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A memo reviewed by Reuters showed that India’s plan to tighten its fast-growing e-commerce market rules met opposition within the government, and the Ministry of Finance described some of the proposals as “excessive” and “without economic justification”.
These memos provide a rare high-risk policy formulation. The market already has global retail giants from Amazon to Wal-Mart, as well as domestic companies such as Reliance Industries and Tata Group. Grant Thornton predicts that by 2025, the value of the industry will reach US$188 billion.
It is unclear how the objections from the Ministry of Finance — a dozen in total — will eventually be reflected in the proposed rule change, which was first proposed in June. But observers of this influential government agency say that its complaints will not be ignored by the top officials of Prime Minister Narendra Modi’s government.
“The treasury’s raising of such concerns may prompt people to reconsider the policy,” said Suhaan Mukerji, managing partner of PLR Chambers in India, which specializes in public policy issues.
In June, the Indian Consumer Affairs Ministry’s proposal shocked the e-commerce community. The proposal tried to limit “flash sales”, control the promotion of private-label brands, and strengthen the scrutiny of the relationship between online market operators and their suppliers. So far, the government has not announced a timetable for implementing the new rules.
Although these rules were announced after brick-and-mortar retailers complained about unfair practices by foreign companies, they also aroused protests from the Tata Group, which has more than $100 billion in revenue and is planning to expand in e-commerce.
But the Ministry of Finance, the Ministry of Consumer Affairs and the federal think tank NITI Aayog (actively involved in policy development) all raised objections in the memo reviewed by Reuters, saying that these proposals go far beyond their established goals to protect consumers. And there is a lack of regulatory clarity.
An August 31 memo from the Department of Economic Affairs of the Ministry of Finance stated that these regulations appeared to be “excessive” and would hit an industry that could promote job creation and increase taxation.
The three-page memo said: “The proposed amendment may have a significant impact/restriction on the sunrise industry and the’convenience of doing business’.” “Caution needs to be taken to ensure that the proposed measures are still’loose regulations’.”
The ministry did not respond to Reuters’ request for comment.
“Unpredictability” in policy making
Proposed rules promote enhanced scrutiny of Indian e-commerce platforms and their suppliers [File: Anushree Fadnavis/Reuters]Rajiv Kumar, vice chairman of NITI Aayog, expressed opposition on July 6, writing to Piyush Goyal, Minister of Commerce and Consumer Affairs, stating that these rules may hit small businesses.
“In addition, they conveyed unpredictable and inconsistent messages in our policy development,” Kumar wrote in the letter, and Reuters reviewed its copy.
Minister Goyal and Kumar of NITI Aayog did not respond to Reuters’ requests for comment.
The Consumer Affairs Department, which drafted the rules, also did not respond. Its secretary Leena Nandan told the Indian media this month that stakeholders have expressed “broad and diverse views” on the proposed new rules, but did not announce a timetable for implementation.
The arguments put forward by the Treasury Department and NITI Aayog are in line with the concerns raised by industry operators and even the US government. They said that in recent years, New Delhi has changed its e-commerce policy too frequently and adopted a strong regulatory approach, which has hurt American companies in particular.
But Minister Goyal and brick-and-mortar retailers disagree, and have repeatedly stated that large American companies have bypassed Indian laws and their practices have hurt small retailers.
The Ministry of Consumer Affairs stated that the new rules aim to “further strengthen the regulatory framework” and were issued after complaints about “extensive fraud and unfair trade practices in the e-commerce ecosystem”.
“Revisiting” the basic business model
But these proposals were resisted by more than one ministry.
In a memorandum dated July 22, the Ministry of Corporate Affairs of India opposed a proposed clause to be included in the new rules, which stipulates that e-commerce companies should not abuse their dominant position in India. The ministry stated that the regulation is “unnecessary and redundant” and it is best for India’s antitrust regulator to deal with this issue.
The memorandum said: “It is not advisable to introduce a small competition law system to consumers” rule. The Corporate Affairs Department did not respond to Reuters’ request for comment.
The Ministry of Finance took a tougher stance on these proposals, and raised 12 objections.
Among them, it stated that a proposal to make online shopping sites accountable for their sellers’ mistakes would be a “huge inhibitor” and may force the company to “re-examine its basic business model”.
It also protested against the ban on flash sales, which offer substantial discounts on sites such as Amazon and are popular during the holiday season.
“This is normal trade practice. The proposed restriction… does not seem to have an economic basis,” the ministry wrote.
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