India’s Draft E-commerce Policy Calls For Seller Parity And Discount Transparency

PUNE, India — All e-commerce portals in India will have to give equal treatment to sellers and vendors and have a transparent blueprint on discounts, as per a new draft policy from the government.

“E-commerce operators must not adopt algorithms which result in prioritizing select vendors/sellers,” the nine-page draft policy, reviewed by Zenger News, states. The draft policy also touches upon enhancing exports, handling data, and anti-piracy and counterfeit measures.

The policy will apply to domestic companies like Reliance Industries’ online grocery site JioMart, and Amazon, and Walmart-owned Flipkart, which have considerable foreign investment.

While Reliance plans to expand into the e-commerce business, only JioMart is currently operational. Flipkart and Amazon did not respond to a request for comment on the draft e-commerce policy.

This is India’s third version of a draft e-commerce policy, after one in 2019 and another in 2020 that proposed an e-commerce regulator to oversee issues like data handling and fair competition.

The current draft, prepared by the central government’s Department for Promotion of Industry and Internal Trade in March, doesn’t propose a regulator. Instead, it wants a Standing Group of Secretaries on e-commerce to give recommendations to handle policy challenges, according to the document.

The draft policy has been long in the making even as India’s e-commerce market is projected to surpass the U.S. to become the second-largest e-commerce market in the world by 2034. The country’s e-commerce market is projected to hit $111 billion by 2024, according to a Feb. 2021 report from financial services firm FIS.

The policy is also a result of complaints raised by trade bodies like the Confederation of All India Traders (CAIT) and brick-and-mortar retailers. Both have complained that Amazon and Flipkart have violated Foreign Direct Investment (FDI) norms to create an uneven playing field through deep discounts, predatory pricing, and using consumer data to launch private labels.

Under the government’s rules of 2018, FDI is not allowed in an inventory-based model of e-commerce, and marketplaces cannot have ownership and control over inventory sold on the platform. E-commerce firms are also not allowed to influence prices or seek out exclusivity from merchants for their sites.

“Rapid evolution of the sector has brought to the forefront some major concerns regarding (i) maintaining a level playing field, (ii) influence of monopolistic tendencies and therein (iii) a need to maintain symmetric information to exert free choice (iv) loss of business for the small retail trader segment,” the latest draft policy states.

Last year, the Competition Commission of India ordered an investigation into Flipkart and Amazon for allegations surrounding deep discounting, private labels, and the exclusive launch of smartphones. The Enforcement Directorate, India’s law enforcement, and economic intelligence agency began probing Amazon in February to find if it gave preferential treatment to particular sellers. Both players have repeatedly denied such allegations.

“E-commerce operators must ensure to bring out clear and transparent policies on discounts, including inter alia the basis of discount rates funded by platforms for different products/suppliers and implications of participation/non-participation in discount schemes, to ensure fair and equal treatment,” the latest draft policy states.

“Equality of sellers isn’t possible, to begin with,” Chanakya Basa, managing partner at Knock Legal, a firm that has represented the trade body All India Online Vendors Association in a few cases against e-commerce platforms, told Zenger News.

“The whole purpose of the review system has to be fair. The root of the problem is the conflict of interest with the platform being a marketplace, having B2B [business-to-business] operations, and preferred sellers,” Basa said.

Some trade bodies, such as the All India Online Vendors Association, representing more than 3,500 sellers on online marketplaces, have reservations about the draft policy.

In a letter to India’s Cabinet Secretary Rajiv Gauba on March 15, the Association said they were excluded from discussions held by the government on the e-commerce sector and drew attention to the U.S. congressional committee of justice’s investigations into e-commerce players like Amazon.

“It is surprising that when the U.S., where the current players are domestic and there is no policy for foreign players, is acknowledging a problem and bringing a solution to that problem, our officers are proposing legalizing a hybrid model of a market in which the market operator also acts as a participant in the market,” the letter reviewed by Zenger News states.

The draft policy allows e-commerce firms to self-regulate their operations and tackle consumer complaints. “There should be a properly regulated body, there should be an ombudsman with penalties and timelines to decide complaints within 20-30 days. We don’t see a deterrent. Self-regulation makes no sense. They identify the problems correctly, but the solutions are eyewash,” Basa said.

The e-commerce draft policy and FDI in the sector were discussed in a separate meeting held between the Department for Promotion of Industry and Internal Trade and trade bodies, including Confederation of All India Traders, on March 17.

“To remove any ambiguity, the definition of the inventory-based model and marketplace model should be clarified,” Praveen Khandelwal, secretary-general, Confederation of All India Traders, told Zenger News.

“The e-commerce marketplace entity should not be allowed to sell inventory on a B2B basis that is purported to be sold by them on its platform. The government should have the right to seek information and audit the accounts of the entities involved in e-commerce.”

Khandelwal said independent regulatory needs to be constituted to regulate the sector and take immediate action on violations such as deep discounting, preferential arrangements with sellers, discriminatory treatments, etc.

The latest draft policy also acknowledges the importance of data and states that the government will lay down principles for personal and non-personal data usage.

“Government may require adequate safeguards to be put in place to prevent misuse of data and access of data by unauthorized persons,” it states. “Such safeguards may include regulating the cross-border flow of data about Indians and transactions taking place in India and requirement of adequacy audits to be carried out by Indian firms. Violation of safeguards shall be viewed seriously and attract heavy penalties.”

Additionally, the draft states that e-commerce players need to ensure “that no discrimination due to digitally induced biases is prevalent.”

“There are two things that we don’t know. One is the algorithm, how will they maintain it, and the second is parity to all sellers, that’s not even possible offline,” Satish Meena, a research analyst at Forrester Research, said.

“If you go to a platform, you will get a different deal and discount, depending on how much they bring to the platform. There is nothing mentioned about private labels and [e-commerce firms’] own brands. Overall, there is nothing that stands out in this. They have talked about algorithms and discounts, but how they will implement it is not known.”

(Edited by Amrita Das and Gaurab Dasgupta. Map by Urvashi Makwana.)