India Markets open in 7 hrs 13 mins

New e-commerce policy draft is a jugaad ropewalk, makes govt vulnerable to litigation, other loopholes

Madhavan Narayanan
The first draft of the e-commerce policy last December set the stage for a new regime by cracking down on cosy, exclusive deals between marketplaces and their affiliate sellers.

The best way to understand India's e-commerce policy is to visualise a ropewalk high above a shaky ground. You are damned if you do and you are damned if you don't. The context in which last week's second draft (technically described as the first official draft) was thrown into the public domain by the government has all the ingredients of a complex minefield.

It is an election year in which nationalism has to be a favoured flavour but then, there is Chinese money swimming in India e-commerce startups, while US giants like Amazon and Flipkart are pampering Indian consumers and employees alike.

As if all that was not enough, there are issues related to data protection and privacy in a new world where "data is the new oil" has already become a cliche even before the industry has barely taken off, with about two-thirds of Indians yet to be touched by the whiff of e-commerce. And then, technology is still evolving, with a fine line dividing intrusion and e-spying from the agreeable business of consumer research to serve customers.

And no, there is no proposal yet for an e-commerce regulator. Not yet.

That special Indian word, "jugaad' (makeshift innovation) could well apply to the proposed e-commerce policy, which is very much a work-in-progress. Both domestic traders and consumer-friendly commentators have sharpened their daggers. Lots of lobbying still lies ahead, and it is quite clear that in a tumultuous ocean, it is difficult to imagine what a level playing field could be.

The big bone of contention remains on whether e-marketplaces such as Walmart-controlled Flipkart or its rival Amazon can sell their own inventory through special arrangements. The first draft of the e-commerce policy last December set the stage for a new regime by cracking down on cosy, exclusive deals between marketplaces and their affiliate sellers such as their own joint ventures.

That draft was clear on what the government seemed to want. But reports suggest the latest draft has loopholes that could allow old inventory to be sold in new bottles called exclusive brand arrangements. This is said to be against foreign direct investment (FDI) guidelines for e-marketplaces. (It is no longer kosher to call them e-tailers since the sellers are being sought to be separated from the platform providers).

Does the right arm of the government not know what the left is up to? While the FDI policy for e-commerce does not allow online marketplaces to have exclusive tie-ups with brands, the draft e-commerce policy allows brands to forbid platforms from selling their products.

This is a clever way of forging a denial of market access from the brand side rather than provide free access to all. If the tail wags the dog instead of the dog wagging the tail €" as it appears to €" what we have then is a smart loophole.

Here is the bigger catch. The policy draft explicitly acknowledges that statutes and laws across the country are legacy stuff that need to "evolve" in the light of changing business models. Reading between the lines, we can conclude that if brands can decide in the good old-world way on where their goods can be sold (or not), what we have is some smart accounting jugglery in line with extant laws. Policing such agreements is going to be difficult.

If Amazon cannot sell wares from its joint venture Cloudtail in exclusive arrangements, the exclusivity clause can now be backloaded into Cloudtail. We can safely assume that between smart lawyers and smarter accountants, the tail can wag the dog. That said, it must be remembered that data science is at the heart of the emerging landscape in e-commerce. Seamless links in everything from market research to logistics can make data-sharing the lynchpin of any distribution/marketing/sales strategy. It is difficult to imagine in a roundabout loophole arrangement special offers including warranties,cashbacks and quicker deliveries to aid customers.

As some commentators note, the new framework denies choices to consumers. Can we now imagine some litigation under existing laws by angry consumers? The traders' lobby, represented by the Confederation of All India Traders (CAIT) is also not exactly pleased. It says domestic e-commerce players may now gain at the cost of traders as the policy seems to exclude them from some of the restrictions that apply to foreign companies.

In the light of all this, it is difficult to believe as some reports suggest that the policy draft has managed to please all. But no global giant will want to miss on a digital age party in the world's fastest-growing major economy of 1.2 billion people of which two-thirds are yet to experience the Internet . We can expect the cash-rich giants to play along with the new rules, flex their FDI muscle and wait for clarity to emerge even as they jockey to tell the government what it should be doing.

The government is clear that data ownership is critical and storage is to be based in India. But there are also references to "community data" and sharing of data in the public interest. We may like these in principle but we must await guidelines and action on what all this means in a context in which technological innovations rely on data even as domestic players compete€"or try to€"against global giants.

How will the government ensure fair competition while also allowing space for innovations that improve efficiency in the marketplace? Nothing seems clear as of now.

The policy draft also keeps options open on imposing customs duties on electronic transmissions open and implicitly refers to "additive manufacturing" as if it was a puzzle. (Imagine a movie being "imported" into India via Netflix but shot in Switzerland with special effects done in Hyderabad).

Globalisation was difficult enough, but an interconnected world in which the Internet connects dots across the planet makes it tougher. It is not surprising that India is now trying to avoid e-commerce talks at the World Trade Organisation (WTO). It would be like acting in a movie in which the script is not ready.

In the emerging context, it is difficult to visualise what will happen to homegrown e-marketplaces such as IndiaMart.com or Snapdeal.com because technological progress depends on newer algorithms, chatbots and seamless links between suppliers and marketplaces.

At best, we can see the new draft as a modus vivendi that is an improvement on the earlier draft, but one in which skepticism is elegantly packaged in the idioms of nationalism. In the din of election noise set to emerge in the coming days, expect the government to be suitably vague and play for time.

(The writer is a senior journalist and commentator. He tweets as @madversity)

Also See: E-commerce policy shouldn’t blow hot and cold about exclusive deals; online marketplace can't be blamed for sellers' misdeeds

Walmart tilts at windmills: Blames strict enforcement of marketplace model for its travails

E-commerce FDI policy changes haven't shaken our confidence in India, says Walmart CEO C Douglas McMillon

Read more on Business by Firstpost.