Indian Prime Minister Modi once said in his speech: "Everyone does not have to be afraid of the global challenges of the business world. This challenge should be turned into opportunities, rather than believing that online trade will destroy our business development. Practitioners should ask the government to help everyone improve their ability to deal with this new global challenge, rather than telling the government to close online trade. This new trend is unstoppable. We must strive to adapt to modern science and technology. What everyone needs to do is not escape, but to face it bravely."
4 After 2014, Modi fulfilled his commitment in the 2014 election declaration - in addition to allowing foreign direct investment to enter the multi-brand retail field, it also widely liberalizes retail trade. But recently, the Modi government has changed its tolerance. In the recent state parliamentary elections, polls have been reversed, and the resurgence of the opposition seems to have forced Modi to please his original voter base, physical trade practitioners.
2018, the day after Christmas, just as the festival sales in India reached its peak, the Ministry of Industrial Policy and Promotion, the institution responsible for formulating foreign direct investment policies, issued new regulations. To everyone's surprise, these new regulations could have an impact on India's booming e-commerce market. In the new regulations, the Modi government allows 100% FDI in the pure e-commerce market model, but prohibits FDI in the type of e-commerce based on physical inventory. In the new regulations, e-commerce companies can serve as platforms to sell products to suppliers or sell their own products.
This regulation will come into effect on February 1, 2019. 's new regulations mainly involve five major changes. First: the market entity platform cannot purchase more than 25% of the goods from a single supplier; second, the market cannot directly or indirectly provide product discounts; third, another entity that is owned by a market entity cannot sell the products of the equity entity on the platform running in the market; fourth, e-commerce market entity shall not force any seller to exclusively sell any products on its platform; fifth, market practitioners must submit compliance reports to the Reserve Bank of India before September 30 each year.
Although the first and second standards were enforced earlier, the Ministry of Industrial Policy and Promotion of India always turned a blind eye to violations of these two major standards. The public generally believes that the new rules are a political move ahead of the general elections held from April to May, aiming to ease negative sentiment in India's physical trade industry. Previously, the physical trade industry has been hit hard by the banknote scrapping movement and commodity and service tax policies.
Previously, physical trade practitioners were very dissatisfied with the Modi government's e-commerce policy because the huge discounts provided by online trading platforms seriously affected their business.
Taking advantage of the relevant policy gap, India's e-commerce has flourished and received strong investment from venture capital companies, with its industry valuation reaching US$18 billion. To legalize the existing business of e-commerce companies operating in India, the government passed a new regulation in March 2016 that allows 100% of FDI to invest in online retail of goods and services through an automatic pathway. But on December 26, 2018, the Ministry of Industrial Policy and Promotion of India added more stringent content to the 2016 regulations.
Latest regulatory provisions may undermine Walmart’s cooperation plan with Flipkart. Wal-Mart just acquired Flipkart for $16 billion and operates a paid self-shipped retail store. The brick-and-mortar stores in this e-commerce market are able to accept 100% FDI. But now, the new regulations explicitly ban this investment. At the same time, the new regulations also prohibit Amazon from selling products through its heavily invested subsidiary Cloudtail and Appario. Among them, Cloudtail is a joint venture between Amazon and the well-known Indian entrepreneur NR. Narayana Murthy.
's ban on e-commerce companies from reaching exclusive agreements with sellers has also caused disadvantages to top online retailers such as Flipkart and Amazon. For example, Flipkart has exclusive partnerships with top smartphone brands such as Xiaomi and Oppo, and smartphones account for more than 50% of India’s e-commerce sales.
An official from the Ministry of Industrial Policy and Promotion of India, who declined to be named, insisted that the newly issued regulations are only used as explanations and clarifications on the regulations, and no new policies have been issued. "We have not even proposed a new policy to the cabinet yet. The Ministry of Commerce is developing an e-commerce policy. Previously, a similar draft policy was rejected by e-commerce players, but the new draft policy is expected to be released soon."
When asked to explain the provisions, an official from the Ministry of Industry Policy and Promotion said: "The market should remain pure. We hope this will ensure a pure market and reduce the possibility of commodity prices being affected and volatility."
An e-commerce company employee who asked not to be named said the new regulations were very strict and even more retroactive than Vodafone's tax issues. "Because regulatory regulations may be completely different overnight, this will not only affect the e-commerce industry, but also affect the inflow of foreign direct investment in other industries. The e-commerce industry ecosystem is racing against time and is rectified according to the new regulations. Under the current political situation, we do not expect regulatory agencies to immediately change these regulations. We are likely to have to wait until the end of the Indian election."
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