An employee carries a bag of e-commerce deliverable during the overnight sort at the Blue Dart Express. (Photographer: Dhiraj Singh/Bloomberg)

India Reviews E-Commerce Policy Draft After Criticism

(Bloomberg) -- India is reworking proposed e-commerce rules after a draft, which had signaled a shift toward boosting domestic startups, sparked criticism, according to people familiar with the matter, who asked not to be identified as the discussions are private.

Commerce Minister Suresh Prabhu tweeted Aug. 11 that his ministry had received a “few concerns,” and will reach out to stakeholders to address them. The initial document received pushback, including a proposal on foreign investment in some areas and one requiring Indian consumer data to be held locally, one of the people familiar said. The discussions may lead to an overhaul and a fresh draft will be posted in a few weeks on the ministry’s website, the person said.

The 19-page draft, a copy of which has been seen by Bloomberg, underscored India’s intent to examine every aspect of e-commerce regulation from data localization to antitrust rules. The changes would tighten restrictions on global giants like Amazon.com Inc. and Google and may bolster local startups such as digital payments provider Paytm. The nation’s interest in stricter norms for an Internet market that’s been largely open for decades reflects the pitched battles being fought in segments like online retail, cloud services and digital payments.

Broadly the draft had signaled “some kind of protectionist thinking,” said Nandan Nilekani, chairman of Asia’s second-largest technology services outsourcer, Infosys Ltd. “It may stem from a feeling that Indian startups should be given a boost, something on the lines of the China model.”

Unlike its neighbor, India has allowed Silicon Valley giants like Facebook and Google to dominate entire segments including search, social and messaging.

The draft called for creating a “fair environment for domestic digital firms to find their rightful place,” and “leveling the playing field for foreign players and domestic startups.” It proposed a single legislation to encompass all aspects of e-commerce and a single regulator to govern the industry.

It also outlined measures that would make local data storage mandatory, curb discounting in online retail and allow founders to keep control of their startups even with a minority stake. Continuing the theme of boosting domestic players, it proposed allowing foreign investments up to 49 percent in companies that use the inventory model to sell locally-produced goods on online platforms.

Untapped Opportunity

Over half a billion Indians will come online in the a next wave of internet users and shoppers, said a new report released jointly by Bain & Co, Google and Omidyar Network this month. Data consumption on the mobile is already at par with developed markets at 8 GB per month per user. Yet, only over a third of India’s current 390 million users transact online, the report said, suggesting a massive untapped opportunity.

The draft had suggested strengthening regulatory vigilance for payments systems, a move that would bring more stringent oversight for the likes of Google’s Tez and WhatsApp’s pilot payments service. It also discusses adopting anti-competitive norms by curbing discounting by online retailers, which would impact not just Amazon but also Flipkart Online Services Pvt. Ltd., which was recently acquired by Walmart Inc. in a $16 billion deal.

Some retailers are backing the move as it may help large players be more disciplined on meeting foreign investment regulations.

“The lack of adherence has disadvantaged millions of genuine small online sellers, who are unable to compete as large marketplaces themselves behave like sellers by controlling inventory and influencing price,” said Kunal Bahl, co-founder and chief executive of New Delhi-based Snapdeal.

Global Mood

One of the biggest debates will probably be over data localization, which complicates the operations of companies involved in everything from maps to search to social media, potentially impacting the likes of Apple Inc., Uber Technologies Inc. and China’s Alibaba Group Holding Ltd.

While the draft now looks set for changes, it still points in the direction of government thinking. “What’s happening in India is only a reflection of the global mood where after decades of globalization and trade, we are seeing tariff and non-tariff barriers emerging across the world,” said Infosys’s Nilekani.

©2018 Bloomberg L.P.