Why India’s proposed e-commerce rules will hurt big players like Amazon and Flipkart the most

In proposing to tighten the rules around e-commerce, India is both offering respite and ruffling feathers in equal measure.

The draft e-commerce policy released by the Narendra Modi government on February 23 is poised to shake up the country’s nearly $40 billion (around Rs 2.8 lakh crore) online retail industry, opening the doors to data-sharing among players as well as clamping down on the proliferation of fake goods.

While the burden of compliance is relatively less on homegrown firms, compared with their American and Chinese rivals, they’re not being let off completely either. Among other things, if this policy comes into effect, all e-commerce entities will have pivotal decisions to make about how to store and share data.

The draft policy comes just months ahead of elections in the country when the ruling Bharatiya Janata Party is compelled to impress investors, keep consumers content, and help the burgeoning e-commerce industry thrive.

Some of the measures, such as asking the big players to share their data with the smaller ones and fighting counterfeit products require huge investments, but experts think it’s about time the firms cooperate with the government’s asks. “E-commerce marketplaces cannot and should not get away with saying they are just marketplaces. The food-delivery ecosystem has delisted a lot of restaurants that didn’t comply with food standards in India,” said Yugal Joshi, Vice-President at Texas-headquartered consulting firm Everest Group. “This e-commerce expectation is a parallel to the food-delivery industry and in the right direction.”

As the sector prepares to realign with the proposed scheme of things, all stakeholders, from foreign companies to Indian consumers, will win some and lose some.

Hard on foreign firms

Both of India’s largest e-commerce portals, Amazon.in and Flipkart (now owned by US-based Walmart) stand to suffer if the new policy is implemented as they would need to make huge changes to their businesses to comply with the proposed rules for ventures that have foreign ownership.

“We are currently studying the draft policy and we will provide our inputs during the public review period [which ends on March 9],” Amazon India told Quartz. Flipkart did not respond to an email query.

Chinese retailers such as Club Factory, Romwe, and Shein are perhaps in for the rudest wake-up call.

So far, these companies have exploited India’s “gifting” rule – personal gifts priced below Rs5,000 are exempt from duties. In recent months, the customs department has raised several red flags over numerous “gift” deliveries being made to the same address and heavy 15 kilogram parcels being brought in with a declared value of just Rs 3,000.

The proposed policy expects such e-commerce companies to ensure that shipments from abroad are channelised through the customs route and have a registered business entity in the country.

The cost and effort involved in making these changes have spurred fear that some foreign businesses may exit India. “This will eventually slow down the rate of investment in Indian e-commerce,” said Vidhya Shankar, executive director at advisory firm Grant Thornton. “There should be other measures to bring everyone on equal footing without compromising on access to capital.”

Offline retailers, though, can rejoice as e-commerce reels from the suggested norms.

The offline game

In an election year, the Narendra Modi government is looking to appease the cohort of brick-and-mortar businesses hurt by shoppers flocking online.

Traditional retailers have often opposed online shopping portals for violating competition norms and predatory pricing. The draft policy could go a long way in addressing these concerns. As the e-commerce industry copes with the evolving regulations, offline stores could get more businesses and their revenue is slated to increase by a massive Rs 10,000-Rs 12,000 crore in fiscal year 2020, ratings agency CRISIL estimates.

“In a country where a majority of the sales is still driven by brick-and-mortar retail stores, the government’s announcement shows it has studied the e-commerce business model in detail and suggested systematic provisions to be taken to ensure a more level playing field going forward and allowing fair competition between the different retail channels,” said Rakesh Dugar, Chief Managing Director of electronics brand Mitashi Edutainment.

Meanwhile, smaller online players could get an edge, too.

Data distress

“…while people had hoped that the internet era would be a tool to minimise inequality and give greater access to a larger number of sellers, benefit smaller sellers etc, reality has been somewhat different,” the draft policy noted. “While consumers have had access to benefits of increased competition by way of lower prices and greater variety, (for the retailers) selling at loss, ‘cash burning’ and capital burning had anti-competitive consequences.”

Now, the draft policy makes a case for sharing data collected by multinational corporations with small-time entrepreneurs to boost their opportunity in the tough-to-crack sector. This spans everything from data points collected by internet-of-things devices to artificial intelligence.

At its heart, the concept of “data for public good” is positive, said Sanchit Vir Gogia, Chief Analyst and CEO of Greyhound Research. However, he added, that the companies may feel too exposed if they are made to share their source codes, the computer program that is the secret sauce of an internet company.

Consumers pay more but suffer less

For shoppers, the proposed policy offers big respite with strong anti-counterfeiting and anti-piracy measures. Among other things, it suggests that e-tailers must publicly share all relevant details of the sellers listed on their portals. In addition, online retailers must display phone numbers and email addresses for consumer grievances, and offer a primary solution to each problem with a week.

“Seeking authorisation from trademark owners and sharing the relevant details of the seller is a step towards anti-counterfeit measures with the right intent. However, (they) require detailed clarification on certain points which we hope to get the clarity during the consultation with the government,” said Sanjay Sethi, CEO and co-founder of online marketplace Shopclues.

Overall, experts are still treading softly. The draft policy will undergo various consultations and iterations over the coming months. Meanwhile, Joshi says, “…most regulations have been twisted and turned and vendors have found legal or other ways to circumvent and (it) will be interesting to see how this policy is going to be different.”

This article first appeared on Quartz.