E-commerce policy change should not end as another flip-flop

The worry is that too many policy flip-flops may make the sector nervous, as it is already facing investor markdowns and a slowdown in fundraising

India’s retail policy could see another round of tweaks, this time in the online space. Media reports suggest that an expert committee headed by Niti Aayog CEO Amitabh Kant has to submit a report to the Prime Minister’s Office (PMO) in two months with its suggestions to further liberalise the sector.
 
However, when contacted Wednesday morning, Kant said he was not aware of the proposed committee to ease rules for the e-commerce sector.

In any case, the move could be good news for the e-commerce sector, which is backed by marquee investors and is tipped to cross $100 billion in sales by 2020, up from less than $20 billion in 2015. The only worry is that too many policy flip-flops may make the sector nervous, as it is already facing investor markdowns and a slowdown in fundraising.

 

 
Just four months ago, Department of Industrial Policy & Promotion (DIPP) had issued guidelines permitting foreign direct investments (FDI) in online marketplace companies. The biggest names in the space — Amazon.in, Flipkart, Snapdeal, Shopclues, Paytm — all operate the marketplace format in the country. While FDI is still not permitted in e-commerce companies (read inventory-led businesses such as Amazon in the US and Flipkart in the early days), marketplace was a segment with no rulebook till end of March 2016. Therefore, the government guidelines four months ago allowing FDI in online marketplace was seen as an endorsement of the business model that the big players had made their own.

 
But what can the government change to liberalise e-commerce further? Experts and companies point at three key things.
 
One, the government should do away with the distinction between e-commerce and online marketplace in terms of permitting FDI. If that happens, an Amazon or a Flipkart will be free to have their own inventories and sell the same to consumers with full control over the products. Two, the condition that sales cannot exceed 25% for any vendor on the online marketplace platform should go. And three, the rider that platform owners cannot influence pricing of products should be removed.

 
But if Kant were to head such a committee as has been reported, he may perhaps do the job with a better understanding of the sector than many others. Kant was DIPP secretary before he joined Niti Aayog. As the top bureaucrat in DIPP, he had interacted at length with prominent international and domestic startups and e-commerce players. In fact, Kant had recommended that sourcing conditions be relaxed for specialised tech companies like Apple. Retail policy mandates companies, with more than 51% FDI setting up fully-owned stores in India, to source 30% of the sales from India.
 
More recently, the Niti Aayog CEO had said that the government should avoid policy flip flops and that policy should not move backwards if it wanted to encourage FDI. He was responding to the issue of changes in the Motor Vehicles Act that could mean cab aggregator companies like Uber and Ola will be forced to use fare metres, thereby changing their basic business model.

Kant may use the same logic to ensure e-commerce continues on growth path.