Foreign investors looking to pump money into online retailers in India may have to brace for new rules, as the Indian government as well as the country’s competition watchdog move to regulate the e-commerce sector.
While the Narendra Modi government is bringing in an e-commerce policy, the Competition Commission of India (CCI) has come up with a set of recommendations that may force retailers like the Walmart-owned Flipkart and Amazon to cut back on deep discounting and evolve a transparent ratings mechanism on their platforms.
The CCI advisory comes after the Confederation of All India Traders (CAIT) approached the anti-monopoly body in 2019 to discuss “unethical commercial practices” of e-commerce companies. The trader body had alleged predatory pricing by Amazon and Flipkart, which it claimed violated India’s foreign direct investment policy.
In its advisory, the anti-monopoly body has urged self-regulation on several aspects especially deep discounting, data usage and ratings.
What does the competition watchdog say about deep discounting and ratings?
In order to tackle deep discounts, CCI has not only emphasised self-regulation but also offered up its anti-trust services for investigation on a case-by-case basis. This highlights its worries over the business practices of e-commerce platforms.
Interestingly, the government had in December 2018 ruled that e-commerce companies could not sell products of their private labels on their platforms. E-commerce companies typically promote their private labels on their platforms to control margins and under-cut competitors. But the government backtracked within days.
Now, the lens is back on predatory pricing with the soft advisory by CCI asking Indian e-commerce companies to bring out transparent policies on discounts, and put in place a clear mechanism that determines the basis of such practices that have been undercutting others.
Moreover, the CCI has asked e-commerce platforms to be more open about how they rank products and services in response to customer searches and to ensure user reviews are genuine. Significantly, the body also wants online retailers to give a notice period before terms of contract are changed.
What do the guidelines say about the use of data?
The CCI’s emphasis on having transparent policies on data collected on transactions seems to echo the government’s draft e-commerce policy, which was announced last year and mandates how online businesses can collect and store sensitive data locally or outside the country.
The CCI has urged e-commerce companies to frame a policy on user data as well as user review data. The draft e-commerce policy also centred around data localisation and added to industry worry.
Worsening the sentiment, the e-commerce rulebook was also tweaked for companies with foreign investment, forcing players such as Amazon, Walmart and others to rework their business strategies in the country.
Are these guidelines enforceable by law?
These recommendations are not binding. But local lobby groups such as the CAIT and the National Restaurants Association of India (NRAI), which had accused e-commerce companies as well as food delivery apps of distorting competition by deep discounting as well as charging excessive commissions, want these legally imposed.
This, even as the final word is yet to be out on the national e-commerce policy and separate guidelines have been drafted by different ministries on issues such as consumer protection and data privacy confounding the e-commerce segment. That brings us to the draft e-commerce policy, which is already out.
What is the draft e-commerce policy all about and when is it likely to become the law?
The draft e-commerce policy, released in February last year, proposed the establishment of a legal and technological framework for placing curbs on the flow of data flow to and from India, while mandating how online businesses can collect and store sensitive data locally or outside the country. The e-commerce policy also deals with marketplaces, regulations, the Indian digital economy as well as promoting exports via online commerce.
If enforced, it would require global companies to house their local data within India in the next three years, thus requiring them to set up new data centres in the country, for which they will need to invest more money and hire more people.
The government has said that it is likely to enforce the final e-commerce policy within the current financial year, which ends in March.
But isn’t Parliament already discussing a new data protection law?
Yes, the CCI report comes even as the government has introduced a data protection Bill in Parliament, which could also impact e-commerce business in India. The new data protection law seeks to protect the privacy of personal data and establish a new regulator called the Data Protection Authority of India.
So much regulatory mesh for e-commerce! There surely must have been some policy flip-flops too?
Yeah, right. As talked about way above, the government in December 2018 ruled that e-commerce companies operating in India could not sell products of their private labels on their platforms before backtracking within days.
The regulation, had it been implemented, effectively meant that e-commerce giants like Amazon wouldn’t have been able to sell some of their most popular products like the Echo or Kindle, which compete with similar offerings by Google and others.
Even Amazon’s competitor Flipkart would have had to take products from brands like SmartBuy, Perfect Homes and MarQ off its marketplace, had the order not been reversed.
But is the central government the only culprit when it comes to such flip-flops, or do states also share a part of the blame?
Such confusion and back and forth on policy is not limited just to the central government. Ride-hailing companies, for instance, have been at the receiving end of arbitrary changes in regulations by various state governments like Delhi, Karnataka, Maharashtra and Goa from time to time.
While several state governments like Delhi have been talking of formulating new rules that will impose price caps on cab aggregators like Uber and Ola, others like Karnataka have been threatening to cancel their licences if they do not stop car-pooling or sharing services. Some other states like Goa have adopted a protectionist stance and simply do not allow such companies to operate within their borders.