● A decrease in product availability
● Multiple products being completely unavailable
Some of the changes that find their place in the regulations to regulate foreign owned e-commerce platforms that we described in detail in our last post are well-intentioned. For instance, the attempt to create a level playing field among sellers on e-commerce platforms. While these ideas and regulatory strategies require further development to prevent monopolistic practices, they appear to be a good start.
However, they are selective and misdirected. By applying these requirements only to foreign owned ecommerce platforms, it is possible to argue that the beneficiaries will NOT be mom and pop stores or SMEs, but large Indian companies with deep pockets. In short, one type of exploitation being replaced by another, in an atmosphere of constrained competition. This makes it detrimental not only to customers but also to healthy competition in the ecommerce space.
This is further exacerbated by the fact that the application of these regulations make it difficult for startups and new ecommerce platforms which will find it difficult to comply with regulations designed for companies like Amazon. While not applicable to Indian owned startups, it must be noted that Indian startups especially early technology startups rely heavily on international capital and valuations, which will now dry up. Also at this stage, it is very likely that the competition that small retailers are facing from Amazon/Flipkart will be replaced by competition from Indian companies who operate like Amazon/Flipkart. Which could be worse!
Who else could benefit?
Single-brand retailers would also do well to explore new avenues of establishing themselves in the current market. 2018 brought new freedom to single-brand retail chains. As yu will find in more detail here, in years prior, “foreign players could own up to 49 percent in a local single-brand retail chain but had to approach the department of industrial policy and promotion (DIPP) for a go-ahead to acquire the remaining 51 percent. Now they can fully own their Indian operations without applying for permission.”
While single-brand retailers have had this freedom for over a year, the current gap in the marketplace could prompt many of them to seek new methods of developing themselves.
Where does this leave us?
At this point in time, it is difficult to say whether or not foreign-owned eCommerce giants have been permanently pushed off the playing field of the online retail sector in India. Regardless, Indian-owned industry leaders, such as Reliance, clearly see the current legal landscape as an opportunity to enter and overtake the market. Small startups, single-brand retailers, and other parties looking to participate in the Indian eCommerce market would do well to follow Reliance’s example and begin to look for ways to smoothly enter the market or increase their current standing in it. This however looks challenging given that the government is selectively regulating the ecommerce space.
If the intention behind regulating ecommerce platforms is to prevent dominance, unfair trade practices and to create a level playing field for all retailers, the government would do well to open up a conversation on how to regulate all ecommerce platforms and not just the ones with foreign investment. Otherwise, not only is the current legal position detrimental in the short run, but will not serve its purposes in the long run.